Rage Against the Machine…?

Rage Against the Machine…?

 “Your anger is a gift.”  - Lyric from the song, Freedom, by RATM

By J.M. Hamilton  8-1-14

Time to geek out.

It was couple of years ago now.  I had the privilege of meeting with a Chief Operations Officer (C.O.O.) at a large plastic container manufacturer in the greater-Atlanta area, and viewed the factory floor.  What caught my attention about this particular company is that revenue, through both acquisitions and organic growth, along with profits, had shown significant growth over time; but corporate wide payroll had showed a steady decline over the same period.  When I asked the C.O.O. about these numbers, he responded with one word: "Automation."  He went onto say that labor, and all its associated headaches, were the company’s biggest expense.  With machines, he added, there were no tardy employees, no "dying grandmothers," and no H.R. Issues.  I must say, that factory was magnificent.

Which provides an excellent intro for today's piece.  To embrace human obsolescence and A.I. (artificial intelligence), or not to embrace human obsolescence and A.I., that is the question.  Of course Mr. Shakespeare may have been more concise and eloquent when he asked nearly the same question: "To be or not to be?"

On the Right, we have Mr. Steven Rattner... Clintonian Democrat, Wall Street Mogul, Private Equity Robber Barron, and sometimes writer for the New York Times.  More recently, Mr. Rattner served as President Obama's Car Czar.

On the Left, we have Lord Robert Skidelsky.... Professor Emeritus of Political Economy at Warwick University, a Fellow at the British Academy in history and economics; and more recently, he wrote a three-volume biography on one Lord Keynes.  Having read "The Return of the Master," Mr. Skidelsky knows his topic, well.

Rattner, Automation and the Welfare State:

Mr. Rattner wrote a piece in the New York Times this June, entitled:  Fear Not the Coming of the Robots.  In this piece he states that automation and robots are nothing to fear, and that these are good things, as they will lead to greater economic productivity, correlating into higher wages, and a migration into jobs more suitable to human endeavor, such as nursing.  He states that John Maynard Keynes was dead wrong in predicting automation would outstrip the need for, and new uses for, human labor.  As for the unemployed who cannot keep up or be retrained, fear not Mr. Rattner assures us, there is government assistance and welfare.  In particular, I found three memorable lines in this piece.  They are:

Becoming more efficient (what economists call “productivity”) has always been central to a growing economy. Without higher productivity, wages can’t go up and standards of living can’t improve.

In fact, productivity growth in recent years has been sluggish (an even scarier concern). 

Hence, the greater need for automation, per Mr. Rattner, and…

But technology is not the prime culprit behind our languid employment and income growth. That honor belongs to globalization, and particularly the ability of companies to substitute far less expensive and increasingly skilled labor in developing countries.

Now, in direct rebuttal to Mr. Rattner, if we check in with the Bureau of Labor Statistics, we can see that productivity has been on a steady rise in this country, throughout the 90’s and all the way through 2007.  It was at that time (2007) that Mr. Rattner’s friends, Wall Street Banks, Shadow Banking, and Private Equity, damned near destroyed the global economy with debt securitization, greed, moral hazard, and highly illiquid, unregulated, and uncollateralized swaps and derivative products (CDOs and MBS).  At which point (2007), U.S. gains in productivity slowed down dramatically.  Not because of the lack of technology or effort on the part of those remaining American workers lucky enough to hold jobs; but rather, I would argue that productivity gains dried up due to the lack of aggregate demand, as a result of the spike in unemployment and underemployment caused by the banking crisis, and due to a sharp reduction in CAPEX spending.  Consolidation and combination (i.e. M&A) in industry after industry, also means that monopolies and cartels are no longer forced to compete, and so greater efficiency and productivity is not only not required (nor is customer service important), but the cost of greater efficiency may actually detract from short term monopolistic profits. 

In fact, the financial crisis is chiefly responsible for an idle workforce, and idle factories with excess capacity.  Mr. Rattner, a product of Wall Street, conveniently forgets to mention this.

Moreover, Mr. Rattner, also strategically omits that he and his colleagues on the Street have been the primary beneficiaries of America’s growing productivity and automation over the last two decades, with the overwhelming majority of the profits and wage growth going to the one percent.  Meanwhile, the middle-class is 20% poorer today than it was in 1984.  So much for the theory that higher productivity leads to higher wages.

Could Mr. Rattner, a founding member of Quadrangle, a private equity firm, have a vested interest in automation, robots, and A.I.?  You bet.  After all, if the last three decades are any indication, Mr. Rattner and the financial elite stand to make a financial killing from the increased productivity correlated with increased automation, all at the middle class’ expense. 

Instead of fearing automation, Mr. Rattner points out that “globalization” is the real job killer in America.  I guess a private equity Titan would know, since private equity has been responsible for more pink slips and greater off-shoring of labor, than any other American industry.  As for the safe loving embrace of the welfare state he promises displaced workers…. it seems that many of Mr. Rattner’s friends, who have the most to gain from automation, are moving their businesses offshore in the latest tax dodge called “inversions” (because they don’t want to pay for the social state that Clintonian Democrats advocate, as a substitute for gainful employment and a living wage). 

Seems that many CEOs have seen the future, and while robots and A.I. bodes well for their income statements, automation does not bode well for the middle-class nor future growing ranks of unemployed and underemployed in need of government assistance; and these CEOs and their companies are, technically, fleeing offshore (to dodge paying taxes), while enjoying all the benefits and protections America has to offer.

So to say, Mr. Rattner’s piece is self-serving, is as big an understatement, as automation and resulting unemployment are inevitable.  Mr. Rattner’s op-ed piece appears to have run as a direct counterpoint to Mr. Skidelsky’s piece, which ran in Project Syndicate (an economics and global policy website).  Mr. Skidelsky’s write up is entitled: The Rise of the Robots.

Skidelsky, Keynes and a Paradigm Shift:

Mr. Skildelsky, too, has seen the future, and unfortunately, it’s not very bright for human labor, at least in the short run.  Quoting The Master, he states:  “But it is hard to resist the conclusion that ‘technological unemployment,’ as John Maynard Keynes called it, will continue to rise, as more and more people become redundant.”

Other salient points made in The Rise of the Robots:

On the contrary, it must be right in the very long run: sooner or later, we will run out of jobs.

But technological progress is now eating up the better jobs, too. A wide range of jobs that we now think of as skilled, secure, and irreducibly human may be the next casualties of technological change.  As a recent article in the Financial Times points out, in two areas notoriously immune to productivity increases, education and health care, technology is already reducing the demand for skilled labor. Translation, data analysis, legal research – a whole range of high-skilled jobs may wither away. So, what will the new generation of workers be trained for?

What is noticeable, though, is that structural unemployment – the unemployment that remains even after economies have recovered – has been on an upward trend over the last 25 years.

Hence, Mr. Skidelsky makes a direct counterpoint to those economist, who state that present unemployment and underemployment is cyclical.

Mr. Skidelsky’s proposed solutions to the conundrum that A.I. and machines present the wage earner are:  Option One, adopting the German model, that is to say, job sharing with the attendant reduction in hours worked and wages earned, per employee.  And Option Two, get ready for a great deal more “leisure.”  

Leisure?  How so?  How could anyone think about leisure if they are unemployed and without means?  Well, Mr. Skidelsky hints at it: 

This would be possible if the gains from automation were not mostly seized by the rich and powerful, but were distributed fairly instead.  Rather than try to repel the advance of the machine, which is all that the Luddites could imagine, we should prepare for a future of more leisure, which automation makes possible. But, to do that, we first need a revolution in social thinking.

The paradigm shift in “social thinking” that Mr. Skidelsky is referring to is already occurring.  In some U.S. political circles, Libertarian and Liberal, many have noted that the system (legal, political, economic, financial, and educational) is rigged.  If that is indeed true, it’s not hard to imagine some brave economist calling for the redistribution of ill-gotten wealth, if not flat out wealth confiscation.  Conservatives, reactionaries, and the one percent will immediately cry out that “communism” is, and forever will be, an absolute failure (Of course, these are the same individuals, who were in fact bailed out of the 2008 financial crisis by the U.S. government, and to this very day, by the Federal Reserve). 

But before we write off Mr. Skidelsky’s calls for greater “leisure” for all citizens, consider the following.

The last experiment in communism was in the former U.S.S.R.   That experiment did indeed, fail because humans were still required to provide the labor for that command economy.  The U.S.S.R. and communism failed because: If you pay a worker the same slave wages, whether they show up for work or not… they might as well stay home and get drunk on state subsidized Russian vodka. 

Machines, however, are unemotional.  Automation, as pointed out by the plastics C.O.O. at the beginning of this piece, do not respond to incentives or disincentives, or the desire to lay in bed or on a beach.  Machines don’t have “dead grandmothers,” or H.R. issues, and they work tirelessly, which means “the revolution in social thinking” that Mr. Skidelsky is writing about, is not only possible but it very well may be highly probable. 

Which further begs the question: Long before A.I. takes over, and the last worker shuts off the last light in a cube farm, will the 99% have to figure out what to do with the one percent and all their newly found wealth?

Monarchies were overthrown, globally, in the 18^th, 19^th, and 20^th centuries and their wealth was often confiscated and redistributed to the democratic state; could today’s “monarchs” (i.e. the one percent), in the neo-guilded age, suffer a similar fate?

Imagine.  Many of today’s CEOs, banks and private equity firms running around consolidating entire industries into monopolies and cartels, so as to guarantee monopolistic profits for the one percent; and perhaps, in the process, making these same monopolistic industries ripe and all too easy targets for nationalization, government and machine sponsored takeovers, and the redistribution of wealth in a more egalitarian manner (and entire corporations confiscated as reparations for: retroactive taxes dodged and owed, and a rigged and crony economic and political system)?

As stated on this page on more than one occasion, monopolies are creatures of the state, and little more than "socialism by private proxy."  Once machines takeover, the transition from private to public ownership is not hard to fathom.

Going totally high tech… one might imagine keeping these cartels and monopolies out of the hands of all too easily corrupted governments and politicians; but rather, would it be possible that these industries are placed into the hands of a public or non-profit trust to advance the public good, and could this public trust or non-profit, in turn, be run by a computer and A.I.?

Under current circumstances, democracy could become a direct threat to the one percent, which helps to explain Citizens United and McCutcheon SCOTUS decisions, corporations deploying inversions, and a gerrymandered House of Representatives.

Mr. Skidelsky hints at one possible vision of the future.  The question is will the financial elite and Mr. Rattner pull up, before destroying what remains of the free market?

Copyright JM Hamilton Publishing 2014