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Robot Reality Check: They Create Wealth—And Jobs (#GotBitcoin?)

Robots may be coming for our jobs. But a growing body of evidence suggests that workers have everything to gain from welcoming them. Robot Reality Check: They Create Wealth—And Jobs

Economists say automation is the key to next boom, and the U.S. is falling behind.

The more robots a country has, the higher its gross domestic product and, on average, the richer its citizens. On the other hand, a country that resists automation loses out not just on wealth creation but on new jobs as well.

This might seem bonkers given the reasonable fear that computers, robots and AI could wipe out half of all jobs in the next 20 years. It also might seem foolhardy from the C-suite perspective, since not all robots are suited for all jobs, and underused robots are costlier than a seasonal or on-demand human workforce.

The bulk of economists argue that automation ultimately creates more jobs. That might be of little comfort to a Detroit assembly-line worker. Automation does eliminate jobs in the short term, with often painful and even permanent consequences. For the economy as a whole, however, automation drives down prices of goods and services. Humans have so far proved endlessly inventive about how to spend extra money, leading to new businesses — and more jobs.

Yet a just-released report from the Information Technology and Innovation Foundation, one of the world’s leading science and technology think tanks, argues that the U.S. is falling behind in adoption of robots. Its new index compares the rate of adoption of industrial robots in manufacturing in different countries, while controlling for average wages of workers in those countries and industries. The ITIF found the U.S. is adopting industrial robots well behind the “expected” rate of adoption, compared with other rich countries.

China, on the other hand, is adopting robots so much faster than everyone else that, within a decade, it could lead the world in use of robots, when controlling for wages.

Robots benefiting individual workers feels counterintuitive because they do destroy jobs and the jobs that arise after automation is introduced are impossible to predict, let alone train workers for.

Who at the birth of the digital computer during World War II would ever have predicted that by 2022, North America would have 265,000 more cybersecurity jobs than skilled workers, or that a single e-commerce company, Amazon, would be so big it could create a new shopping holiday?

Some, like the founder of Sinovation Ventures and former head of Google China, Kai-Fu Lee, argue that there is no historical precedent for the current wave of automation, as it will be as big as the arrival of electricity or steam but will happen much more quickly.

Robot Power

Automation takes many forms, but robots are a useful focus, because they directly displace low-skilled workers in manufacturing and other blue-collar professions. One recent study of the adoption of robots in 17 countries found that increased use of robots accounted for 0.36% of the annual growth in hourly worker productivity. A seemingly small increase, it amounts to a substantial 15% of overall productivity growth. Not surprisingly, adopting robots also lowered prices of the goods they helped produce.

This has led some to call for the U.S., in particular, to increase the rate at which it adopts robots. “You either adopt automation or you see jobs go overseas to the countries that do,” says Robert Atkinson, ITIF founder and president.

Overall, the U.S. ranks seventh in the world in its ratio of robots to manufacturing workers, but that only translates to two industrial robots per 100 workers. In South Korea, there are seven.

There are a number of reasons companies in the U.S. don’t use more robots, says Daron Acemoglu, a professor of economics at MIT. One is that the U.S. hasn’t had the same demographic pressures as Germany and Japan. Worker shortages and high wages have pushed those nations to be leaders in the use of robots. That could be changing in the U.S., however: Unemployment hasn’t been this low since 1969.

Who Benefits?

While ITIF correlates GDP growth with robot adoption, the way that wealth increase is distributed depends on how the country adopts those technologies, says Irmgard Nübler, a senior economist at the International Labour Organization in Geneva.

Typically, she says, adoption of automation goes through two initial phases: worker displacement then job growth. Prof. Nübler believes that the record inequality in the U.S. seen in 2018 suggests we’re at the turning point between these two phases. Without policies in place to deal with these impacts, the inequality that arises in the first phase might persist.

The last time we saw a technological transition like this was in the 1920s and ’30s, when electricity and the automobile created a third industrial revolution in the U.S. What came next were “new institutions and new social movements,” she says, as society adjusted to changes in the nature of work.

One result was the “high school movement,” as secondary education became both free and compulsory, preparing an entire generation of Americans to move off the farm and become factory, clerical and service workers. This era also saw the rise of labor unions and the introduction of social security.

Prof. Acemoglu also studies what happens to workers in the U.S. after they lose their jobs to automation. The result, in the auto-manufacturing Michigan towns of Detroit, Defiance and Wilmington, was economic suffering for the surrounding communities.

A similar study, done by other researchers, found that robots didn’t hurt net employment in Germany, as workers found jobs in other industries. Prof. Acemoglu thinks this might be due to Germany’s stronger safety net. This includes a collaboration between the government and industry, dubbed Industry 4.0, which encourages both the adoption of new manufacturing technologies and the training of workers in the skills they require.

What’s Next?

The current wave of robotization may require economic planning the U.S. hasn’t had much taste for since deregulation took hold in the 1970s, argues John Spoehr, director of the Australian Industrial Transformation Institute at Flinders University in Adelaide.

Expanding the U.S. safety net in the face of short-term job disruption has led to all sorts of proposals. Microsoft co-founder and philanthropist Bill Gates has suggested a tax on robots. Many in Silicon Valley favor a Universal Basic Income. Stockton, Calif., will be the first city in America to attempt a UBI—a no-strings $500-a month-grant to its poorest citizens.

One thing we can do in the meantime, argues Prof. Acemoglu, is to change what we’re teaching students, though we’ve only begun to consider what the “high school movement” equivalent is for the age of AI, Big Data and robotics.

These proposals are controversial, to say the least. It took the Great Depression to bring about a New Deal. It isn’t clear how much disruption will be required to change policy in the 21st century.

“Not many people have thought about what are the skills we’re going to need in the future,” he says.

Updated: 1-11-2020

Minimum-Income Ideas Get Widest Airing in 50 Years

Andrew Yang has drawn support with his proposed universal basic income; others 2020 Democratic candidates back policies to create financial.

As Democrats embrace a more activist government, some are flirting with an idea that hasn’t received serious attention since the 1970s: a minimum guaranteed income for all Americans.

Entrepreneur Andrew Yang’s presidential candidacy has gained traction with a proposal to give a $1,000 monthly “freedom dividend” to all Americans—from the poorest to the richest, employed and unemployed alike.

No mainstream officeholder has joined Mr. Yang’s call for a universal basic income. But policies to create a kind of basic income—albeit not universal—in the form of a new financial floor for millions of households have drawn backing from other Democrats seeking the White House and many lawmakers.

Party leaders are embracing a range of federally backed economic rights, including universal access to health care, college, child care, and broadband. The right to a basic income doesn’t get as much attention, but it is seeping into the debate as Democrats hone a message to counter President Trump’s bid for re-election.

“No president has done more to support working families,” says Kayleigh McEnany, the Trump campaign’s national press secretary, citing, saying “the unemployment rate remains at generational lows, as wages continue to grow at the fastest pace in a decade.”

Mr. Trump’s would-be Democratic rivals say many families still struggle to cover basic living costs. Democrats also are looking to contrast their plans with the 2017 Trump tax cut, which lowered tax bills for most families but did so most heavily for corporations and affluent households. They would pay for their income plans by reversing much of the tax cut.

All five senators running for president, including liberal Elizabeth Warren of Massachusetts and moderate Amy Klobuchar of Minnesota, have endorsed proposals to give more people access to the child tax credit in a way that would essentially create a guaranteed payment for parents. They also back ideas to expand the earned-income tax credit, or EITC, an income-support program for lower- and middle-income families.

Vermont Sen. Bernie Sanders also backs a separate plan to give all Americans making less than $50,000 a year an annual tax-free check worth up to $3,000, no strings attached. Democrats combine those plans with more conventional policies, such as boosting the minimum wage.

There are also signs of Republican interest in some form of guaranteed income, at least for families with young children. In December, Utah Sen. Mitt Romney teamed up with Colorado Sen. Michael Bennet, a long-shot candidate for the 2020 Democratic nomination, to propose a guaranteed annual payment of $1,000 for all children under 18, with an additional $500 for children aged 6 or younger.

“One of the big ideas this cycle is that we should guarantee an income floor for every American,” says Natalie Foster, co-chair of the Economic Security Project, a progressive group founded after the 2016 election that has worked with think tanks, members of Congress and state and local governments to develop income-guarantee bills, and has funded experiments in Stockton, Calif., and Jackson, Miss. “We’re trying to figure out how we can get back to some of the big ideas from an earlier era—and get them done within the fiscal constraints and the political realities of today,” she adds.

Some of the proposals unnerve veteran Democrats. They worry the party may be shifting too far left for the broader public. They also fear some of the new ideas, especially those to ease work requirements in income-support programs, risk undermining support for existing policies.

“This might be an ‘OK boomer’ moment for me,” says Jared Bernstein, who was chief economist to former Vice President Joe Biden in the Obama administration. “The EITC has always been conditional on wages, and in my experience, this connection has been one of its political strengths.”

The belief that Washington should create an income floor last stirred widespread debate half a century ago. In 1962, conservative economist Milton Friedman called for a “negative income tax,” a kind of government salary for the poor. A few years later, President Nixon, a Republican, proposed a guaranteed annual income for families with children that would be worth about $1,600, or $10,000 in today’s dollars. His legislation passed the House twice, before dying in the Senate under attack from both conservatives, who said it went too far, and liberals, who said it didn’t go far enough.

The politics of federal income support changed in the 1980s, as President Reagan argued that guaranteed government aid to the poor created an unhealthy culture of dependence. The focus became attaching conditions to remaining assistance programs.

In the 1990s, President Clinton expanded income-support policies, but kept them largely contingent on recipients both holding paying jobs and having children at home, a framework that defines federal policies to this day. The Trump administration is seeking to tighten the work requirements.

But many Democrats on Capitol Hill and the campaign trail want to loosen those restrictions—or drop them outright—arguing they exclude millions of struggling Americans.

Beyond Mr. Yang, Rep. Rashida Tlaib (D., Mich.) has laid out her BOOST Act, the proposal to give up to $3,000 each year to Americans making less than $50,000. The measure, introduced in June, has 13 co-sponsors.

A bigger group of Democrats, 44 Senate Democrats and two independents, has co-sponsored the Working Families Tax Relief Act, introduced in April by Sen. Sherrod Brown (D., Ohio). It would provide fresh federal income support to 114 million Americans and raise seven million people above the poverty line, according to an analysis by the Center on Budget and Policy Priorities, a left-leaning Washington think tank. Only one Democratic senator, Arizona’s Kyrsten Sinema, hasn’t signed on. No Republicans support it.

The bill—like the Romney-Bennet proposal—would drop all work and earnings conditions attached to the child tax credit. It also would shed the constraints in the EITC program that allow only minimal benefits for workers without children and expand the definition of “working age” to let more people participate.

While many Democrats still adhere to the notion that income support should be contingent on work, some want to widen the definition of “work,” allowing more people to qualify.

Current rules require recipients to receive a paycheck from an employer. Four bills over the past two years would allow unpaid college students and caregivers—people staying home to care for a young child or elderly parent—to receive government benefits tied to work. Versions of the concept have won endorsements from at least two presidential candidates, former New York Mayor Michael Bloomberg and Sen. Cory Booker (D., N.J.).

“There’s still an understanding in this country that work is important,” says Ms. Foster. “We want to lean into that, by expanding what we mean by work.”

 

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