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Thursday, November 3, 2016

Fear Not the Robots – Jobs Aren’t Scarce

The flip-side of the scarcity proposition is that limitless desires means limitless jobs.

Virtually every college and university economics course begins with the proposition that people, individually and collectively, are not able to command sufficient productive resources to satisfy unlimited consumption desires. In economics this is called the “scarcity proposition.” Absent scarcity, school is out as far as economics being a field of study. Much of what economists do involves explaining how various human arrangements direct limited productive resources among limitless consumption desires.

Jobs aren’t scarce! They are limitless as sure as consumption desires relative to productive resources are limitless.

The flip-side of the scarcity proposition, one that economists and others usually ignore, is that limitless consumption desires, relative to productive resources, means the number of tasks for people to do is also limitless. Jobs aren’t scarce! They are limitless as sure as consumption desires relative to productive resources are limitless. The notion that there is a fixed number of tasks or jobs to do at any point in time is bogus. Ditto for the notion that job opportunities can fall. A community’s economic ladder always has more rungs to climb.

So how do robots figure in all this? By replacing people, do they reduce job opportunities?  Not at all! Job opportunities are limitless. Indeed, as long as the robots produce at a lower cost than people they replace, their introduction increases the size of the community’s economic pie. That means that job opportunities are more, not less, lucrative. Living standards are necessarily higher.

Increase the Pie

The key to understanding this entails going back to one of the first principles of cost. Namely, cost should always be thought of in the sense of foregone opportunities. For a good economist, the terms “cost” and “opportunity cost” are one and the same term. So if robots can produce something – for example, cakes – at lower cost than people can, it means that the community is giving up less of other things to have each cake. Giving up less of other things to obtain cakes is the same as having cake and more of other things. A free lunch? Hardly. But higher living standards for the community nevertheless as it climbs to higher rungs on its economic ladder. This is how living standards have risen since the beginning of time.

Is this a “rising tide raises all ships” story? Not at all. Those cake workers displaced by the robots find employment in their next best alternative. And next best is precisely that, next best. So they lose. But since the economic pie is larger, this means that other jobs necessarily become more lucrative. Who benefits? Consumers of cakes as cake prices fall and owners of the robots. The latter folks get a larger piece of a larger economic pie, while those displaced by the robots get a smaller piece of the larger economic pie.

The sky-is-falling scenarios sketched out by those displaced by robots are understandable. They lose. But their losses are the price communities pay to enjoy overall higher living standards. The story of robots is no different than countless other innovations. The automobile replaced horse-drawn wagons. Harnessing electricity replaced kerosene. The wheel replaced raw human labor. We could go on and on and on. Those seeking to delay/prohibit robots are the enemies of higher living standards.

A free lunch? Hardly. But higher living standards for the community nevertheless.

Over the years, whenever I confront people with this logical flipside of the scarcity proposition – that is, jobs are limitless – their almost immediate response usually goes something like this: “Alright, professor, now I think I’ve heard everything from your ivory tower types. If jobs are limitless, then, pray tell, why is there unemployment?”

Answer: one need only see that 1) a dynamic economy with changing job locations means that relocating productive resources takes time; hence periods of unemployment; 2) crummy elementary and secondary education leads to less-skilled individuals who are unemployable at the minimum wage; and 3) unemployment insurance means newly unemployed workers have an incentive to extend periods of unemployment, which means more unemployment at any time.

The bottom line here is that “sky-is-falling” forecasts about events that lower costs of living – like robots – make life better for almost all of us. Some lose, but that is the price of progress.

  • T. Norman Van Cott, professor of economics, received his Ph.D. from the University of Washington in 1969. Before joining Ball State in 1977, he taught at University of New Mexico (1968-1972) and West Georgia College (1972-1977). He was the department chairperson from 1985 to 1999. His fields of interest include microeconomic theory, public finance, and international economics. Van Cott's current research is the economics of constitutions.