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Roy Church: Can our economy grow when robots neither consume nor pay taxes?

In his recent column in The Union, Darrell Berkheimer outlined how the financialization of the banking and investment industry has contributed to, and is prolonging our anemic economic growth. Not addressed and what neither presidential candidate has addressed, is how technology is enabling capitalism to require fewer workers.

There have been periods in the past where technology eliminated large numbers of jobs, only to create new and different jobs to fill the void. But things are different now.

Artificial intelligence is now making it possible to replace all but a winnowed number of private enterprise jobs with the internet, robots and algorithms. Only a few people are acknowledging this phenomenon. This is no surprise. The ability of capitalism to create human jobs has always been heralded, as a sacrosanct element of the American Way. In order to understand this change, consider the hypothetical example below.



The way capitalism used to work

Politicians will eventually have to deal with difficult questions. With each job that is automated a taxpayer is lost. Can capitalism survive with diminishing consumers?

Mr. Capitalist acquired capital, money either saved or borrowed from banks or investors. He would take this capital and start a business. He needed help so he hired people. As his business grew, he hired more people. These people would spend their earnings. Maybe they bought Mr. Capitalist’s products or another capitalist’s products, but either way, money flowed into the economy.




As more money flowed into the economy, Mr. Capitalist’s business grew if he worked hard and provided a useful product or service. As his business grew, he needed more people. If other businesses were also growing, he needed to keep his workers and to attract new ones. This meant paying increased wages.

As employee’s income grew, they spent more. This grew the economy, lifting all boats.

The way capitalism works now

Mr. Capitalist now has the benefit of technological advances. The internet, artificial intelligence and robotics are rapidly eliminating the need for workers. He is experiencing slower growth because his customers don’t seem to have as much money to spend. In response, he cuts expenses by reducing his workforce, using part-time workers or moving production to lower cost areas. When the cost of robots presents a better choice than off shoring, he will buy robots rather than hire people. Regulations frustrate him but he will seek the lowest cost wherever he can find it.

Since Mr. Capitalist makes sophisticated products, he still needs educated workers, but fewer and fewer. With the help of computers, his accountant can do the work of several. His lawyer needs fewer assistants. He has a mail robot. He soon will not need a chauffeur; a driverless car will transport him.

Mr. Capitalist realizes that he does not need more human workers. He needs consumers.

The bottom line

Politicians on the left celebrate lower current unemployment. Politicians on the right deride this and point to a very slow growth rate. Both offer predictable explanations for the low growth rate, while ignoring the impact of technology. If jobs return from off shore, aren’t they likely to be automated? Why isn’t increasing demand for workers creating wage growth?

Except for jobs requiring high levels of education, most jobs being created are in low-wage service jobs. A toll taker, bank teller or anyone displaced by technology may have no choice but to take a lower-paying job if retraining is not an option. This places a huge drag on the growth rate. As workers earn less, they spend less or borrow more. Consumption falls and companies reduce capital expenditures in response.

Politicians will eventually have to deal with difficult questions. With each job that is automated a taxpayer is lost. Can capitalism survive with diminishing consumers? Can governments function with diminishing tax revenue? If private enterprise has no need to be a conduit of money circulating to workers, what will fill this void?

Solutions won’t come without compromise and cooperation between government and business. Businesses need consumers, consumers and governments need revenue and capital markets need growth.

There is no shortage of work to be done in the U.S. The question is who will pay for it.

People and businesses abhor taxes unless they see a direct benefit to themselves. A private enterprise business near a military base is almost solely dependent on government spending which flows to base employees. This is an example of a symbiotic relationship between government and business.

Barring some miraculous need for increased workers by private enterprise, will government and business have any choice other than working together?

Roy Church holds an MBA and lives in Penn Valley. He is a retired manager in hi-tech R&D as well as being a former small business owner.


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