Bill Gates wants to undermine Donald Trump’s plans for growing the economy
from Dean Baker
Yes, as Un-American as that may sound, Bill Gates is proposing a tax that would undermine Donald Trump’s efforts to speed the rate of economic growth. Gates wants to tax productivity growth (a.k.a. “automation) slowing down the rate at which the economy becomes more efficient.
This might seem a bizarre policy proposal at a time when productivity growth has been at record lows, averaging less than 1.0 percent annually for the last decade. This compares to rates of close to 3.0 percent annually from 1947 to 1973 and again from 1995 to 2005.
It is not clear if Gates has any understanding of economic data, but since the election of Donald Trump there has been a major effort to deny the fact that the trade deficit has been responsible for the loss of manufacturing jobs and to instead blame productivity growth. This is in spite of the fact that productivity growth has slowed sharply in recent years and that the plunge in manufacturing jobs followed closely on the explosion of the trade deficit, beginning in 1997.
Manufacturing Employment
Source: Bureau of Labor Statistics.
Anyhow, as Paul Krugman pointed out in his column today, if Trump is have any hope of acheiving his growth target, he will need a sharp uptick in the rate of productivty growth from what we have been seeing. Bill Gates is apparently pushing in the opposite direction.
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Real-World Economics Review Blog 
Marx said private property is the limit to capitalist development.
It is the nature of capitalist system that generates this contradictions.
Automation has been with us a very long time – arguably it is what fired up the industrial revolution. The unemployment, underemployment and low skilled employment combination is fairly recent and you dont need to speculate about the effect on jobs of globalised maximisation of profits. The process of decline in advanced economies is documented even down to firm level and is accessible.
Don’t forget that “Paper profits” drive executive bonuses. In any analysis of decline, it is necessary to include the ratio of executive salaries to average worker pay. This curve has moved from about 40x a generation ago to 400+ times presently. Who accounts for the losses to the bottom line due to this ratio of compensation to even more than one officer i.e., CEO, CFO, COO, and CIO for example? Do bonuses show up in the annual report, or do they follow as a contractual reward? The measures of the economy may have the same labels, but a shifting definition. Maximization often occurs in the office of the CFO.
“arguably it is what fired up the industrial revolution.”
The industrial revolution did not fix itself. The New Deal fixed the industrial revolution by countering the natural tendencies toward capital accumulation.
No one discusses the rise in LBOs that started in the 80s, petered out as interest rates grew and came roaring back in early 2000s with a new alias of “private equity.” These “created efficiencies” in part by slashing wages, leaving off staff, outsourcing, raiding pension funds and cutting benefits.
This form of piracy capitalism pushed productivity in a strange way and forced outsourcing. In brief, it had a role in pushing both productivity gains and outsourcing both at the cost of the worker.
Ironically, even the factors of the productivity ratio can be manipulated. The formula is value of OUTPUT divided by cost of INPUT. Some financial reports use the value of output, but divide by the end-of-year manpower just after a downsizing. That manpower actually needs to be accounted for in a true and accurate ratio. But, in the “efficiencies” you mention, they seem to be needed only for cash buybacks or rising stock market prices until the pirate cashes out. Then the chips fall.
Gates was very specific. When people work and earn wages they pay taxes. Gates proposes taxing robots that replace living/breathing workers. The proposal has logic from that standpoint.
Has anyone studied the relationship, or accuracy, of the numbers going into the equation for productivity? It is important that the time periods match. That is, last year’s output as revenue
divided by this year’s production costs would be severely distorted by am end-of-year downsizing that removes the true cost of the labor that produced the output. And yet, that is the way some annual reports are showing costs under an alternate “non-GAAP” reporting system. It is not surprising that productivity ratios would keep going up during the years of downsizing the denominator.
“That is, last year’s output as revenue divided by this year’s production costs would be severely distorted”
This is the smaller problem. Productivity only measures goods sold – not goods makeable. As an analogy, if a pizza restaurant gets an oven and new assembly line that allows pizzas to be made in half the time with half the labor cost it has doubled physical productivity (less, because food costs lack the same efficiency increases). If the same pizza place gets half as many customers, then despite the physical productivity going up sharply, its BLS productivity was cut in half.
In a right-wing economy like the US, physical productivity and BLS productivity are negatively correlated.
Fits nicely to Baumols paper on ‘Macroeconomics of unbalanced growth: the anatomy of urban crisis’ AER 57(3), 415-426.
“Gates wants to tax productivity growth (a.k.a. “automation) slowing down the rate at which the economy becomes more efficient.
This might seem a bizarre policy proposal at a time when productivity growth has been at record lows, averaging less than 1.0 percent annually for the last decade.”
This makes no sense. Gates is talking about goods produced efficiently whereas BLS productivity measures goods produced and sold. I disagree with Gate’s plan because it is inefficient – lets just go after capital accumulation directly instead of trying to create a complex system, but can we please agree that BLS productivity in a right-wing economy like the US is primarily a measurement of the ability of consumers to buy those automated goods rather than the ability of companies to make them?
Taxing the robots is taxing the robots’ owners. Gates has specific reasons for the proposal. First, the money from the tax can be used for retraining of workers displaced by robots. Many who have been displaced see such “efficiency gains” by robots as a “net loss.” The robot tax could help fix that problem. Second, Gates says, the impact of robotics and artificial intelligence in the next 20 years will be a much more concentrated version of the
steady, incremental displacement that was common throughout the 20th century. The market alone won’t be able to deal with the speed of that transition. Government interventions will be necessary. This is better achieved through public sector jobs than new regulations. For this new money will be needed. Gates also makes the point that automation won’t be allowed to thrive if the public resists it. “It is really bad if people overall have more fear about what innovation is going to do than they have enthusiasm . . . And, you know, taxation is certainly a
better way to handle it than just banning some elements of it.” In general, Gates point is straight forward. If automation doesn’t clearly benefit all members of society, it could generate some sort of neo-Luddite movement that would restrain technology much more severely than any tax.
Gates seems to have a firm grasp on the concerns businesses and automation will face in the future. Not certain economists have any such.
Perhaps the new phenomenon of automation is not itself concerning, but it comes with capital consolidation at much higher rate and scale than before, and that’s the concern.
But automation is not dependent on greater capital consolidation. In fact, if you look back to the 1939 and 1964 World Fairs, you’ll see it was anticipated government oversight of the control of automation was a normal expectation. This would ensure the technologies were available to all at fair prices, and that automation would not destroy either democracy or individual freedoms. It would also ensure that a plan was implemented to make up whatever jobs were lost to technology. The Fairs also emphasized that the new technologies would bring a more comfortable and longer life for all. With more leisure time and more time for education and learning. The development neither Fair anticipated was the rise of neoliberalism. This predatory and totally useless ideology has undermined not only the Fairs’ vision of the future but also American culture, politics and economics. It’s placed the entire human world on the edge of extinction. If we don’t kill it first, it will certainly kill humankind.