The IT department of a U.S. corporation recently terminated around 250 skilled technical employees, replacing them with less skilled and expensive ones; then hiring some others to produce "more innovations."
We are describing capitalism’s "creative destruction," the human costs dating back to the 18th century enclosure movement in England that drove workers from the farm to the industrializing economy. 1 But now economic forces and technological progress might even threaten work itself. Silicon Valley entrepreneur and author Martin Ford (2009) writes that outsourcing work abroad is but a precursor to full automation. Eventually, workers will be replaced by computer systems that can program (in the above maintain) themselves. The economy will then be all supply and no effective demand. Are the robots coming?
A large number of highly accomplished Silicon Valley engineers and authors are furthermore becoming alarmed at the rapid technological developments of genetics, nanotechnology, and robotics (GNR), in the latter case according to Moore’s law. 2 In an essay, “Why the Future Doesn't Need Us,” Bill Joy, a cofounder of Sun Microsystems, likens the development of these technologies to the development of the atomic bomb in the 1940s; except these technologies are being developed commercially rather than by governments, and are therefore not under control. In that article, he writes that the dangers of these Pandora’s box technologies lie in the fact that they are self- replicating. You only need to produce one highly intelligent computer program or develop one instance of nanotechnology capable of enveloping the biosphere - and then if they escape they will multiply, causing something very bad to happen. Taking an economic view, companies will adopt these technologies for competitive reasons if they result in a less expensive way of doing things.
But will technology take over entirely? How do models behave when confronted with, as a Wall Street researcher said, "life"? The answer is, not quite perfectly. We cite two examples:
The real world is anything but placidly Gaussian. As we illustrated in "The Nature of Economic Equilibrium,” (using yearly data), the error-correcting willingness of investors to buy stocks (a proxy for the U.S. stock market) is barely mean reverting, when it is under the control of the Fed. When U.S. consumer behavior changes, the financial system changes, when different international forces impinge, the flexible markets will very simply adjust, changing previous correlation coefficients and regression parameters. Thus, as a Morgan banker noted, “Financial models predict until they don’t.” If the error-correcting markets are barely mean reverting, that means all the precise equations that comprise modern economics are normative, starting with the assumption of a maximized self-interest. Perhaps qualitative methods also describing society are appropriate to the subject matter.
In the 6/19/15 NYT, Paul Krugman writes about economics itself:
...we don’t know very much about how to raise the long-run rate of economic growth. Economists do know how to promote recovery from temporary slumps, even if politicians usually refuse to take their advice. But once the economy is near full employment, further growth depends on raising output per worker. And while there are things that might help make that happen, the truth is that nobody (our note: except experimental entrepreneurs on a mission to do things better and change the world) knows how to conjure up rapid productivity gains. 3
The short-term economic equilibrium that markets grope for is continuously being upset by technological progress, substantial events and above all changing consumer tastes. This means that any kind of optimized economic production, management system, or financial portfolio will continually be thrown out of optimality. Under these circumstances, producers will seek not only lower costs, but also the flexibility to adapt to Mr. Market.
To cite three examples where automation is changing the workplace:
Globalization has decimated northeast Italy’s industries. Since the beginning of the global economic crisis, nearly 17% of the industrial workforce, or 135,000 people, have lost their jobs. A manufacturer of automobile prototypes said, “We needed…to use…the same skills, the same space, the existing investments, but for a new business.” 4 Using 3D printing, the company developed a series of designer lamps and customized sunglasses. “These technologies inject the elements of the digital economy into the physical world, allowing a galaxy of small companies to compete with multinationals....The advent of rapid prototyping and other innovations means ‘you can compensate for your (cost) disadvantage with variety, customization, and a rapid response to what the market is demanding…” This requires a spirit of experimentation; but as a designer said, “Even when you do something with new technology, you can’t forget the aesthetics of the past”.
Technological developments in the U.S. might constitute the greatest possible threat to its jobs. The questions are, “Will technology, as it has in the past, enhance human capabilities?” or “Will technology replace humans?” Perhaps the largest obvious threat to U.S. jobs comes from cognitive computing in the service industries. In 2011, IBM’s Watson beat the human competition in “Jeopardy.” Watson is now being trained as a cancer specialist to find personalized treatments by comparing “disease and treatment histories, genetic data, scans and symptoms against the vast universe of medical knowledge.” 5 Formerly the size of a room, Watson (its database undoubtedly specialized) is now the size of three pizza boxes. Dr. Garcia-Manero, a M.D. Anderson leukemia specialist said, “it isn’t so much that Watson is wrong, but that it’s still learning….In the future, Watson ‘will be a fantastic adjunct even for a master chess player….They keep telling me it will not replace me; but I am pretty sure it will replace me.’”
Watson can be an expert when domain-specific knowledge is cumulative, and even expanding. But can Watson be an expert in markets; or to put it another way, life? In markets, timing matters (but is not all). Furthermore in economic markets, and of course in political markets, the freedom to explore new possibilities also matters. Unless society is conceived of as a disciplined factory, computer programmers will not be able to program in all contingencies; and even if a computer were programmed to somehow handle unforseen contingencies, it wouldn't be trustworthy. I would want a human to be responsible. In social science jargon, Watson has an omitted variables bias. 5a
Toyota Motor Corporation is the largest manufacturer of automobiles in the world. A 7/15 Motor Trend article reports:
(after the 2008 financial collapse)…Toyota’s legendary just-in-time manufacturing process…roared out of control amid the car market’s sudden gyrations. Like that, it transformed from world-class industrial model to a monster they couldn’t throttle, bleeding away a fortune as the months passed…Toyota…reimagin(ed) itself. From retracing how it got here …to a fundamental rethink of vehicle line architectures, its assembly lines - even the structures they’ll build them in.
…under the goofy slogan of “Building Ever-Better Cars,” Toyota intends to go simple…All the key interior components-steering wheels, shifters, pedals…will be dictated by standardized seat heights. Select a seat height and the car’s mission (is it a sedan?) and this leads of a highly pruned decision tree of accompanying components. (This is an example of useful abstraction.)
…they (then) explain the reimagined factories that will build them. It skips from “Just in Time” to “Right Now” with flexibility and responsiveness that’s simply dazzling....It’s “One-by-One” production instead of usual production lots of, say, 50 cars of a certain color.
Moreover…(…almost all the machinery) will be dramatically more compact, and combined with the elimination of overhead conveyors, they allow Toyota’s future factories to be both smaller and entirely single story…it also opens a bigger role for…old-fashioned humans who can now walk around and get to everything….The revenge of the human! It’s calculated that these Ever-Better-Plants will drop factory investment by a whopping 40 percent. 6
With an exception we later mention, the situation is still subject to specification. There then arises a question that goes back to the ancient Greeks. Socrates asked, “How should one live?” 7
Socrates’ question is crucial because the state of GNR technologies still gives people the power to use them to achieve human goals. To cite an obvious example, future developments in genetics will help cure more diseases or might make possible the dysfunctional selection of genes that express only certain traits. The latter would invalidate the key assumption of the democratic political system, that people have an essential equality and value.
So returning to Socrates’ question, the Greek answer was eudaimonia or human flourishing, that involved mainly the individual: his talents, character and work. (We think this is the main reason why American movies are universally popular abroad. 8 ) Although there are clearly human costs, the regulated market system fosters freedom and diversity. The overdevelopment of GNR technologies threatens these.
Both the economic and political systems will likely winnow out the ideas that compromise the values of U.S. society. But Bill Joy notes about GNR research, “The only realistic alternative I see is relinquishment: to limit the development of the technologies that are too dangerous, by limiting our pursuit of certain kinds of knowledge.” 9
The former executive editor of the Harvard Business Review, Nicholas Carr writes, “To ensure society’s well-being in the future, we may need to place limits on automation. We may have to shift our view of progress, putting the emphasis on social and personal flourishing rather than (our note: some) technological advancement. We may even have to entertain an idea that is sure to be unthinkable, at least in business circles, giving people precedence over machines." 10
The above suggests a set of social possibilities driven by technology. Societies provide the contexts in which technology operates; as people exercise their self-interests, properly understood.