Monday, December 10, 2012

Krugman: The New Luddite

I know, I post too often on Krugman's musings in the New York Times. However, I could not resist the later missive from Krugman regarding automation (robots, and I presume he also means software that automates tasks currently performed by humans, but that is a guess):
If this is the wave of the future, it makes nonsense of just about all the conventional wisdom on reducing inequality. Better education won’t do much to reduce inequality if the big rewards simply go to those with the most assets. Creating an “opportunity society”, or whatever it is the likes of Paul Ryan etc. are selling this week, won’t do much if the most important asset you can have in life is, well, lots of assets inherited from your parents. And so on.

I think our eyes have been averted from the capital/labor dimension of inequality, for several reasons. It didn’t seem crucial back in the 1990s, and not enough people (me included!) have looked up to notice that things have changed. It has echoes of old-fashioned Marxism — which shouldn’t be a reason to ignore facts, but too often is. And it has really uncomfortable implications.

But I think we’d better start paying attention to those implications.
Welcome to the new Luddite approach to the improvement of the human condition. The robots will move wealth to the holders of capital from the workers.....and that is bad for us all. And what, might I ask, does he think happened in the industrial revolution? The hand loom weavers were put out of business due to automation. It was one of the heralds of the greatest changes in the history of mankind, and one from which we all now benefit. The industrial revolution was, in some respects, a painful process, but also served to create the potential for the huge benefits that we now enjoy.

In the modern and developed world, the adjustment to this new source of productivity should be less painful, albeit that the transition will not be easy either. However, unlike the industrial revolution, we are not transitioning from a system that was for many people barely above subsistence. Today, we are not barely above subsistence, but that is not to say that the transition will not be hard for some people. If you have spent years learning to do something like a search for legal precedents, the automation of this process will be a hard blow. However, for all of this pain, automation will have positive benefits alongside of these costs. In the case of legal services, access to the support of the law will be more affordable to those who would otherwise struggle to have access to the services, and that may matter a lot to many people. It is no different to the access to relatively cheap cloth that will have made new clothes more affordable to poorer people; at a cost to the hand loom weavers in the short term.
Just as the spinning jenny benefited the capitalists, the providers of automated legal searches will benefit the owners of law firms who adopt the technologies that are now available.

The examples of automation creating wider economic benefits are so many that it is difficult to know where to start. The end of canals in the face of the competition from more efficient trains (which created a boom and bust that left the UK with a railway system paid in full by the loss of the capital owners), the redundancy of the typing pool with the advent of the PC and so forth. In all these cases, automation has the result of getting more from less labour, and that means more 'stuff' per unit of employed labour, even in the case of the indirect effect of removing the typing pool. As fast as labour is being removed, more output is being created per worker, meaning that more 'stuff' is available per worker. With greater output of stuff per unit of labour, labour is freed to do new things. It is, just as happened in the industrial revolution, a situation in which new jobs arise to replace the old jobs, as people find new stuff to produce, as the emerging surplus of labour is absorbed in producing 'stuff' that was previously only afforded by the few. It is the process which generates greater wealth.

One wonders, when Krugman says that there are 'uncomfortable implications' and suggest that those implications 'need attention', what exactly he might mean? Does he mean that we should halt the current process of automation, perhaps smash the robots? I mean really, what does he mean? He leaves his article vague and open, hinting at ominous consequences. However, those consequences have precedents that (for once in economics) are clear. We see the result of the precedents all around us in the developed world; more than enough food, better health, heated and comfortable homes, our many forms of entertainments, our freedom to access information, and so the list goes on.

Think of the example of the impact of the PC on the typing pool. It saw what was a hard earned skill eventually made redundant (however, I taught myself touch typing, so not entirely redundant, but I do not need the level of skill of the typing pool where there is no 'backspace'). Should we have looked at the 'uncomfortable implications' of this shift? For a typist, it was undoubtedly not a good situation. However, would we turn back the clock, and stop this change if we could? We could certainly reverse the change, by making word processing software illegal, and blocking any web services that might offer a similar facility. In a few year time, with the magic of backspace button gone, we would have huge numbers employed in typing pools. Those same individuals will be drawn from the labour force, and will be an opportunity cost; the opportunity to do something else which is genuinely in more demand.

What we are discussing here is nothing more than a variant of the broken window fallacy; that breaking a window is a good thing as it creates employment. In breaking the window as a deliberate act, it creates employment, but employment with no real point. Better that the people employed in repairing the window are engaged in productive labour with a genuine demand, rather than an artificial 'created' demand. In the same way, better people are employed in new avenues than artificially supporting, or creating, employment through the rejection of more efficient means of engaging the same labour. It is a make-work scheme where there is no need for the work. Better that the labour is employed in creating real value.

If ever there were evidence that Krugman has nothing to offer, this rather odd article is the evidence. It is no wonder that he leaves the 'implications' and solutions unsaid. If he were to say clearly what his article implies, he would be ripped to pieces. It is, as the title of this post implies, nothing more than a disingenous revival of Luddism. Krugman hides in ambiguity, but the 'implications' are clear; break the machine to save the interest of labour. He cannot see that, painful as the adjustment might be, labour is also the recipient of the benefits of automation.

Further, Krugman writes from a US perspective, and the potential benefits to the US worker are obvious; the cost of labour differential is diminished through automation. Maybe the labour will no longer be the crude repetitive labour of yesteryear, but all those 'on-shored' factories that benefit from automation will nevertheless create new employment opportunities. There may, in other words, be losers from automation, but there will be many more winners; and the win will keep on delivering, just as the industrial revolution today reverberates to the benefit of all in our day-to-day lives. 


  1. I think he is talking about the implications for redistribution of wealth and income, rather than suggesting breaking the machine?

    1. One of the problems is that we are left guessing. However, I have interpreted the comment on the overall picture that is painted. With regards to redistribution, think of the railway example, and how that ended up as a net benefit for all. Even if capital wins for a short while, does that diminish the benefits of the automation for those who will get the benefits of the automation; all of us?

      I am not sure from your comment that you are defending Krugman's argument, merely offering a different interpretation. I think that is a good thing, but even with that interpretation, it is hard to see how automation might be a 'bad thing'. Or have I misunderstood your brief point?

  2. I don't react quite so strongly to that particular Krugman article. It is surely not impossible that the short term results of some aspect of 'progress' sets off a chain reaction resulting in a war, say. Or, at a lesser level results in the entrenchment of wealth in the hands of the already-wealthy (witness the current talk of 'Generation Rent'). Maybe in a true free market that would be impossible (I'm not sure I believe that), but we don't have a free market anyway.

    1. Agreed on the point of the freemarket being 'free'. The problem with 'generation rent' is that this is as much about the competitive position of economies like the UK, and automation will be a short term negative influence, but with potential for medium/long term gains. It is a hard outcome for some, but offers real benefit. In the world we currently live in, anything that offers a re-balancing is a good, even if the short term consequences are not so good. I react strongly because the article is 'short termist', and here I move a little from my philosophical position in taking a slightly utilitarian stance. Okay, some people have to adjust to a new economic reality, but to hold out against the new reality is not the answer. The consistency with my philosphy lies in the opportunity (the changes are no secret) for individuals to seek to adapt to the changes. It is perhaps a hard answer, but people choose, or do not, to pay attention to winds of change.

      I am not sure about the impetus to war, although this is an ongoing concern of mine. I think war arises from a multitude of factors, but do not see this as an obvious factor. I would appreciate clarification on this point. I can see that you are right about unintended consequences, but also think that these are by their nature beyond prediction in many cases. I would welcome your view on how you link the progress to war. In particular, you have often asked difficult and often insightful questions on the blog, and I suspect more is behind your brief comment than you say here.

  3. (1) "If ever there were evidence that Krugman has nothing to offer, this rather odd article is the evidence. It is no wonder that he leaves the 'implications' and solutions unsaid. If he were to say clearly what his article implies, he would be ripped to pieces. It is, as the title of this post implies, nothing more than a disingenous revival of Luddism. Krugman hides in ambiguity, but the 'implications' are clear; break the machine to save the interest of labour. "

    No, that is just your fevered imagination running away.

    For anyone with a modicum of understanding of Keynesian economics, what Krugman is implying is this: it's likely that mass automation will induce a serious aggregate demand problem in the future as the rich have a lower marginal propensity to consume and large-scale structural unemployment persists owing to mass automation in industry.

    What Krugman is implying is that more attention needs to be paid to redistribution of wealth, income equality and measures to relieve short and long-term unemployment the amongst structurally unemployed.

    (2) Also, I'm surprised how this new evidence of mass automation and its implications have escaped you. Krugman points to them:

    "Robots mean that labor costs don’t matter much, so you might as well locate in advanced countries with large markets and good infrastructure (which may soon not include us, but that’s another issue)."

    That means a return of manufacturing to mass consumer markets in N. America and Europe, and a fall in their trade deficits. That means much less unbalanced world trade, and less industry in China.

    In turn, your hyper-competition thesis looks like it's foundering too: the much vaunted rise of China and the fall of the West doesn't look very plausible as China's whole export-led growth machine takes a double hit from rising wage costs (already happening) and the return of manufacturing to Western nations.

    In fact, I already predicted this 2 years ago now:

    1. You seem to be able to clarify Krugman's thought, discussint what he 'is implying is...'. As you will know, having published through peer review, you learn to be clear and precise. Krugman has undoubtedly been through this, and is trained to be clear in writing, but leaves his article, as I point out, buried in ambiguity. If you can express his 'real' thoughts so clearly in so short a comment, how is it that he does not do so?

      As for wage costs in an individual industry, you should know from my previous posts that I do not see that as a key factor in the rise of China; it is one of many, so 'no', it does not undermine my thesis. More likely to undermine my thesis are other factors e.g. the instability of China, and the cheap energy being made available in the US. However, there are other factors in favour of China, which you will know from my previous posts.

      If you think that robots are going to be the saviour of Western manufacturing, you are missing many confounding factors e.g. go to one of the industrial hubs in China for a product category, and you will see first-hand what I mean. I have discussed this in previous posts, so again, I guess you will know about this.

    2. Apologies for the typing error.

    3. The trend towards return of industry to the US is already happening:

      Already Dow Chemicals, Caterpillar, GE, Ford, and Google already started to move some production back to US markets.

      Yes, no doubt cheaper prices for other factor input costs and lack of regulation are real factors in China.
      But what happens when politically active Chinese citizenry demands environmental regulation, and better labour rights start to develop? When rising prices eventually cause demand for higher wages even in businesses producing these other cheaper factor inputs?

      You are correct to mention the possible imminent energy revolution in extraction of shale oil and gas: if that happens, you have yet another major factor input that will be easily and cheaply available in the US.

    4. Agreed, some production is moving back. Some. But a lot still is not. For example, this is the worlds' largest exporters:

      Yes, some industry is returning, but a lot is not. I think I have discussed the problems facing the on-going rise in China in some previous posts, so I am no longer a China 'bull'. You are right that, eventually some of the many factors that make China a cost effective place to manufacture will diminish. Eventually. The problem is that, it is not an easy thing to return industries back. Skills, supplier networks etc. have also moved. This is a subject that cannot be covered in a brief reply, but I hope you get the gist of the point.

      Also, and I am unable to locate the article, technologies such as robotics are being used in China already, including by foreign firms.

      China faces problems, and some of these may be severe, but it still holds many cards that will keep manufacturers there. My own view is that political risk is the greatest single problem, and may be the impetus for the exit of foreign manufacturers, but the opaque world of Chinese politics makes this a difficult factor to predict.

  4. Obviously he's been a bit busy for the last 40 years, but I do remember this "get rid of the oxen and let the peasant pull the plough" argument before.

  5. This is standard Marxism is it not? The change in the organic composition of capital is responsible for the tendency of the long-term rate of profit to fall. I would imagine that this is the real reason why Krugman won't come out and say it. By that token the answer is not 'smash the machines' but 'worldwide socialist revolution' - a more positive change perhaps but no more popular in Krugman's circles I would imagine.

    Absolutely required reading on both left and right should be Kliman's 'The Failure of Capitalist Production: Underlying Causes of the Great Recession' - absolutely the best work on the current crisis so far.

    1. Kurgman's argument is not Marxist in the sense you describe at all. In fact, you have round the wrong way.

      He's saying that profits are soaring - owing to automation and fewer workers - not falling!

    2. Profits do increase in the short term due to the change in the composition of capital - that is what motivates it in the first place. Marx's point is that the situation is unsustainable because 'only labour valorizes capital'.

      Kliman argues (and I would really recommend reading the man himself here, as I am probably going to mangle his point horribly) that in previous periods a crisis has come along that has destroyed sufficient amounts of value to reset the composition of capital and allow growth to resume. However the post-war social consensus has blunted the edge of economic crises since the 1940s, preventing the necessary (for capital) destruction of value - and of course protecting Western workers from homelessness and privation into the bargain.

      The last paragraph in Krugman's piece seems to imply that he at least thinks there is an identifiably Marxist tendency to his main point, and on this I am inclined to agree with him.

  6. I think it's a fair point to look at 'displacement'. Changes cause unemployment, so what do we do to try and mitigate that?

    Your (plausible) argument about a huge imbalance of labour into the global economy during the 1990s is similar - in that case the oversupply of labour compared to the amount of labour needed drove the cost of labour down, helping capital owners get a lot richer.

    Similarly, if we're having a robot-led decrease in the need for labour, while the supply of labour remains the same or even grows due to population growth - what happens? The price of labour falls further, because less of it is needed. Can we do anything about the displacement arising therefrom? Looking around in the real world, there simply aren't anywhere near enough jobs and they're getting even more scarce.

    What when displacement leads to (let's say) 50% unemployment? Is human suffering a price worth paying to have (as per your unrelated example) a railway system? The elite have always considered suffering a necessity, but do we all?


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