[FORUM] Do you think that robots will cannibalize our economies?

[rfmcdonald]

A recent post at Lawyers, Guns and Money by Paul Campos the 11th of this month entitled "Economic possibilities for our future robot overlords" caught my attention. Briefly? A prescient essay by John Maynard Keynes about wealth per capita and income was interestingly wrong.

[I]n 1939 John Maynard Keynes published what eventually became a famous essay, entitled “Economic Possibilities For Our Grandchildren,” in which he tried to predict what “the progressive countries” (what would now be called the developed world) would look like in 2030.

The essay makes two big predictions:

(1) By 2030 the developed world would be in per capita terms four to eight times wealthier than it was a century earlier.

(2) This explosion of wealth would produce a tremendous reduction of hours worked, as people chose leisure over yet more income.

The first prediction was almost uncannily accurate, while the second has turned out to be completely wrong in regard to the United States, and largely wrong about Europe.

[. . . W]ork hours in the US and Europe had declined considerably over the previous half century, and Keynes assumed that the income effect — the declining marginal utility of income in relation to leisure — would cause this trend to continue. Since then, however, the decline in working hours has ceased almost completely in the US, and slowed down drastically in Europe (Europeans do work about 20% fewer hours than Americans however, which is not a trivial distinction).

Economics being a rather tautological discipline, there is of course a ready theoretical explanation for this as well: the substitution effect — i.e., to the extent that productivity increases are reflected in higher income per hour worked, each hour of forgone work in favor of leisure becomes more costly to the worker.

Income growth has fallen far behind GDP per capita, and may be likely to continue to fall.

In the late 1960s, median household income was nearly double per capita GDP, while today we have nearly a one to one relationship between the two metrics (Households are on average only slightly smaller today. I don’t have figures for 1967 handy, but in 1975 the average household included 2.89 people, while in 2012 it featured 2.54 persons). Or to put it another way, if over the past 45 years the nation’s increasing wealth as measured by output had ended up getting distributed equally across income groups as income, median household income in the US would be nearly $100,000 per year, rather than half that sum.

Why? At his blog, Noel Maurer has complained at length about robots and advanced computer systems cannibalizing formerly middle-class occupations. (He has a tag, and everything.) At a deeper level, this slow income growth--accompanied by growing inequality--is ultimately a matter of policy.

Will this trend change, do you think? Or will it persist until something--I dare to predict something unpleasant--occurs?

Discuss.