AI and Employment

The drum beat is now fairly steady. Artificial Intelligence, or, to use Robert Todd's language, "machine intelligence," is coming for your job. The assertion makes intuitive sense. If AI can perform my job better, more quickly, at a far lower cost, then investors would be stupid not to exchange me for a robot. And, in the short run, it undoubtedly will. But, as anyone who did not fall asleep during Econ 101 knows, to replace me in the long run, in a capitalist society, we would also have to convince AI to purchase and consume the goods, knowledge, and services it is offering in my place.

The problem with the argument that AI is coming for our jobs is that at a very fundamental level it misunderstands how capitalism works. The misunderstanding was there at the very beginning. By "beginning" I mean Adam Smith, Wealth of Nations, 1776. There, in chapter 1, on page 20, Smith tells the following story, a story about AI:

Whoever has been much accustomed to visit such manufactures, must frequently have been shewn very pretty machines, which were the inventions of °such° workmen, in order to facilitate and quicken their own particular part of the work. In the first fire-engines, a boy was constantly employed to open and shut alternately the communication between the boiler and the cylinder, according as the piston either ascended or descended. One of those boys, who loved to play with his companions, observed that, by tying a string from the handle of the valve, which opened this communication, to another part of the machine, the valve would open and shut without his assistance, and leave him at liberty to divert himself with his play-fellows.

Only if the efficiencies won by the fire-engine boy's innovation were transferred to his family would the boy truly be at liberty to divert himself with his play-fellows. History, however, tells another story. Efficiencies are only adopted where they increase the marginal benefits for investors. At best the efficiencies will be shared between innovator and investor. In the case of Smith's apocryphal fire-engine boy, his innovation would have forced him to find new labor to feed his family, not to divert himself with his play-fellows. He and his family would have seen none of the efficiencies. But there is another far deeper problem with Smith's example.

In a capitalist economy investors invest in order to see returns on their investment, not — NOT — in order to shorten the working day. Did AI genuinely take our jobs, law makers, regulators, and investors would be forced to find some means for getting money into our bank accounts. That is because workers are also consumers of the goods they produce. Investors need consumers to have money to buy what they produce. Usually, but not always, we exchange our labor for the means to buy and consume what we produce. Or, indirectly, we exchange our capital for the means to buy and consume. No purchasers, no consumers, no marginal returns. No marginal returns, no investment.

This is not rarified economic theory. It is observable fact. Compared to a century ago, our society is infinitely more efficient. Already, now, today, your labor is not needed. Not forty hours a week. Not eight hours a day. Not 365 days a year. Not even close. What is needed is your purchasing power. Investors need you to buy things. But in order to buy things you need to have money. Rather than simply give you the money, investors will prefer to glue you down behind a cash register, or behind a screen, or behind a steering wheel. And when these disappear, which they will, they will find some other way to anchor you to the consumer economy. Because if they do not, then you cannot consume. And if you cannot consume, then they will see no returns.

Yes. Some people do not have to work at all. Yes. Some people have their money work for them. And, yes, these people can only enjoy this no-work utopia because and to the extent that you and I work and consume. But this also means that, no, AI is not coming for your job, whatever job that is. So, not to worry. Producers will always find some meaningless task in exchange for which you will retain the ability — no, the right! — to consume.