Repeat of the 1880s?

[ziggy29]

I think automation and outsourcing (global competition) already turned us into a service based economy with high unemployment and lower wages.

Oh, it has already started, but I think what we've seen is a drop in the bucket compared to what it can become. I just don't think we're going to return to an economy that needs close to 95% of its 22-to-64 population working who want to work, and soon (if not there already), probably not even 90%. Yes, supporting the automation will create a few jobs but probably not nearly as many as it displaces. We have two competing cultural, social (and yes, political) factors: One leading us inexorably toward increased structural unemployment and idleness through automation, and one often strongly opposed to expansion of a social safety net. We have to get past our usual zero-sum game thinking about policy if these two are to be reconciled, IMO.

And that says nothing about the problem of struggling with faltering financials of old-age programs combined with an economy that can't absorb a large number of (currently) retirement-aged individuals forced back to work by economic necessity (assuming they are still physically capable of work).

Increased unemployment, historically, has been cyclical. But the combination of offshoring and automation (in the long term, mostly the latter) are setting us up for increased *structural* unemployment, which requires a retooling of all our economic assumptions and, to some degree, policies.

That all said, from a FIRE point of view, if someone can keep a good job long enough to accumulate a lot of investments in those businesses who benefit from automation, you'll probably do OK unless more widespread unemployment leads to either deflation or massive social unrest. Then all bets could be off.

 

[MRG]

Great post Ziggy29. Automation is a great theme for this point in time. I spent nearly 20 years automating paper intensive back offices. The motto was always if a human doesn't add value to the process do it in the background eliminate the routine w*rk and let machines do it. In some ways I feel bad for what I did by making j*bs obsolete, but someone else would have. I temper that w*rk with the improvements made in customer service. Many organizations the only motivation was the bottom line, but I know it improved the experience. The bar was too low.

Actually a great topic. I had never realized the similarities between then and now. What is the next "buggy whip", excluding people?

 

[ziggy29]

Actually a great topic. I had never realized the similarities between then and now. What is the next "buggy whip", excluding people?

It's hard to say. In the past, an evolving economy has historically benefited from "creative destruction", whereby an economic displacement in one major industry led to the rise of a new, possibly more "important" industry which employed even more people and perhaps with higher wages as well.

Yes, there was the "buggy whip" and carriage makers losing jobs.... who could later go to work for Henry Ford -- possibly with higher wages and reduced working hours in the process.

As the railroad industry became less important, jobs in aviation, highway construction and trucking boomed.

And even in the manufacturing bust of the 1970s, Silicon Valley was getting ready to boom with electronics engineering and assembly jobs.

These were all examples of creative destruction. In all those cases, jobs were generally replaced by an equal or greater number of jobs which were at least as good as the ones we lost.

Where is that now? Automation doesn't result in net creative destruction. For every job created by it, several may be eliminated by it. So now we have (buzzword bingo alert) a "new paradigm" to consider. I don't like to say "this time it's different" (because it usually isn't) but I just don't feel like the jobs being lost in the automation wave can be recovered, on net, by a similar number of good jobs elsewhere. I don't see any catalyst for "creative destruction" to apply this time around.

 

[eytonxav]

Oh, it has already started, but I think what we've seen is a drop in the bucket compared to what it can become. I just don't think we're going to return to an economy that needs close to 95% of its 22-to-64 population working who want to work, and soon (if not there already), probably not even 90%.

We certainly won't return to that type of economy with low unemployment and higher wages if we fail to transform back into being a country that is known for producing products, as well as services. Adam Smith would not be pleased to see what has happened to US manufacturing over the past 30+ years.

 

[ERD50]

...
These were all examples of creative destruction. In all those cases, jobs were generally replaced by an equal or greater number of jobs which were at least as good as the ones we lost.

Where is that now? Automation doesn't result in net creative destruction. For every job created by it, several may be eliminated by it. So now we have (buzzword bingo alert) a "new paradigm" to consider. I don't like to say "this time it's different" (because it usually isn't) but I just don't feel like the jobs being lost in the automation wave can be recovered, on net, by a similar number of good jobs elsewhere. I don't see any catalyst for "creative destruction" to apply this time around.

Interesting, and something I think I'll ponder on more deeply when I have the time.

But off the top of my head, I'm thinking that maybe there is an opportunity here for a businessperson to develop a product that people want, that does require lots of low-skill labor, that can't be easily outsourced or automated, and can command a high enough price to pay a wage high enough to attract laborers in the US.

Maybe the urban farms mentioned earlier are a good example? If you grow very perishable crops, that can be a barrier to outsourcing. Fresh herbs are actually pretty $$$ on a per pound basis.

Not everyone can go from being an assembly line worker to being a robotics technician (and we generally need far fewer techs than the line workers they replace - unless the automation also grows the business by that factor, but that's not likely). So I do think we need to find a way to employ lower level workers. But it has to be productive, I don't think we can just declare that every job is worth $X/hour - outsourcing will work against that. But if we could actually create a lot of these low-level, hard-to-outsource jobs, fast food workers would not be 'demanding' $15/hour, the fast food places might need to compete for workers by offering $15/hour wages?

Can we create industries like that?

-ERD50

 

[daylatedollarshort]

Driverless cars are going to add to unemployment in the future. No more need for taxi driver and truck drivers, less demand for truckstops, and support services like motels along the interstates. Netflix and Redbox kiosks have replaced the local Blockbuster store. We do most of our banking online or at ATMs.

We have to rethink the economy / labor force of the future. Keynes saw this coming years ago in Economic Possibilities for Our Grandchildren. What will become of us once the struggle for subsistence is solved? Would we spend more time on leisure once our basic needs have been met? Produce and buy unneeded stuff to keep the old economic model going? Everybody still works but less hours?

A light bulb moment for us was realizing we were already enjoying a much higher standard of living than our grandparents (pleasant but small 2 bedroom house, one landline phone, no cable, one car and bus service, maybe two TVs) when we started thinking if we had enough to ER.

I tell our kids to consider doing contract work in specialized fields that pay well and just working part-time or part of the year. Why not "buy" leisure time instead of depreciating consumer goods?

 

[Fermion]

We have to rethink the economy / labor force of the future.

A sure thing will be a degree in Software engineering. All those driverless cars aren't going to program themselves. Well, until we invent an AI.

 

[GrayHare]

While the machines are generating wealth for us, we can spend it on entertainment.

 

[cooch96]

Interesting, and something I think I'll ponder on more deeply when I have the time.

But off the top of my head, I'm thinking that maybe there is an opportunity here for a businessperson to develop a product that people want, that does require lots of low-skill labor, that can't be easily outsourced or automated, and can command a high enough price to pay a wage high enough to attract laborers in the US.

Maybe the urban farms mentioned earlier are a good example? If you grow very perishable crops, that can be a barrier to outsourcing. Fresh herbs are actually pretty $$$ on a per pound basis.

Not everyone can go from being an assembly line worker to being a robotics technician (and we generally need far fewer techs than the line workers they replace - unless the automation also grows the business by that factor, but that's not likely). So I do think we need to find a way to employ lower level workers. But it has to be productive, I don't think we can just declare that every job is worth $X/hour - outsourcing will work against that. But if we could actually create a lot of these low-level, hard-to-outsource jobs, fast food workers would not be 'demanding' $15/hour, the fast food places might need to compete for workers by offering $15/hour wages?

Can we create industries like that?

-ERD50

If automation takes over production, then physical goods should become very cheap. We will be in a post scarcity economy. I expect services and performances will command a premium: the nouveau riche will be folks like live musicians, stand up comedians, dancers, acrobats, etc.
fanciful thoughts, I know, but it makes me happy to think that art will be valued more as a society.

Seriously though, wouldn't be nice to live in a society where most folks in your neighborhood are focused on creating culture and art, and not toiling away in a factory doing drudge work?

 

[ejman]

I think there is little doubt that the near - intermediate term future will be "interesting" as Churchill said about living in "interesting" times. I have very little doubt that the adjustment to an AI world and mass production by robots instead of human workers will be very difficult. I read somewhere that truck driver is the most popular occupation now. I would be very surprised if 20-30 years from now many folks make a living that way... and so on

At the same time, I have no doubt that the world will start, slowly at first but then more and more rapidly to depopulate (witness the demographics of Japan, and certain countries in Europe) so that the overabundance of unneeded labor will no longer be a problem and a balance will eventually be achieved. Always an optimist.

 

[CaliforniaMan]

Unsolicited Advice to my Millennial Son

I have been writing down some of my "wisdom" for my Millennial son, some on this topic...


"Throughout human history capital has been gaining in value and importance and labor has been decreasing in value and importance. There have been many ups and downs, and vary by location and industry type, but the trend is irreversible. While it has been under way for centuries, it is certainly accelerating today. I would suggest that anything algorithmic can be done by a machine better and cheaper than by using human labor. And that includes things like accounting, driving, surgery, psychoanalysis, sports and financial news reporting (anything with statistics), pretty much anything that is manufactured, financial and manufacturing planning, and many others. So what you do has to be non-algorithmic, that is actually creative, finding new ways to solve the new problems all these changes will create."


Further, this is not a local problem, or one of outsourcing long term. It is really one of advancing technology, rather than cheap labor. One example of this is my experience working in the electronics in China. When I first started there a little over ten years ago, there was a factory employing several thousand young Chinese women (they hired women because of their small fingers). You would see hundreds of them at a time in a clean room in bunny suits. Later in the area where I was working they replace most of them with robots from Japan. I was told that it took 18 months of labor savings (even in China) to pay for the robots. The only left were the people who would take the parts to feed the robots. Now I hear they are are even replacing them with robots.


Times are changing, but not necessarily for the worst. Those manufacturing jobs that I saw in China, those replaced by the robots, they were not particularly dirty or dangerous, but boring beyond belief. Nobody should have to do that kind of work. What kind of work will people do in the future? I don't know but humans are a creative species, and have figured how to make their lives better over thousands of years. I suspect this will continue.

 

[GrayHare]

I can count more friends' children studying art and music than I can studying science and engineering. At first I was dismayed, "In the decades ahead, who is going to build bigger / better / faster?" The answer is machines will do more of the rote tasks while people spend more on leisure activities. The trend is already underway as seen by significant salary growth of entertainers in areas such as music, movies, and sports. A long-term concern is leisure makes one soft: a country of people entertaining each other will struggle against foes, both natural and man-made.

 

[NW-Bound]

Seriously though, wouldn't be nice to live in a society where most folks in your neighborhood are focused on creating culture and art, and not toiling away in a factory doing drudge work?

Yes, it would be nice. However, how are their efforts remunerated? In my travel, I see a lot of art galleries presenting works by uncountable artists. I wonder how they make a living.

About using robots to do repetitive works, I am all for that. Boosting productivity should help raise standards of living for everyone. But there are always jobs that require human labor. Even in this scorching heat, I see roofers and landscapers toiling, trying to make a living. I am looking to replace a toilet with a low-flow one. There's no robot to help with that.

What has been going on for years is the growing chasm between hard-labor and often low-paying jobs and the high-pay specialized white-collar jobs. Works that fall in between are getting more scarce. I don't think any knows what to do about that.

 

[NW-Bound]

A close friend of mine supported his daughter to get a degree in music. She plays percussion instruments, and he spent tens of thousand to get her the equipment so that she could practice at home. I know little about music, but gather that she was fairly good at what she did.

Once with a degree, she realized that the only job with that training would be with a symphony orchestra. Guess how many jobs are open, and what the competition would be?

 

[purplesky]

Driverless cars are going to add to unemployment in the future. No more need for taxi driver and truck drivers, less demand for truckstops, and support services like motels along the interstates. Netflix and Redbox kiosks have replaced the local Blockbuster store. We do most of our banking online or at ATMs.

We have to rethink the economy / labor force of the future. Keynes saw this coming years ago in Economic Possibilities for Our Grandchildren. What will become of us once the struggle for subsistence is solved? Would we spend more time on leisure once our basic needs have been met? Produce and buy unneeded stuff to keep the old economic model going? Everybody still works but less hours?

A light bulb moment for us was realizing we were already enjoying a much higher standard of living than our grandparents (pleasant but small 2 bedroom house, one landline phone, no cable, one car and bus service, maybe two TVs) when we started thinking if we had enough to ER.

I tell our kids to consider doing contract work in specialized fields that pay well and just working part-time or part of the year. Why not "buy" leisure time instead of depreciating consumer goods?

I don't think self driving driverless semi trucks will happen in this lifetime.

The technology to assist truck drivers will happen soon though.

So what happens when all these self driving semi trucks roll into cities like Chicago or Miami or Dallas. How would a self driving truck navigate these cities with the current state of our road and highway system.

You still need the manpower to inbound and outbound freight.

The new technology will make trucking safer but semi truck driving jobs are going to be around for a long time.

Just Amazon alone outbounds thousands of truck loads daily nationwide that go to the rails,airports,postal facilities,UPS and FDX hubs,etc.

 

[Totoro]

Interesting article:
The World's First Self-Driving Semi-Truck Hits the Road | WIRED

Pick up the pick-up truck as it enters city limits

 

[daylatedollarshort]

I don't think self driving driverless semi trucks will happen in this lifetime.

The technology to assist truck drivers will happen soon though.

So what happens when all these self driving semi trucks roll into cities like Chicago or Miami or Dallas. How would a self driving truck navigate these cities with the current state of our road and highway system.

You still need the manpower to inbound and outbound freight.

The new technology will make trucking safer but semi truck driving jobs are going to be around for a long time.

Just Amazon alone outbounds thousands of truck loads daily nationwide that go to the rails,airports,postal facilities,UPS and FDX hubs,etc.

I think the self driving trucks are pretty much now a matter of when and not if:

"The technology already exists to enable trucks to drive themselves. Google shocked the world when it announced its self-driving car it had already driven over 100,000 miles without accident. These cars have since driven over 1.7 million miles and have only been involved in 11 accidents, all caused by humans and not the computers. And this is mostly within metropolitan areas....So according to Google's experience, the greater danger lies within cities and not freeways, and driving between cities involves even fewer technological barriers than within them. Therefore, it's probably pretty safe to say driverless freeway travel is even closer to our future horizon of driverless transportation. How much closer? It has already happened."

Self-Driving Trucks Are Going to Hit Us Like a Human-Driven Truck - Scott Santens

 

[purplesky]

I think the self driving trucks are pretty much now a matter of when and not if:

"The technology already exists to enable trucks to drive themselves. Google shocked the world when it announced its self-driving car it had already driven over 100,000 miles without accident. These cars have since driven over 1.7 million miles and have only been involved in 11 accidents, all caused by humans and not the computers. And this is mostly within metropolitan areas....So according to Google's experience, the greater danger lies within cities and not freeways, and driving between cities involves even fewer technological barriers than within them. Therefore, it's probably pretty safe to say driverless freeway travel is even closer to our future horizon of driverless transportation. How much closer? It has already happened."

Self-Driving Trucks Are Going to Hit Us Like a Human-Driven Truck - Scott Santens

It will happen. But not in your lifetime.

Its one thing to test drive a large self driving commercial semi-truck in a controlled experiment.
But the cost to rebuild highways and roads to accommodate commercial self driving trucks and rebuild hubs and terminals will not be cost effective.

You will still need to pay a truck driver to sit behind the wheel if these trucks share highways with other vehicles carrying people.

We actually have self driving trucks already today. They are going by rail.

Its one thing to have a self driving car take you to the airport.

Its a whole another level to expect the logistics industry to change overnight.

The cost is hard to imagine. Who will pay for it.

 

[ejman]

It will happen. But not in your lifetime.

Its one thing to test drive a large self driving commercial semi-truck in a controlled experiment.
But the cost to rebuild highways and roads to accommodate commercial self driving trucks and rebuild hubs and terminals will not be cost effective.

You will still need to pay a truck driver to sit behind the wheel if these trucks share highways with other vehicles carrying people.

We actually have self driving trucks already today. They are going by rail.

Its one thing to have a self driving car take you to the airport.

Its a whole another level to expect the logistics industry to change overnight.

The cost is hard to imagine. Who will pay for it.

I don't think we'll need to rebuild highways or roads to allow for driverless trucks anymore than Google had to rebuild cities or city streets for that matter to allow for driverless cars. I think the computers will become smart enough (if not so already) to adapt to the infrastructure we have. As to the cost - who would have imagined that robots would paint the cars we now buy when those machines are so much more expensive than the humans who preceded them? yet here we are.

The history so far is that ludites don't win. I see no reason why that trend would change.

 

[purplesky]

I don't think we'll need to rebuild highways or roads to allow for driverless trucks anymore than Google had to rebuild cities or city streets for that matter to allow for driverless cars. I think the computers will become smart enough (if not so already) to adapt to the infrastructure we have. As to the cost - who would have imagined that robots would paint the cars we now buy when those machines are so much more expensive than the humans who preceded them? yet here we are.

The history so far is that ludites don't win. I see no reason why that trend would change.

And what year in the future do you expect to see self driving trucks pulling out of a Amazon distribution center and self driving that freight to a postal facility or a UPS/FDX Hub?

 

[ejman]

And what year in the future do you expect to see self driving trucks pulling out of a Amazon distribution center and self driving that freight to a postal facility or a UPS/FDX Hub?

I have no idea what method of distribution Amazon will use in the future but as I said in an earlier post I would not be surprised if in the next 20-30 years being a truck driver is no longer a primary occupation. As to the specific date c'mon

Tell you what, you give me the specific date the stock market will top out and in exchange, generous me, I'll give you the calendar date driverless trucks will become predominant. Fair trade no?

 

[marko]

It will happen. But not in your lifetime.

.

Speak for yourself!!

It might happen in MY lifetime.

 

[NW-Bound]

I do not know much about the 1880 era, but we do seem to have a surplus of commodities now. Oil is suddenly cheap again. Industrial metals such as steel and copper are abundant again due to more mines opening up when demand drove prices sky high in the mid 2000s.

I just read that pig farms in Denmark are having a hard time because they get only 1.40 euros/kilo, and need 1.70 euros to break even. Here in the US, there's overproduction of milk, and they just dump it in manure pits. A few years ago, several European countries had a wine glut, in which the vintners had to sell for a dime a liter to distill into ethanol to burn in cars. There was also a wine glut in Australia, South America, and South Africa, and the common solution was to let the vines die and cut production. Coffee is getting cheap again too...

I was talking about commodity gluts and forgot about raisins. Yes, just recently, on June 22 2015, the US Supreme Court struck down a federal program that existed since 1937 which regulated the production of raisin.

Basically, if the US raisin production exceeded a quota established by the so-called Raisin Administrative Committee (the name sounds communist, doesn't it?), the government would confiscate "excess raisin" from farmers without compensation. It was for the farmers' own good, it was said, so that the price would be kept higher. Could you believe that?

Some renegade farmers said "To hell with that", would not surrender their raisins, took it to the Supreme Court, and won. The Court in a 8-1 decision said that the government would stop this unconstitutional seizure of property without compensation.

So, watch for raisin prices to fall. Plan to eat more raisins. It's good for you.

 

[M Paquette]

And what year in the future do you expect to see self driving trucks pulling out of a Amazon distribution center and self driving that freight to a postal facility or a UPS/FDX Hub?

2021 or thereabout.

Peterbilt Demonstrates Autonomous Driving Technologies | Transport Topics Online | Trucking, Freight Transportation and Logistics News
http://www.autonews.com/article/20150506/OEM06/150509916/daimler-to-test-self-driving-trucks-in-nev.

And don't forget the delivery drones... er... parcelcopters...
DHL Beats Amazon, Google to First Planned Drone Delivery | Transport Topics Online | Trucking, Freight Transportation and Logistics News

 

[RonBoyd]

And what year in the future do you expect to see self driving trucks pulling out of a Amazon distribution center and self driving that freight to a postal facility or a UPS/FDX Hub?

Around the same time as the Internet collapses:

The Internet could soon be a thing of the past. If we don’t figure out a way to provide data faster, it could collapse by 2023, says Andrew Ellis of Aston University’s School of Engineering and Applied Science.

10 Things We’ll See in 10 Years | Mental Floss