Home > Uncategorized > Comparative Advantage v. Machines

Comparative Advantage v. Machines

This post was originally published on Angry Bear. I wrote this primarily in response to a comment on The Economist’s Free Exchange blog which picked up my original post on the likelihood of structural unemployment due to accelerating job automation technology. Free Exchange basically said we don’t have to worry about a serious unemployment problem because the principle of comparative advantage will insure that people will be  able to find jobs.

Comparative advantage is an economic concept which says that individuals (or countries) will always be better of trading with each other even if one party has an absolute advantage in everything. (See the Wikipedia entry on comparative advantage for some examples.) Comparative advantage is usually attributed to David Ricardo’s work in the early 1800s and is generally considered to be one of the biggest ideas in economics.

The point I try to make in this post is that comparative advantage may not be all that helpful when people have to compete directly with machines that hold a substantial absolute advantage, and the primary reason is that machines (or software automation applications) —unlike people or countries—can be replicated on demand.

More on the Looming Structural Unemployment Crisis, and on Comparative Advantage

In my previous post, I suggested that job automation technology might someday advance to the point where most routine or repetitive jobs will be performed by machines or software, and that, as a result, we may end up with a serious structural unemployment problem. I’d like to respond to some of the objections that were raised regarding that idea.

I thought I would start with a response at the Economist’s Free Exchange blog, which said:

… in general I am pretty sanguine about the long-term prospects for continued voluntary employment of humans. Technology isn’t free, and even if we arrive at a world where some pieces of technology are better at everything than humans, the principle of comparative advantage nonetheless suggests that people will find work.

The idea is that, since everyone has a comparative advantage in something, just about everyone should be able to find some sort of a job. Thus we can be “sanguine.” Nearly every explanation of comparative advantage I have seen involves either individual people or countries. I haven’t seen examples where machines or automation technology come into play, so I thought I’d take a shot at it here.

Suppose we have a tractor and a team of oxen. Both can be used to plow fields, pull wagons or do other things around the farm. Clearly, the tractor out-performs the oxen in every task. Still, there ought to be some area in which the oxen don’t perform quite so badly relative to the tractor. Maybe the tractor is a little less efficient at plowing smaller fields since it has to make many turns. Or maybe fuel for the tractor is much more expensive in some regions, and so the oxen ought, in those cases, to have some sort of comparative advantage. So why have oxen been completely put out of work in developed countries like the United States?

It seems to me that there are two reasons. First, there is the magnitude of the absolute advantage that the tractor has. A tractor is a disruptive technology relative to the oxen. In order to have a meaningful comparative advantage, it’s probably helpful if you can get fairly close to the competition in at least one area.

The second reason is, perhaps, even more important: tractors, being machines, can be replicated on demand. If we imagine that a shortage of tractors existed, then comparative advantage would work. The available tractors would be deployed in their most productive uses, and the remaining work might well go to the oxen. But, in reality, the farmer can acquire as many tractors as he needs to do all his work, and in fact, he has no choice but to do so in order to remain competitive with other farmers.

As another example, suppose you are a brain surgeon who is also an excellent cook. Now, you might choose to employ a cook who is not quite as good as you are because doing so would free up your time and energy to do more brain surgery. So comparative advantage works there. But suppose you develop a machine (or two machines) with a dramatic absolute advantage in both cooking and brain surgery. Then, you could replicate your machine, and pretty soon there would be no jobs for cooks or brain surgeons.

So it seems like that might be a rule: If an affordable machine (or software algorithm) achieves a dramatic absolute advantage in a job or task, it will most likely be replicated and deployed until all competitors are eliminated. Comparative advantage is not much of a defense against that.

It seems to me that over time (not next week, but over years and decades), machines and software automation applications are likely to achieve that type of dominance in a great many areas, and they will be replicated until they consume all the available work. Any enterprise that failed to deploy this new technology would be less competitive.

All of this, of course, really amounts to nothing more than a restatement of the principle of obsolescence: in the long run, disruptive new technologies don’t find an equilibrium with old technologies. Old technologies get replaced. This applies equally to biological technologies like oxen—and perhaps it will someday even apply to human workers.

That’s an idea that economics is probably not ready to accept. Interestingly, other disciplines like biology or physics don’t give any special status to people. We are assumed to be subject to the same overall rules of nature as anything else. No so, with economics. For economists, people are very special; people are labor, and people get a special “L” in all the equations. Economists assume that people—and not just a few people but the vast majority of available workers—are indispensable to the production process. That has been true historically, but will it always be true?

Then again, maybe I’ve missed something. Maybe there is an area where human workers will always have an absolute advantage: in jobs that require uniquely human qualities or creativity, artistic ability and so forth. A lot of the conventional wisdom seems to suggest that we simply need to retrain, re-educate and redeploy workers into these areas, and everything will be fine. Is that likely to be the case? I’ll look at that idea in my next post.
__________________________
Martin Ford is the author of The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future and has a blog at Econfuture

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  1. November 25, 2009 at 3:31 pm

    What you are arguing is mathematically impossible, you would see this if you developed a simple two good model. Imagine there are two goods, X and Y. It takes robots one minute to make good X and, say, 1 second to make good Y. This means a robot owner would benefit from, say, trading 1 X for 30 Y, because then it would only take the robot 30 second to acquire an X. If it took a human 1 year to make an X he could still trade it for 30 Y.

    What matters is not the absolute price of goods, but rather the relative price of goods.

    You only get a different result if there is some limited factor of production such as land which a human doesn’t own, but is needed to make goods.

    • November 26, 2009 at 3:03 am

      I didn’t argue that comparative advantage is mathematically incorrect. I just said it “may not be all that helpful.” In other words, if it implies a wage so low as to be meaningless then what is the point? Can you think of many (or any) examples of cases where people compete directly with machines that have a significant absolute advantage and receive a living wage for doing so? What happens when machines have an absolute advantage at performing nearly any routine job or task?

  2. November 26, 2009 at 5:57 am

    People who wash dishes compete with dishwashing machines. People who clean clothes by hand compete with washing machines. Peasants compete with tractors.

    The wage of a human who works at a job a machine could do is determined by the amount of time the human saves the machine and the value of the machine. As machines get better the first factor will move against humans but the second in favor of us, so you can’t tell apriori what will happen to human wages.

    The U.S. has a huge absolute advantage in nearly everything over Bangladesh, yet Bangladesh still benefits from interacting with the U.S. and the U.S. is not a major source of unemployment in Bangladesh.

    • PLF
      November 27, 2009 at 5:58 pm

      ‘The wage of a human who works at a job a machine could do is determined by the amount of time the human saves the machine and the value of the machine. As machines get better the first factor will move against humans but the second in favor of us, so you can’t tell apriori what will happen to human wages.’

      James,
      Could you please elaborate on the 2nd factor, ‘the value of the machine’. I am not sure if I understand it correctly.

      • November 28, 2009 at 2:26 am

        If I can save a robot 10 seconds of time, then my value to the robot owner is equal to what the robot can do in 10 seconds.

    • November 27, 2009 at 9:18 pm

      I said: Can you think of examples where people compete with machines and receive a living wage?

      You said: Dishwashers, peasants and Bangladesh.

      It seems to me that you are making my point. What are the implications if the majority of the workforce in advanced countries like the U.S. finds itself it this situation? What if it happens fairly rapidly? Would you advocate eliminating the minimum wage so that everyone could work for a dollar an hour? Where would consumer spending come from? How would people pay mortgages and student loans? I’m concerned with how this would play out in the real world.

      • November 28, 2009 at 2:37 am

        Dishwashers in the U.S. make far higher salaries (in terms of the consumption goods they can buy) then at least 90% of the humans that have ever lived.

        Today computers can only replace low skilled workers, and so workers who directly compete with computers make low salaries.

        When computers are able to replace higher skilled workers, you will still see many high skilled workers earning high wages. If you disagree you should really develop your point in a two good model with robot and human workers.

        Non-economists (even when they are very smart and well-studied) get in trouble when they consider trade issues in terms of dollars (“everyone could work for a dollar an hour?”) It’s better to think of wages in terms of what you could buy. In a world with hyper-productive robots you could buy lots of stuff if you could work at a task for say 1,000 hours that saved a robot 10 seconds of time.

    • December 10, 2009 at 10:32 am

      I’ve written a post at Angry Bear which incorporates one of your comments. Please feel free to respond there:

      http://angrybear.blogspot.com/2009/12/job-automation-purchasing-power-and.html

  3. December 2, 2009 at 3:38 pm

    Trade theory and comparative advantage do not in any way suggest that comparative advantage can overcome or obviate absolute advantage. Comparative advantage simply says that you’re best off if you do whatever you’re best at, and trade for the rest. As my teenage daughter would say, “no duh.”

    But if you’re simply not very good at what you’re best at (compared to others), you’re still not going to be guaranteed a living wage.

  4. kharris
    December 10, 2009 at 8:59 pm

    Anytime I read somebody claiming that economists in general “don’t understand” or “aren’t willing to accept” what the writer has all figured out, “half-baked” pops into my head.

    The point that economists are unwilling to displace humans whereas other disciplines are is true. It is also entirely proper that economists aren’t willing to displace humans. To think otherwise is to think poorly. Economics is a social science – a science that is centrally about human behavior. Economists sometimes stray from examining humans – with varying results – but when make humans central to their analysis, it is for definitional reasons. It’s a tautology, really. Economists study humans because they study humans.

    When cosmology tried to put humans at the center of everything, they were making an assertion about how things work and what the purpose of the cosmos is. That sort of assertion can be wrong. Economists who think that the human urge to truck and barter is central to economic activity don’t face the risk of being wrong. Human truck and barter is economic activity. Rocks and trees don’t exchange goods. Some insects exchange this for that, but do so in a fixed way that only changes when their DNA does. We can look at what they do as economic activity, but it isn’t a substitute for what happens at K-Mart or the CBOE.

    So we are backed to half-baked. Trying to promote a Luddite argument by saying that humans aren’t central to economic activity doesn’t work, because humans are central to economic activity. To claim otherwise by arguing that humans aren’t central to “other disciplines” misses the fact that there was chemical and geological and astronomical activity long before we arrived, but no economic activity. Saying otherwise is just silly.

  5. August 4, 2010 at 9:06 pm

    Regarding James D. Miller’s statement: “Non-economists (even when they are very smart and well-studied) get in trouble when they consider trade issues in terms of dollars (“everyone could work for a dollar an hour?”) It’s better to think of wages in terms of what you could buy. In a world with hyper-productive robots you could buy lots of stuff if you could work at a task for say 1,000 hours that saved a robot 10 seconds of time.”

    Mathematically, there is obviously some undeniable truth to that statement. But, practically, that statement remains absurd. :-)

    We need to move beyond the assumptions implicit in that statement, that people only have a right to consume if they can produce something of immediate value to someone else.

    Beyond creating our intelligent infrastructure out of compassion and other important values, we need to move beyond an economic model where the right to consume the fruits of industry for humans (or any sentient being) comes from participating as a worker in an industry. That model has already failed, leaving millions in suffering and hungry amidst plenty in various countries, even in the USA. See:

    http://www.frac.org/html/hunger_in_the_us/hunger_index.html

    “The U.S. Department of Agriculture (USDA) reported that in 2008:
    * Of the 49.1 million people living in food insecure households (up from 36.2 million in 2007), 32.4 million are adults (14.4 percent of all adults) and 16.7 million are children (22.5 percent of all children). …”

    That’s what things were like in the USA before the Great Recession (we’re not talking Bangladesh or wherever else). They are worse now. What will conditions be like when Martin Ford’s predictions come to pass? (It doesn’t help that much of the food in the USA is junk because mainstream agriculture emphasizing factory-farmed meat, dairy, and starch is so heavily subsidized compared to organic vegetables and organic fruits.)

    In one sense, we all need to become like the capital owners, claiming a “rent” from the factories because of some social claim to part ownership, even if we do nothing other than cash dividend checks. The book “People’s Capitalism” by James Albus is one such suggestion. A general “basic income” is another. As is a gift economy, improved local subsistence (printing 3D things yourself), as is general resource-based planning that takes in account human needs (as well as environmental concerns). I talk about the details for solutions in a knol on moving “Beyond a Jobless Recovery”.

    To turn those words around: “Economists (even when they are very smart and well-studied) get in trouble when they consider human welfare issues in terms of trade…” :-)

    Trade is a means to an end, and not the only means. What is the end? Well, many believe it should be a joyful, healthy, and prosperous society for everyone. The power imbalance of having to work 1,000 hours to do what takes a machine ten seconds, and knowing if you do not desperately do so you will starve, and you may starve anyway (will AIs make great con-artists?), is unlikely to be a joyful, healthy, and prosperous place for most people.

    See Marshall Brain’s short story “Manna” for a story about two possible futures, one without a basic income, and one with a basic income.

    http://www.marshallbrain.com/manna1.htm

    At some point we are talking “survival” or “resilience” or “sustainability”, not some mathematical formalism of “comparative advantage”, that suggests a wine producer who loves the culture surrounding making wine should stop doing something they love to open a nail salon because wine can be imported a lot cheaper from somewhere else. It makes no human sense, especially when machines can produce enough for everyone so people should, in theory, have the freedom to spend their time as they like. Just for a fictional reference, in an imagined age of Star Trek matter replicators, Jean Luc Picard’s brother kept the family winery going. I don’t know about you, but to me, on a human level, that feels right. IMHO, we need to build an economics that makes that possible, not an economics that says everyone in, say, the Gulf of Mexico should just abandon generations of a fishing way of life (maybe with some cash for relocation) because BP gets to spoil the Gulf because of “comparative advantage” and profitability.

    So, are “humans” really central to mainstream economics? Or are short-term profits, abstract mathematical arguments, and propping up and increasingly out-of-date status quo built around scarcity assumptions instead of abundance assumptions?

  6. Nylund
    August 5, 2010 at 3:16 pm

    Who designs, builds, maintains and updates, the software and hardware for these machines? Do these machines require inputs, be it metal, plastic, human designs, or electricity? What happens to the costs of those inputs as the demand for those machines grows? Would the increased price for such inputs open up new industrial opportunities to cater to these needs (ie, electricity needs). And what about the machines that build the machines? and the machines that build those? or the buildings that hold the server farms?

    Some weak form of Say’s Law will always apply. You may argue that the answer to those questions is, “it doesn’t matter for US, because it’ll all go to China” or something, but that will eventually lead to us have the comparative labor advantage and it’ll be us who assembles the iPods for them.

    The whole premise of this argument relies on the fact that these machines are “affordable.” What does that mean? It means you make enough to pay the cost. Well, if you’re not working, then you make less, and if the demand for them increases, the cost goes up. So the mechanism you describe will make them less affordable as time goes on from both the buyers side and the sellers side. In short, this assumption of affordability will eventually break down, and it’ll break down much before the future you envision happens.

    Robot slaves cannot take over our jobs because jobless people can’t buy robot slaves. yes, if you just ASSUME that robot slaves are always affordable or cheap, then its possible, but who the heck is supplying them when no one has a job to pay for them?!

    In short, no matter what you think of Say’s Law, some weak form of it must hold.

    The NUMBER ONE RULE of economics is that resources are scarce. You’re saying, “well, ASSUME that resource are NOT scarce?” Well then, is it really so surprising that if you assume that the fundamental idea of economics is not true then neither are any of the ideas built upon that?

    • August 5, 2010 at 5:55 pm

      Nylund, I feel so many economists are lost in beautiful equations and simple assumptions. And that is not just me; Google on “They Did Their Homework (800 Years of It)” for professional economists saying the same.

      Just take a look at what is really going on, whether in advanced robotics or 3D printers like RepRap that can print more and more of their own parts. Things are changing in ways that require less and less human intervention to make stuff, repair stuff, or supply services. And, while it’s true that some systems require servicing, the amount of labor required in a well designed system to do that, relative to the output, is often trivial, and more and more is supplied by voluntary social networks, like the one that maintains Debian GNU/Linux. The whole history of recent computing has been enormous increases in capabilities with less and less need for human intervention. And when the cost of one aspect of the economy, like computing, is driven towards zero, it tends to pull other aspects of the economy towards zero (like cheap computers let you simulate quantum physics better, which leads to better solar cells or maybe even small-scale fusion energy). And at that point, all the beautiful equations start blowing up with divide-by-zero errors. :-)

      If things are so scarce, why is the number one problem so many people in the USA have is too much junk to deal with in their lives (stuff, fat, information, whatever)? So, yes, the fundamental assumption you outline of economics is less and less true in all sorts of areas. From the intro of an online book I wrote on that:

      http://www.pdfernhout.net/post-scarcity-princeton.html

      “””
      Wikipedia. GNU/Linux. WordNet. Google. These things were not on the visible horizon to most of us even as little as twenty years ago. Now they have remade huge aspects of how we live. Are these free-to-the-user informational products and services all there is to be on the internet or are they the tip of a metaphorical iceberg of free stuff and free services that is heading our way? Or even, via projects like the RepRap 3D printer under development, are free physical objects someday heading into our homes? If a “post-scarcity” iceberg is coming, are our older scarcity-oriented social institutions prepared to survive it? Or like the Titanic, will these social institutions sink once the full force of the iceberg contacts them? And will they start taking on water even if just dinged by little chunks of sea ice like the cheap $100 laptops that are ahead of the main iceberg?
      These four projects all represent post-scarcity trends relating to a small local investment yielding huge results globally. A few million US dollars on Wikipedia turned into millions of person-hours of global labor (taken mostly from TV viewing) to yield a global multi-lingual resource that is changing the face of education worldwide. A college student (and grandson of a poet) named Linus Torvalds developed Linux in Finland, and, along with others’ contributions (both volunteer and done while on payrolls), that free software now makes possible huge server farms and huge supercomputers (which previously were slowed by the inability to customize proprietary software, as well as essentially a tax per CPU); those supercomputers are promising all sorts of wonders including new medicines. A few million dollars spent developing WordNet at Princeton has led to a “cognitive revolution” in software that can process text. GNU/Linux and WordNet together made possible Google as it is now. While Google may have annual operating costs in the billions of dollars, it is saving trillions of dollars worth of time spent researching, and it is also improving the quality and timeliness of information used to make important decisions globally. In each case, a relatively small initial investment has produced enormous global benefits. Encyclopedic knowledge is no longer scarce. End-user modifiable software is no longer scarce. The ability to intelligently process text is no longer scarce. Timely answers to certain questions are no longer scarce.
      And those trends continue to the point where, say, for *only* US$600 billion (plus some more for communications infrastructure in some places) everyone on the planet can have a personal laptop with access to all these services and others, including free-to-the-user voice communications. US$600 billion is about a fifth of the current projected total cost of the Iraq war. And if a family shares one laptop, this might only cost about $200 billion, or about the size to a recent mailing of “rebate” checks to US Americans intended to prevent recession. And the potential benefits of a connected planet to help everyone become prosperous together in a diverse and democratic way is enormous. Even just one breakthrough innovation, like, say, a general cure for cancer, developed by, say, a woman in Africa studying pond water who might otherwise not have received an education, might pay back that $200 billion investment a hundred fold. And, if $200 billion still sounds too expensive right now for a chance at world peace and prosperity, extrapolating from Moore’s law, in another ten years, it might only cost US$20 billion ($10/laptop) to give every family such a laptop. And in ten years after that, US$2 billion ($1/laptop, same as some electronic greeting cards now integrating paper, printing, and circuitry). Or, essentially, at that point twenty years from now, the laptops are free, compared to the benefits and other cost savings (like not needing to mail paper as often).
      And, as will be mentioned later, everything that digital computing touches is seeing falling cost trends. Even food, despite the current grim news of food shortages from speculation, can and will get cheaper through agricultural robots and precision farming, and with another benefit of less environmental impact.

      http://www.google.com/search?hl=en&q=agricultural+robots

      http://en.wikipedia.org/wiki/Precision_farming

      These exponential trends in rising capacity and dropping costs illustrate a very different future than the increasingly competitive gloom and doom ones most conventional economists tend to paint for the short term. They even suggest a future where money itself may be less and less important as a control system for day-to-day activities. As Ray Kurzweil puts it:

      http://www.kurzweilai.net/articles/art0134.html?printable=1

      “Most technology forecasts ignore altogether this “historical exponential view” of technological progress. That is why people tend to overestimate what can be achieved in the short term (because we tend to leave out necessary details), but underestimate what can be achieved in the long term (because the exponential growth is ignored).”
      We are witnessing a historic end to scarcity of many things (maybe not all, but enough to be a new global Renaissance). But is Princeton University helping prepare either students or the rest of society for these changes? Or is it instead an institution under stress, crashing into these trends instead of moving with them? Or is it perhaps conflicted in how it sees itself and its future, and so trying to do both these conflicting approaches at once? :-)
      “””

      I’d suggest the same could be said about most major universities, as well as the major social institutions that surround them. I just focus on PU because I went there.

      The problem is that as long as we build our society around an assumption of scarcity, we get deadly ironies like people starving next to silos full of grain, or the military using advanced nuclear and solar technology to fight over oil fields. So, you are right to say that Martin Ford is questioning the fundamental rule of economics. But, so what? Rules get changed all the time. Mainstream economics is, more and more, just part of the history department. :-)

  7. August 5, 2010 at 6:37 pm

    You guys are arguing The Luddite’s Fallacy. Good argument, I poked at it here:

    http://www.asymptosis.com/are-machines-replacing-humans-or-am-i-a-luddite.html

    Follow “Related Posts” at the bottom of that post for more.

  8. Martin Babicek
    September 16, 2010 at 4:00 pm

    If you can save 10 seconds of robots time, then your work isn’t worth space and time to bother. Mathematics is nice, but reality is ZERO. Machine spends almost all time and energy for production. Workman spends almost all time and energy simply to sustain life. Machne will always be far more efficient.

    • September 16, 2010 at 8:57 pm

      I liked your point, Martin.

      To generalize further, all economic transactions have costs associated with them that are outside the direct transaction and direct payments. These are indirect costs like decision making costs about who to purchase from, negotiation costs of prices, risks of non-performance under contract, the costs of communications, the costs of maintaining information about suppliers, the cost and risks of shipment (sometimes included or insured against, sometimes not), military defense costs for supply lines, aesthetic costs related to feelings about dependencies on other cultures or dependencies on long supply lines, and so on (some of which are not so easy to quantify, like risks and aesthetics).

      For example, let’s say you can produce a bottle of wine locally for $100. You know you might be able to buy similar wine for $40 and $10 shipping somewhere else in a foreign country, but it would take ten hours of your time (at what cost per hour?) to find a supplier you could trust to deliver an unbroken wine bottle of something that tastes about as good. And even if you do decide to find a foreign supplier, you might also find you are paying the equivalent of $1000 a bottle when you factor in all the taxes you pay for “defense” to keep shipping lines open against pirates (except that cost shows up on your tax forms, not on your invoices). And there is still the risk that the wine you buy may be defective or even poisoned with something — and so you either have to spend $10,000 a bottle screening for every known (and unknown) poison, or you just need to take your chances and assume the product is equivalent. Just sending an email or a letter about the order might take more of your time than the entire transaction savings could ever be worth. So, yes, there might be cheap wine (or oil or dogfood) sellers out there, but it may not be worth the bother to find them or buy from them (unless you are making a huge purchase or some other conditions apply).

      Now, if you think about employing a person instead of a robot to do a task a robot can do, what are all these extra costs? What is the cost of hiring a person? And even if they work out, what is the cost of finding someone else who can do as good a job if you want to expand, whereas if you used a robot in the first place, you could easily duplicate it? What is the cost the human might sabotage something? What is the risk a human might be injured in a factory, which drives up insurance costs on everything they produce? What is the tax burden of roads to get humans to the factories? What is the time cost of managing human workers who have personal problems and so on? What is the cost of quality testing for the products of humans that may be of uneven quality? And so on. So, even if human labor is *free*, these are all reasons why you would not want to employ humans if a machine can do the job. When you think of it that way, business is full of examples where the cheapest per-unit short-term price is not the cheapest overall long term cost.

      Even “free” land may not be worth it. Historically, consider that the war of independence by the British Colonies in North American as “The American Revolution” was driven in part by increased taxes needed to repay for the decade-earlier “Seven Years’ War” (also called the French and Indian War) from 1754 to 1763 which was to grab more land in North America for economic exploitation. So, it seemed like “free” land (ignoring Native Americans lived on it) but the military costs paid through taxes to steal that land and then defend it were so enormous as to lead to a revolution in the colonies (where essentially, the colonists got the land but shrugged off the debts incurred by the British military excursions to steal it). The French, on the other side, also ended up with a local revolution in part over these debts. Clearly, it was not in Britain’s interests to try to get that free land in a foreign continent, and Britain (or even France’s king Louis XV) might have been a lot better off investing closer to home. See Wikipedia on French_and_Indian_War.

      Probably somewhere deep in the mathematics of “comparative advantage” is the assumptions that all these indirect costs and risks (or risk insurance premiums, assuming they could be calculated) are *zero* because there are probably missing terms in the equations. When you add all of them in as real costs, I’d suggest that there is some baseline transaction cost where there is no value in trading when there is any greatly lopsided advantage (like with the tractor and ox example, whether where you have to learn both know how to take care of tractors and oxen, or where robots produce as much in a minute as a human produces in a year). In the case of the hyperproductive machines, the question is, why bother to take time to negotiate with a human who produces uneven quality when you could just put another robot online in less time and get reliable output? The cost of just talking to a potential human employee or to to buy goods from a human would be more than it was worth. Unless, of course, you were in the specialized business of selling overpriced low-quality human-made junk as handicrafts, much as people will spend a lot today for authentic products made by hand, usually just put on the wall as they may not perform as well as modern designs, but they may have an emotional or aesthetic appeal none-the-less or may be seen as an act of charity. (To be clear, some hand-made items, especially with traditional non-plastic materials, are still much better than mass-produced items, but that does not mean they will always be.) But it will be pretty sad and disheartening to most people when the value of essentially all human labor is just as “charity” and as “art”, unless we have rethought our economy by then.

      Anyway, that’s why mainstream economist have their head in the sand. If they were to admit that, then they would have to admit we need some mix of a basic income, a gift economy, democratic resource-based planning, and stronger local communities capable of producing stuff for themselves with 3D printing, solar energy, organic gardening, and so on. Now, several Nobel Prize winning economists have called for a basic income, so they are not all clueless. But most of them may be too entranced with the beauty of the equations to accept they have fundamental flaws and many missing terms and also suffer from divide-by-zero errors as machines produce more and more for less and less.

    • Martin Babicek
      September 18, 2010 at 9:10 pm

      I got some numbers (google) and 1 hour robots time cost max. $3 (cost $40,000 to 60,000 + 60,000 x 2 – energy+maintenance, divided 60,000 MTBF) It’s pretty fast robot, I’m sure I can’t go half as fast even few minutes.

      http://singularityhub.com/2009/11/05/adept-quattro-becomes-worlds-fastest-robot-video/

      So, 10 seconds its time is not worth 1 cent. I would like to see Mr Miller compete this price. Human work against this robot is worth approx. $1 per hour now, not in far future.

  9. August 31, 2011 at 2:42 am

    I seriously believe that the slave (machines) cannot become absolute masters. It is after all the creation of human beings and it may not be possible to replicate all the work that man does. Though I agree that it may sometime usurp most of the jobs available to human beings.

  1. December 10, 2009 at 1:31 pm
  2. March 4, 2010 at 4:42 am
  3. August 4, 2010 at 9:16 am
  4. August 4, 2010 at 1:39 pm
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