Re: The joy of Economics

On Tue, 5 Nov 2024, rbowman wrote:

On Mon, 4 Nov 2024 21:53:00 -0000 (UTC), Lawrence D'Oliveiro wrote:
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On Mon, 4 Nov 2024 13:29:17 +0000, The Natural Philosopher wrote:
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Why would big money need workers when it has robots?

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It needs consumers with sufficient income to buy its products.

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Jack London was a product of his times and sometimes made simplistic
arguments but one I remember is the question of how it works if the
workers can't afford to buy back what they produce?
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Like I said, simplistic, and I'm sure there is a library's worth of books
on the labor theory of value and so forth but the question always haunted
me.
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I wouldn't worry. Here's a longer post on the topic.
While automation poses challenges regarding wage levels and worker purchasing power, Austrian economics suggests that market mechanisms will eventually adjust through entrepreneurial innovation and resource reallocation. The economy’s resilience relies on its ability to adapt to changes brought about by technology while ensuring that workers can participate meaningfully in the economy.
Thus, the answer lies not solely in fearing automation but rather embracing it as part of an evolving economic landscape where proactive measures can help balance productivity gains with sustainable wage levels.
The solution lies in fostering entrepreneurial innovation and adapting education systems to ensure workers maintain purchasing power despite
automation’s impact on wages.
An example:
Consider a world in which a full half of working men are employed mining for coal, which provides most of the world’s electricity. One day, a nuclear power plant goes online, more than doubling the nation’s energy production and selling its power at an order of magnitude below the previous price. The plant only employs a couple dozen engineers. Over the course of a year, a supermajority of coal plants and mines shut down, and a mere fraction of the coal miners shift over to mining and transporting uranium, which has over 150,000 times the energy density. Just as it is obvious to any observer that society has plainly been made better off through the proliferation of affordable, emissions-free electricity, it should also be intuitively clear to all but the most stubborn of antifuturists that the loss in jobs amounts to little more than a speed bump in the economic lives of the newly unemployed coal miners. This is because electricity is a factor input in nearly all lines of production in any modern economy. Cheap electricity creates jobs, because it makes previously outlandishly expensive projects suddenly potentially profitable.
Importantly, the productive opportunities created will always exceed the amount destroyed, because technology is only ever adopted, in market economies, when it is profitable to do so. More wealth is created than is consumed, and so there are more resources to be combined in potentially productive ways by any entrepreneur who detects the opportunity. Unprofitable technologies, for readers wondering, are usually adopted when countries are attempting to pursue a policy of import substitution. For example, Nazi Germany’s prewar attempts to wean firms off their dependence on imported oil by forcing companies to use an ersatz oil made of liquified coal. Another example would be American subsidization of “renewable” energy sources like wind and solar.
But what about automating the production of the lowest-order goods, a.k.a. consumer goods? Surely jobs automated out of the yo-yo factory are essentially gone forever, since no businesses, aside toy stores, will see their expenses fall thanks to a reduction in the price of children’s toys. This is correct. However, it is important to remember that consumer goods are a factor input in the production of labor, and labor is a factor input in the production of everything that hasn’t been automated. People are, in terms of opportunity cost, now cheaper than new machines, which produces yet more firms willing to hire them. The automation in the production of pure consumer goods, to the extent that there are such things, represents real wage increases, or an increase in the standard of living, for everybody else in the society.
In other words, automating the production of yo-yos makes all human workers marginally more price competitive relative to machines in other industries, by decreasing the cost of living. Here it is also important to remember that consumption does not create jobs; savings do. If consumers spend less on toys and stow the rest at the bank, this is not in any way a waste. That money enters the loanable funds market. Toys are cheaper, parents have more disposable income, which is more money to put in the bank. More savings lower the natural interest rate, making that money available to spend on other goods and services, in either case raising the demand for labor. Where the decreasing cost of living improves the relative standing of humans in comparison to machines, increased investment raises the total demand for labor, whether in human or robot form.
Source: https://mises.org/mises-wire/robots-wont-destroy-us-how-automation-creates-jobs
And finally... even though past performance does not guarantee future returns, we've had _massive_ automation historically, and we've increased our population massively as well, and we still are better off today, globally, than we've ever been. This indicates, that the trend will continue for a long time.