The Bear’s Lair: Avoiding the fate of the horses

We are not horses. Yet the Luddite left is telling the story of how the horses lost their jobs after 1900 as a parable of what might happen to most humans as the robots take over. In a truly free market, in which government was small and with little power, this would be impossible; the world economy is set up to benefit humanity, not horses, so the market would adjust to robots as a useful new human tool. Yet we are far enough from a free market today, and government is powerful enough and stupid enough, that the equine nightmare cannot entirely be ruled out. We must thus take steps to avoid being sent to the glue factory.

Like the original machine-breaking Ned Ludd and his followers, the equine theorists have a nice emotional tale, with a little simplistic economic theory to back it. Horses had lost market share in the human economy during the nineteenth century, with many of their transportation functions replaced by railroads. However, by 1900 this had not reduced significantly the number of horses employed in the U.S. economy, which continued to increase through 1910 and beyond. Then the advent of the Ford Model T and equivalently low-priced, reliable tractors put the horses out of a job, and their number began to decline, with the decline accelerating through 1960, by which time the horse population of the United States was only about 12% of its peak.

To the economically literate, there is just one flaw in this sad saga’s analogy to the position of low-skill workers now. At no time were the horses in a position of economic decision-making. They were pure consumers of resources, and in the vast majority of cases relied entirely on another species, humans, to provide them with the resources to consume. Had the humans disappeared, most of the horses would have starved in pretty short order. Their position is not equivalent to that of truck drivers and assembly line workers who, provided they keep off the crystal meth, continue to be autonomous beings making economic decisions for themselves. What’s more, since humans make the consumption decisions in the market, other humans have a natural advantage over robots, horses, intelligent lizards or anything else as providers of goods and especially services to them.

One can imagine a completely free market with a limited labor supply in which robots would integrate seamlessly into the workforce. Indeed, from reports, this is what appears to be happening in Japan. The Henn-na Hotel in Sasebo, Japan (hat-tip to Andrew Stuttaford in National Review) has gone all-in on robotics, using them to clean the rooms, carry luggage and prepare food, with human staff used only for functions where guests benefit from interactions.

As usual with Japanese innovations, this is a signal of where we must go. Japanese society has a shortage of unskilled labor to do physical tasks, because of its inverted pyramid age distribution (which leaves it short of broad, non-arthritic shoulders) and its admirable refusal to accept large-scale immigration. It has thus taken the lead in robot adoption, especially in the areas of elder care and personal services, where numerous unpleasant jobs currently exist, for which the cheap-labor crowd wishes to import Third Worlders.

A recent analysis by Planet Money, using Census Bureau statistics, shows the most common job in each U.S. state, from 1978 to 2014. This is in certain respects dispiriting; for example the most common job in the District of Columbia has changed from the admirable but alas now uncommon “secretary” through the humble “janitor” to the thoroughly economically damaging “lawyer.” If the Trump administration cannot restore secretaries to their once-proud position in DC, let it at least restore the supremacy of the humble janitor; the rest of the country will be much better off!

Outside DC, the most common occupation in most states is “truck driver”, which predominates in 27 states, compared with only nine in 1978. This is the most horse-like of occupations, and one of those most likely to be eliminated by robotics. However, even that elimination will take a generation; robot-driven trucks are still several years away from being available on a wide scale and their adoption will not then be universal immediately, because they will lack the “last mile” delivery capability of human-guided trucks.

In the 23 states in which “truck driver” is not the leading occupation, that occupation seems reassuringly non-robotic. Five lucky states still have “secretaries” leading the way, five have “primary school teachers” – surely an occupation pretty well impervious to robotics for decades yet – four have “computer software developers”, two nice old-fashioned places have “farm managers” and the rest are dotted around other service sector occupations, with New York having “nursing aides, orderlies and attendants.” Whereas a smattering of states in 1978 led with solid factory jobs that President Trump would like to bring back, in 2014 those jobs had already mostly gone and were the leading type of employment in no states.

Thus, in about half the states, the leading occupation does not appear vulnerable to the robot revolution. Indeed, New York’s “nursing aides” may well appear as the leading occupation in a lot more states as the Baby Boomers age into senility. Whereas Japanese seniors appear to accept robots happily as carers, it’s likely that U.S. seniors will be a lot more recalcitrant. Thus, there are many possibilities for the low-skill workforce (and for lawyers, gleefully predicted to become redundant by a number of observers) to retrain into new jobs as the robots arrive.

That is as one would expect in a free market. However, with the gigantic state, universal lobbyists and infinite regulation that we have developed, we cannot be sure that the benign free market result will occur. For one thing, as former Labor Secretary candidate Andy Puzder has said, a higher minimum wage should be called “The Robot Employment Act” and he’s right. Environmental legislation, also, stunts the economy and restricts opportunities for modest-skill but high-paying jobs in fracking, for example. Conversely, the cheap-labor lobby seeking to fill the country with low-skill low-wage immigrants only makes the skills mismatch problem worse, in the U.S. at any rate.

Without those artificial stimuli to unemployment, low-wage workers should be able to compete with robots – they are after all serving food, haircuts or other services to other human beings, not to robots, so should have an advantage in that competition. Indeed, even in the service sector the best job opportunities for the modestly skilled will be working with robots to provide the service better and more cost-effectively. In hotels, for example, robots will do the heavy lifting while trained humans will provide human faces with which guests can interact.

Much training will be required. In that respect, the last two decades of the funny-money economy, in which employers have outsourced training to community colleges, have provided yet another artificial rip-off of the modestly skilled. The state should not be subsidizing cheapskate employers in this way. Working with robots will require new skills for employees; the employers buying the robots need to invest also in new skills for their workforce. Higher interest rates and a lower level of speculative nonsense, forcing companies to re-examine their operations on a long-term basis, are an urgent need.

In a free market, with humans continuing to control the system’s purchasing decisions, humans will be able to adapt to robots. Over the longer term however, as robots take over an increasing share of the economy, that adaptation may lead humanity as a whole to undergo two changes, neither of which should be resisted by governments.

First, if robots can carry out much of the physical labor for which young, poorly educated men and women were previously used, the world probably needs fewer young, poorly educated men and women, and a lower population overall, since that will increase the resources per capita to give all the remaining humans a highly satisfactory living standard. The Japanese demographic with the inverted pyramid age structure is the ideal, with the hope being that global population will gradually shrink to its pre-industrial level of around 1 billion. That will enable our descendants in 2150 to live like Henry Fielding’s Squire Western.

The pyramidal demographic profile in many poor countries, with far more young people than older ones and population rapidly increasing, is thus thoroughly suboptimal, as indeed it is for poor countries’ attempts to become richer. Heaven forbid the world should attempt to change this by international coercion, but poor countries’ leaders are not stupid; they will quickly realize the benefits of domestic policies that produce an inverted-pyramid demographic result.

Second, as Yuval Harari has written, we will shortly have new techniques by which, either before birth or during their lifetime, humans can be upgraded, either genetically or by implanting chips that interact with the brain. Governments will attempt to resist this, on the grounds of its obvious inequality-producing potential (even though the costs of such techniques will drop rapidly once they are introduced.) Nevertheless, this capability, if combined with population restraint, should allow the robot revolution to benefit everybody – those of limited intelligence will have IQ uplifts, while lawyers and other high-skill people made obsolete by robots will be re-programmed with more useful skills.

Laws that restrict genetic engineering and implants are as futile and damaging as the pre-1896 British law that forbade automobiles except with a red-flag man walking in front. Like minimum wage legislation and artificially stimulated immigration, they could potentially turn us all into redundant horses.

Low-skill people will continue to have job opportunities as robots take over, just different ones. High-skill people will also have roles to play, designing robots and software to make them work better with low skill people and later designing technologies whereby the capabilities of low-skill people can be enhanced. The only requirement is for meddling governments and their lobbyist hangers-on to stay out of the way.

(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)