The Robots Can Take Our Jobs, But They Can’t Take Our Economy
One of the stranger predictions about artificial intelligence is that it will make the economy spectacularly productive while leaving most people unemployed, unemployable, and unable to obtain the things they need.
Here’s how the AI Economic Apocalypse Theory (AI EAT) works. The machines will start by taking all the cognitive jobs. But eventually they’ll also produce our food, manufacture our goods, and perform virtually every service humans now perform with extraordinary efficiency. Their owners will become fabulously wealthy. Ordinary people, having lost their jobs to automation, will supposedly lack the purchasing power to participate in this abundance.
The prediction combines two assumptions that sit uneasily together. People are excluded from the output of automated production, yet somehow that production eliminates their ability to supply one another. We told we will be living in a world of super-abundance provided by AI production of goods and services that somehow is also a world in which almost everyone is deprived of those goods and services.
We’re not making this up. This is really what a lot of people—including people who work for AI companies—are predicting.
The missing explanation is why people with unsatisfied needs, useful skills, and productive resources would stop exchanging goods and services. Why would we stay idle when our neighbors, our friends, and hundreds of millions of our fellow Americans need the very goods and services we provide to each other right now?
The answer cannot be that the market for our labor will be destroyed because AI will perform all of it and deliver those goods and services so much cheaper. Why can’t that be the answer? Because then we’re not in the dystopian science fiction AI EAT world of mass deprivation. We’re in a world of mass abundance where the stuff we need has become so incredibly cheap that there’s barely anything left for us to do.
AI Productivity Can’t Create Mass Deprivation
It’s worth exploring this a bit. Suppose the owners of automated businesses reserve their output for themselves or charge prices ordinary households cannot afford. It’s a sort of perverse Atlas Shrugged scenario, where the owners of capital retreat to their fortresses, leaving the rest of us without jobs or the means to obtain the goods and services we enjoy today.
In that scenario, everyone else still needs food, shelter, clothing, transportation, education, entertainment, and every other service we need today. They retain their knowledge, skills, tools, and ability to organize production. If we are deprived of access to the AI abundance, that just means we’re living in an economy that looks just like it would without the AI abundance. The wealthy owners of AI may have nothing left to do, but there is plenty of work for the rest of us.
Part of the error here is that people imagine that companies and bosses are the source of employment, income, goods, and services. In truth, companies are simply the middlemen between the supply of labor and the demand. They exist to efficiently coordinate supply and demand. If the AI bosses fire everyone and then somehow hoard AI’s production, the entrepreneurs around us will simply organize new firms to coordinate the supply of goods and services with the demand for them.
In other words, companies are not the source of demand for labor. They are the mechanism for connecting supply and demand. They organize economic activity but do not create the need for it. Human needs and desires provide the underlying reason for it. People supply goods and services to obtain the means to purchase what others supply. Somebody else owning a superior machine does not abolish the benefits of that exchange when its output is unavailable.
Now suppose automated businesses make their output widely available at prices that undercut human producers.
Particular jobs can disappear. Perhaps many jobs do. Our incomes might fall. But the goods and services those jobs once supplied become vastly cheaper. The resulting increase in purchasing power must be counted alongside the displacement of workers or loss of income.
The economic apocalypse argument invokes cheap automated output to explain why human producers cannot compete, then effectively withdraws that cheap output when assessing household living standards. That’s not just an unlikely scenario. It’s an impossible one.
Humans Are Not Horses
Sometimes defenders of the AI EAT point to the fate of horses after the invention of the combustion engine and the introduction of mass production. Cars and tractors didn’t shrink the market for working horses. They wiped it out. So, the claim goes, we go the same way once machines can do what we do.
But we’re not horses. The working horses had a problem that humans do not. They couldn’t trade with each other. When human demand for horse labor cratered and our willingness to pay for that labor with feed and shelter evaporated, horses couldn’t step in and create their own economy. If human labor becomes superfluous to AI companies, we don’t suddenly become helpless horses. We still retain the capacity to supply each other with goods and services, and that capacity creates its own means to pay for our needs.
To put it slightly differently, the horse economy was always about serving human needs; and when horses were superfluous to that, they were in trouble. The human economy, however, is about supplying the goods and services humans need. If AI doesn’t have use for us and doesn’t supply us with everything, we can still do that for ourselves. The horses could not.
Carry the abundance assumption far enough, and its implications become clear. If ordinary necessities cost almost nothing, people need much less income to obtain them. Falling dollar wages do not establish falling living standards. What matters is what those wages purchase.
It’s true that owners of productive capital could become vastly richer while ordinary households enjoy unprecedented material comfort. In some accounting sense, that might increase inequality. But it’s not clear why one should care. We’re all vastly better off by the increase in productivity. If some AI titan wants to live alone in a sky-castle staffed by robots, that’s not really something the rest of us need to worry about. That’s not the AI EAT scenario the scaremongers are constantly warning us about.
Sorry Humans, You’ll Probably Still Have to Work for a Living
Of course, we are unlikely to reach a world in which every desire can be satisfied at negligible cost.
Where goods and services remain expensive or unavailable, people retain an incentive to supply them. Where automation makes them cheap, households can direct their spending toward other things. Human attention, personal service, craftsmanship, entertainment, and experiences can remain valuable. New wants can emerge as satisfying familiar needs consumes less of our income.
If anything, human labor is likely to become even more valuable in the super-abundance scenario. With the basic needs cheaply supplied, many people may withdraw some or all of their labor from the economy. As economists might put, the “reservation wage” of humans sky-rockets because the opportunity cost of leisure falls. The diminished supply of labor will put a premium on people still willing to work to increase their own wealth. Handmade goods, painstakingly brought forth by craftsmen, and in-person services become luxury items purchased by the wealthy at a high price.
The usual objection is that an economy of musicians, caregivers, makers of handmade shotgun stocks, or bespoke cobblers could not support everyone at sufficiently high wages. But sufficiently high for what? Today’s cost of living is the wrong benchmark for an economy transformed by extraordinary abundance. An income that looks meager in current dollars could support a comfortable life if food, housing, transportation, and medicine became radically cheaper.
And if abundance eventually allows people to spend more time fishing, reading, or singing together, that is a welcome return on productivity.
For now, human beings show little inclination to run out of desires. And so we will probably continue finding reasons to work for one another.
