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Is universal basic income necessary because of automated labor?

By Sebastian Anastasi
web posted November 20, 2017

The dishwasher. Possibly one of the world’s greatest inventions for large families! Huge piles of dirty dishes disappear in the blink of an eye, whereas it would be a long and odious chore to have to do all the dishes in a family of eight on your own. Yet, the amazingly adept automation of the dishwasher does not eliminate all of the work. Alas! Rather, the invention of the dishwasher has created new chores: loading, starting, and unloading the dishwasher. In other words, automation increases efficiency but creates new opportunities for work at the same time. These same principles that hold true of automation on the small scale can give us insight as to how to respond to an increasingly mechanized, digitized, and automated world and work-place. Specifically, the concepts exemplified in this example answer the question of whether automated labor demands the creation of a universal basic income for the average person. The reality is that universal basic income is an unnecessary policy based on fears which have been blown out of proportion. In fact, this socialist policy would provide perverse incentives that would deter people from adjusting to changes in the market brought about by technological advancement. In the pursuit of thorough economic analysis three points can be examined: the supposed problem of mechanization and the socialist demands for universal income, an economic rebuttal to the supposed problem of mechanization, and an analysis of the deep flaws with universal basic income.

One of the movies that very appropriately sums up the fears of those who demand universal basic income is WALL-E. For those not familiar with this Pixar Animation film, in WALL-E the world has developed so much digitized and mechanized labor that people literally spend their whole lives sitting on hovering chairs in a resort-like spaceship. Artificial intelligence has taken over virtually every meaningful role; even the captain of the ship does basically nothing, as his autopilot has taken on most of his responsibilities. It is this sort of world that proponents of a universal income seem to suggest we are headed for, one in which our role is nothing more than to be entitled consumers, producing little of value and demanding an income be provided for us. This statement seems to have some validity. Technology has radically changed life for us and continues to do so. Self-driving cars threaten to oust hard-working taxi-drivers as a means of transportation, at fast-food restaurants many orders are simply taken by machines, and even the jobs of medical experts are being threatened by new technology that can deduce the best way to treat a patient. The loss of jobs caused by automation makes sense in the economic sphere if we think of human labor and automated labor as substitutes. In a relationship between substitutes as the price of one good falls, the demand for the other good decreases.

Figure one

In Figure 1 we can model what will happen as the price of using automated labor falls: that is primarily a decrease in the demand for human labor, due to its relationship as a substitute. As it becomes cheaper to produce with automated labor, more companies will use it in the place of human labor. It is on this premise that many argue a universal income is necessary. But is this an accurate depiction of reality? Or could it simply be a fantasy confined to the plots of movies like WALL-E?

While utopian socialists often like to fantasize about technological development and its implications, the true implications of technological advancement are much more positive than they tend to imagine. There are a couple key points to note in this regard. First is that when a society advances technologically, eliminating certain jobs, new jobs are created. One of our family’s favorite stories is Hidden Figures. The movie is about African American women working at NASA as computers. For background, before the technology we call computers existed, people had jobs doing all the math (i.e. computing) for companies and were called “computers.” One of the most important parts of the movie involves NASA getting their first computer system. As the system is being put together, one of the women realizes that their jobs will be displaced by this new technology. But rather than ask for compensation or complain, she decides that she will learn everything about computers that she can and will teach her fellow co-workers so they can get jobs maintaining and operating the machine when their positions are displaced. This is the reality of technical advancement and automation: it creates new opportunities if you are willing to seize them. Rob Tracinski of RealClearFuture and The Federalist, sums it up stating:

Well, one of the lessons is that no matter how sophisticated the system, no matter how advanced our machines seem to be, relative to what we're used to, somebody still needs to do the work of keeping them running. We need someone to monitor them, maintain them, and regulate them, someone who understands how they work and how they connect to other systems.

As is evidenced by this quote, WALL-E isn’t what we are headed for, because any technological advancement requires human effort to maintain it and continually improve it. Today that is exemplified in a huge job market in the tech industry. According to Tracinski, millions of people work in precisely the capacity he describes, maintaining, regulating, and operating our computer systems. Moreover, the workers in the tech industry are getting great wages, about $100,000 per year (Tracinski). Additionally, consider the new jobs available in entrepreneurship, cyber-security, and cyber-law as technology improves. Does this agree with our graph? Actually, yes! Let’s assume the graph in Figure 1 referred to the demand for human labor in the market of labor for computing (i.e. adding numbers for a company or organization). While it is true that the demand curve for human labor to help with computing will decrease, the technology now providing the labor must be maintained, regulated, improved, and itself produced. This creates a new, separate market for human labor with its own demand curve. The second key point to note with regards to the positive effects of automation, is that goods will be drastically cheaper! If automation truly does eliminate the need for as many employees as those who want universal basic income suggest, the cost of production will fall so drastically that goods will become dirt cheap. Fellow at the Adam Smith Institute in London, Tim Worstall, explained, “… the effect of mechanising the production of absolutely everything is going to be to make absolutely everything as cheap as spit. Real wages will thus undoubtedly rise as a result: and it really is only real wages that we should be concerned about” (Worstall). To put it another way, while the job you get may be more specific, lower paying, or in a new sector, your real wages will be higher. What do I mean by real wages? Real wages in a very simplistic sense can be understood as your total purchasing power. As was explained in the video “Supply and Demand Curves - Basic Economics Concept” presented by Mr. Clifford, your purchasing power will increase as prices fall. So maybe we aren’t exactly headed the way of WALL-E just yet, but certainly some people will lose their jobs because of automation. Should they get universal basic income?  

The reality that we have seen is that the market itself creates new jobs as technology changes by creating new markets for human labor. The reality is that automated labor makes goods cheaper than they have ever been before, increasing our purchasing power and thus our quality of life. But what happens if we instead respond to the changes in the market by guaranteeing people universal income? By providing universal income to people who do nothing, the government will actually create an incentive to do nothing. It will tilt opportunity costs in favor of doing leisure and not work. To illustrate just how important incentives are, we can look at the example of my grandmother. My grandma understands the economic concept of incentives. She knows that people will change their behavior and adapt if there are promises of rewards. When she babysits my younger siblings, she is bound to have a plethora of snacks and cash on hand to get them to stop crying, eat their greens, clean their rooms, or whatever the moment might demand. To apply this same example, if my grandma were to tell my siblings that they would get their snacks or “allowance money” for acting the exact way they were now, then they would not adjust their behavior, but would rather have a reason to refuse to change their behavior. Mr. Tracinski, cited previously, correctly deduces that the best response to technological change will be for the government to allow market incentives to drive people to enter new and profitable sectors of the economy like the tech industry. To quote Mr. Tracinski exactly:

The best response is to encourage people to respond to technological progress and to seek out the new jobs that will become available as the old ones fade away. Yes, automation is going to disrupt the economy, just as technological progress has always disrupted the economy, continually, since the beginning of the Industrial Revolution. But helping people to adjust by putting them on a permanent welfare subsidy is the worst and cruelest response, precisely because it pays them not to adapt to the new economy.

If we want to provide labor where it is most needed and encourage people not to get stuck demanding entitlements for life, we must allow incentives to drive people to those sectors of the market where there is a demand for their labor. If we do not give them income, the opportunity costs will weigh in favor of finding a job in new sectors where there is a demand for their work. If we let incentives encourage people to adapt to the economy, just as my grandma uses incentives in a way to facilitate positive changes in behavior, we will not have to worry about losing jobs, but can instead look forward to increases in real wages for all of us!

In conclusion, technology provides us with a great paradox. While it increases efficiency, it does not completely eliminate opportunities to work. Rather it creates new jobs through facilitating a far greater division of labor and specialization. While large disruption of the market will occur in the short-term, we are not headed for a world like WALL-E. Rather we are faced with a situation more like the situation in the movie Hidden Figures; while great change is coming up, if we seize the opportunity, we can take advantage of new jobs and increased purchasing power. We should not prevent this positive change from coming about by distorting market incentives and, in fact, tilting those incentives in the favor of not working. Returning to my opening example of our family’s dishwasher, the automation of dishwashing duties has not completely eliminated all our chores but it has increased our efficiency. These opportunities are available on a large macroeconomic scale if we simply seize them. ESR

This is Sebastian Anastasi’s first contribution to Enter Stage Right. He is a published researcher with DFW Speech and Debate. © 2017 Sebastian Anastasi

 

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