The Software Society

How digital technology is changing our culture and economy

A fundamental problem in the economy that isn’t being addressed

Current economic news validates the concerns in The Software Society about the impact of automation eliminating jobs too rapidly for the economy to properly adjust. The strength of the recovery is brought into question by Labor Department revisions last week reducing the reported number of jobs created in June and July by a total of 74,000 jobs. And statistics continue to affirm that the jobs being created are on average at lower salaries than the jobs the people taking the jobs were previously earning.

In another key statistic, the drop in the unemployment rate is largely caused by people leaving the workforce rather than the creation of new jobs. If most of those people are taking early retirement, then they will generally have less to spend and put an increasing burden on pension plans and Social Security.

The causes of the slow pace of recovery usually cited are the equivalent of “weakness in the economy,” as if the subprime crisis was the sole cause of current problems and we just have to wait until its effects wear off. I argued in The Software Society that the core issue today is technology acceleration driven in part by digital systems and software—rapid changes driving efficiency, but at the cost of jobs. Increased productivity has usually benefited the overall economy in the past, even when some industries suffered from Joseph Schumpeter’s “creative destruction.” However, current technology changes may now be occurring too fast for companies and individuals to adjust effectively. The issue of automation proceeding too quickly (what I’ve called “over-automation”) was a major topic in The Software Society and in other books such as Race Against the Machine by Brynjolfsson and McAfee and The End of Work by Jeremy Rifkin. A tendency in the press to emphasize what good news there is—small improvements in statistics—ignores there being 1.9 fewer jobs than at the economic peak in 2008.

Some authors have suggested that an approach to the problem of over-automation—too few jobs as a continuing rather than temporary problem—is essentially socialism. If there aren’t enough jobs, the argument goes, the government can simply take more income from companies or even run them and distribute the income to individuals. Hopefully, history has proven that this isn’t a real alternative; governments aren’t very good at directly or indirectly running companies, with results ranging from inefficiency to pollution to corruption.

I suggested an “automation tax” in The Software Society as an approach that pushes companies in the right direction without requiring any specific actions. The tax could be structured as tax credits and penalties that depended on companies choosing ways to increase productivity that made employees more effective rather than replacing them. If the net effect of the tax was increased government tax revenues, those revenues could be applied to covering the increasing burden of Social Security, a benefit that many people working in the US have contributed to with the expectation that they could count on it.

There are some compensating trends in the US that provide time to address the problem of over-automation. One is that new, highly automated factories are bringing some manufacturing back to the US, a positive, but transitory, impact of jobs being automated away. Another is shale oil/gas production in the US, which creates new jobs, but has obvious limitations to its long-term growth. The positive aspects of the US economy may give it time to lead an international recovery if we address the core problem of over-automation.

Many readers of this blog have a technical background and may feel insulated from this trend to the extent that their companies are selling automation solutions. And technology that makes humans more effective at their jobs can indeed contribute to preserving rather than replacing jobs.

Ultimately, however, there must be buyers at the end of the sales chain. If there are no jobs, there is no income to buy products, no matter how efficiently they are produced. Government policy should motivate companies to act in service of the overall economy rather than favoring short-term profits.

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