My purpose in writing these "fallacy" posts is to compile over time an "Austro-Libertarian Q&A" or "Snappy Answers to Silly Economic Fallacies." When it comes to discussing economics and politics with real people in real time, the other person's questions often come at one quickly, so one had better be prepared to fire back an answer just as quickly. Luckily, I don't think that's as hard as it sounds.
If a person asks you a question quickly, it is usually because the person is in "knee-jerk mode": he is simply parroting a sound bite he heard on The O'Reilly Factor, NPR, the New York Times, or in his college economics textbook. Ideas that are parroted rather than carefully built up from first principles are much more likely to be fallacies than true statements. And although it may seem like there are 1,001 different fallacies out there, most of them are actually variations on a surprisingly small number of themes. Just compile and memorize a list of the main fallacies, discover and memorize their refutations, then have fun shooting the fallacies down whenever you come across them.
On to the main topic of this post. . .
Fallacy: Machines and other forms of technology put people out of work.
My favorite passage from the chapter "The Curse of Machinery" from Henry Hazlitt's wonderful introductory book Economics in One Lesson has got to be this one, where he purposely constructs a ridiculous example by pushing the anti-machinery sentiment to its logical conclusion:
Why should freight be carried from Chicago to New York by railroad when we could employ enormously more men, for example, to carry it all on their backs?
Murray Rothbard makes a similar point in his book For a New Liberty:
If technology were to be rolled back to the "tribe" and to the preindustrial era, the result would be mass starvation and death on a universal scale. The vast majority of the world's population is dependent for its very survival on modern technology and industry. The North American continent was able to accommodate approximately one million Indians in the days before Columbus, all living on a subsistence level. It is now able to accommodate several hundred million people, all living at an infinitely higher living standard -- and the reason is modern technology and industry. Abolish the latter and we will abolish the people as well.
That is what we might call the "big picture" or "forest" view of technology's effect on the economy. Its truth is hard to deny. Where people seem to trip up is when they start thinking about particular situations involving particular technologies and particular people who lose their jobs because of them. Hazlitt tackles this problem (among many others) in his book:
Joe Smith is thrown out of a job by the introduction of some new machine. "Keep your eye on Joe Smith," [certain] writers insist. "Never lose track of Joe Smith." But what they then proceed to do is to keep their eyes only on Joe Smith, and to forget Tom Jones, who has just got a new job in making the new machine, and Ted Brown, who has just got a job operating one, and Daisy Miller, who can now buy a coat for half what it used to cost her. And because they think only of Joe Smith, they end by advocating reactionary and nonsensical policies.
In another part of the chapter, Hazlitt uses the example of a coat manufacturer to elaborate on why in the long-term, automation produces social benefits:
. . .it may seem [that] labor has suffered a net loss of employment [from automation], while it is only the manufacturer, the capitalist, who has gained. But it is precisely out of these extra profits that the subsequent social gains must come. The manufacturer must use these extra profits in at least one of three ways, and possibly he will use part of them in all three: (1) he will use the extra profits to expand his operations by buying more machines to make more coats; or (2) he will invest the extra profits in some other industry; or (3) he will spend the extra profits on increasing his own consumption. Whichever of these three courses he takes, he will increase employment.
In other words, the manufacturer, as a result of his economies, has profits that he did not have before. Every dollar of the amount he has saved in direct wages to former coat makers, he now has to pay out in indirect wages to the makers of the new machine, or to the workers in another capital-using industry, or to the makers of a new house or car for himself, or for jewelry and furs for his wife. In any case (unless he is a pointless hoarder) he gives indirectly as many jobs as he ceased to give directly.
I would even suggest modifying Hazlitt's example slightly to point out that if the manufacturer is indeed a "pointless hoarder," long-term social benefits will still result since his "hoard" represents a decrease in the amount of money in circulation, which drives down prices since each unit of money will now buy more in terms of goods and services.
Hazlitt goes on to acknowledge that yes, we should keep at least one eye on "Joe Smith." He is a real person and has been thrown out of a job by a new machine. Perhaps he can find a new (hopefully even better) job, but perhaps he can't. He may have spent most of his life developing a particular skill which the market no longer demands. He has lost that investment in himself just as some employers lose their investments in obsolete machines or processes. "Joe Smith" was previously skilled and paid accordingly, and practically overnight he has now become an unskilled worker whose pay -- at least initially -- will probably be much lower. And what if he is an older fellow? He will face the added challenge of competing for jobs with much younger, stronger, healthier, and faster unskilled workers. But although we must not forget "Joe Smith," neither must we forget the astounding increases in living standards across society that are enabled by the creation and use of technology.
But what about poor "Joe Smith," you persistently ask? Don't we need a government in order to alleviate his suffering, given that he has fallen on hard times? I will have much to say about that in future posts.
Good points overall... I have two things to add:
ReplyDelete1) If we word the question a little differently, it seems downright silly: "Do computers put people out of work?" On the contrary, there is hardly a job to be found that doesn't involve computers. Indeed, computers have created many more jobs -- and far more prosperity -- than we ever could have imagined just a few decades ago.
2) One of the reasons Joe Smith would encounter age discrimination is because of health care costs. Government interference has messed up that situation so badly that these days you almost have to get health insurance through an employer. Most individuals don't qualify for their own health insurance; why would they when the health insurance companies have far more incentive to cater to employers' group plans? If employers could stick to paying wages and we could easily get our own benefits, everyone would be better off. The best way for that to happen is for the government to reduce interference, i.e. stop the "double tax" on corporations, take away the tax incentives to provide "broken" health care to employees, let free market competition -- and not government taxes and mandates -- decide the best way for us to receive health care.