Recently people have been giving extra attention to what the heck is going to happen to the economy once robots automate away the average person’s job. There is a lot of fear going around, and I’m going to make an economic proposal even though I do not have those three special letters next to my name to make it respectable (not like the policy would work if I had a Ph.D. anyway).
Let’s start with a truck driver named Henry (because who doesn’t like a Henry, right?). Anyhow, Henry has been driving his big rig up and down the beautiful USA for the past 35 years and he has around 10 years until his retirement. Henry has always been a loyal worker for his company but from the company’s perspective, they’re in competition with other delivery companies to reduce shipping costs. Therefore, Henry’s job is replaceable if there is a significant change in the way competitors begin to cut costs because the company he works for has to stay competitive too.
In comes the automated electric big rig that has 99% fewer accidents per year on average than the normal truck driver, and it doesn’t require the truck drivers 60k salary. Let’s aggregate that salary over 1,000 truck drivers working for this company, that’s $60 million per year that company is saving (excluding inflation) if they eliminate their entire driving workforce. Now, let's say this company buys 1,000 automated big rigs for $150,000 each; that turns out to be $150 million spent, or $150 million deficit on day 1 (let’s assume that all this happens in one day since I only get 1200 words). This means at the end of year 1 it will be a $90 million deficit, end of year 2 a $30 million deficit, and break even point will come half way through year 2. This is not including all the benefits that were being paid to workers, the reduction in liabilities from fewer accidents, and all the gas money saved from automated electric big rigs. Let’s just say this company breaks even after 2 years, and then they are technically profiting an extra $60 million every year after that. In other words, if your competitor does this, you have no choice if you want to stay competitive. This is not a moral case and has nothing to do with reinvesting back into our people because efficiency will always win in a capitalistic society. However, we aren’t monsters, so what the hell happens to our good friend Henry?
Well, this is the question of the century, and my partially educated self is going to take a stab at solving this problem.
Henry is out of a job, and he has no idea what to do. He can’t just “get another job” because he’s been doing the same thing for 35 years. It would be foolish to go back to school because that would prolong his retirement by at least another 10 years. It’s simply unreasonable to tell anyone who was successfully working to retire at 65 to retire at 75 just because they have been automated out of the workforce. Now what? Well, Henry’s corporation will save $60 million a year by not having to employ him and his co-workers. This means that we could actually see a deflationary period if enough of the economy goes through an automation phase (which is almost guaranteed to happen). Deflation is a possibility because companies will lower their prices because they are saving so much and their competitors will want to attract business by undercutting prices to a sustainable point. You might be saying, “Yay, everything will be cheap!” Not so fast, there will be a ridiculously high unemployment rate/lack of participation in the labor force and production will be extremely high from robots doing all the labor, how is anyone going to purchase anything from this new abundance without a paying job?
My proposal is to tax the amount that corporations save from automating jobs away and put the tax money into a sovereign wealth fund managed by a team of the best financial wizards in the country (sort of like social security but with the Harry Potter cast). This fund will be funded in proportion to the amount of corporate saving in the economy from companies going towards automation. It will also give people a living wage until they either get a new job or decide to live off of the (much lower) living wage that is supplementing their life. The living wage could also be on a declining scale to improve incentives to get back into the workforce, which means that the longer someone is being supplemented by it the less funding they receive. This could be a win-win situation because automation will increase productivity and save corporations money, and people could still have a universal basic income to live off of until they are able to find a new job. You might be saying, “How is this any different than welfare?” Great question. This is different from welfare because you would have to prove that you lost your job specifically because of automation, therefore, you are most likely a motivated individual that simply lost out to technology. This means that you will probably want a higher income than what you will be receiving from the sovereign wealth fund and will look to improve your skills in order to get your income back to an adequate level. Also, because this will be on a declining scale it will be very difficult to make a living off of this unless you already have great savings.
The sovereign wealth fund will invest in safe investments with low-moderate yields and it will be focused on inflation protection and sustaining the current assets with moderate gains and very minimal drawbacks. I would also recommend this fund investing and holding a commodity such as gold because gold is a great inflation protector and it has little correlation with the normal assets (such as stocks) which would help protect against large drawdowns in the market or a depreciation of the dollar.
If the fund could earn around 5% annually (which is extremely modest) then the fund’s size can double about every 14 years without any new investments into it. Also, because a person will have to apply to receive the funds, once they are able to get a new job they will not be in contention to receive the funds anymore. Which means that their former company will still be paying the taxed portion of their old salary into the fund even though that old employee got a new job. They will do this because the company will be paying out of the amount it saves from automating job away, rather than paying until their ex-employee gets hired. By having it set up this way it is guaranteed to let the economy’s production grow substantially from automation while having enough funds to keep displaced workers in respectable living conditions. This can protect against social unrest, give businesses the opportunity to compete while still knowing their workers are in adequate conditions and increase the production of society. Whether this would be a permanent fix or simply a band-aid for a bigger problem would require more analysis to say with any sort of confidence. However, automation of skilled and unskilled jobs is inevitable and we need to adequately prepare before it is too late or all of the Henry’s of the world never get to enjoy the fruits of their lifelong labor.