Wednesday, February 6, 2013

Technology vs. Employment

Many people think that automation and new technology will replace lots of workers and increase unemployment.

This is the way a bad economist* thinks about it.

While it is true that some jobs will be lost in the short term as technology improves, it is also true that our wealth will increase.

At one time it took all day, every day, for a person to get food, shelter, and clothing.  Because, in part, of technology all of those things are cheaper.  Cheaper goods and services mean that we can acquire more goods, services, and free time.

The role of humans will never be completely replaced by technology.  Someone still has to build it.  Someone still needs to fix it.  And someone still needs to direct it.

Consider this: In which scenario are people wealthier?

A) A dozen people work at a factory making widgets**.  They make 100 per day.
B) A dozen people manage their own factories, which each make 100 per day.

Clearly in case "B" fewer people have boring, repetitive manual labor jobs.  They all have more interesting and higher paying jobs.  And more widgets, and wealth, are produced.  Who get's paid more: someone who creates 10 widgets per day, or someone who creates 100 widgets per day?

Admittedly this example is very much simplified.  But is is unnerving how few people understand economic ideas, that are even more basic than this.

An example:
In 1881, Dakota Territory had never sold a bushel of wheat to anybody outside of
Dakota. Six years later, it sold 62 million bushels. 
What happened?

I recently read Garet Garrett’s The American Story, which came out in 1955. It is a well-written history of America, unusual because of its emphasis on the powerful economics that drove the country to great heights. Garrett tells the Dakota story in this book, which is a useful reminder about how economies grow and prosper.

What happened in Dakota was that farmers invested in machinery. The riding plow, the reaper and the combine harvester made the farms far more productive than they had been. Suddenly, the labors of one man could produce 5,000 bushels of wheat. A single miller could turn that wheat into 1,000 pounds of flour.

But that was not all. New railroads connected the farmer to the mill and the mill with markets and ports in the East. The energies released were enormous. Garrett writes:
“So the labor of four men — one a farmer in Dakota, one a miller in Minneapolis and two on the railroad — plus a very low rate for ocean carriage — could put into Europe enough flour to feed 1,000 people for a year.”
Four people to provide food for 1,000.  Instead having 996 more people need to spend their time making food, they became free to invent new things, and explore new places.  The world became wealthier because people did not need to spend their lives finding enough to eat.

This is how progress is made.  While they don't admit it, or even know it, what people who oppose automation are opposing is actually progress and wealth.

I have not yet read The American Story, but the three books that I have read by Garet Garrett have all been superb.   Read it for free here.
In places like Mongolia or Myanmar, for example, you find today’s Dakota Territory. Not that Mongolians are as free as those American pioneers, but there is so much frozen potential to unlock by applying technology and know-how and capital to their situations. It’s these mind-bending changes — and the lure of profiting by them — that attract me to explore the world beyond the developed West.

-The American Story...Abroad

*A bad economist is someone who only looks at the seen and not the unseen.
** "Widgets" is the economic term to mean, "goods or services."  It just means "a thing."  It is easier to say "widgets" rather than pick an example, like cars, or shoes, or customer service calls.

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