Home > Uncategorized > Bill Gates Is clueless on the economy

Bill Gates Is clueless on the economy

from Dean Baker

Last week Bill Gates called for taxing robots. He argued that we should impose a tax on companies replacing workers with robots and that the money should be used to retrain the displaced workers. As much as I appreciate the world’s richest person proposing a measure that would redistribute money from people like him to the rest of us, this idea doesn’t make any sense.

Let’s skip over the fact of who would define what a robot is and how, and think about the logic of what Gates is proposing. In effect, Gates wants to put a tax on productivity growth. This is what robots are all about. They allow us to produce more goods and services with the same amount of human labor. Gates is worried that productivity growth is moving along too rapidly and that it will lead to large scale unemployment.

There are two problems with this story. First productivity growth has actually been very slow in recent years. The second problem is that if it were faster, there is no reason it should lead to mass unemployment. Rather, it should lead to rapid growth and increases in living standards.

Starting with the recent history, productivity growth has averaged less than 0.6 percent annually over the last six years. This compares to a rate of 3.0 percent from 1995 to 2005 and also in the quarter century from 1947 to 1973. Gates’ tax would slow productivity growth even further.  

It is difficult to see why we would want to do this. Most of the economic problems we face are implicitly a problem of productivity growth being too slow. The argument that budget deficits are a problem is an argument that we can’t produce enough goods and services to accommodate the demand generated by large budget deficits.

The often told tale of a demographic nightmare with too few workers to support a growing population of retirees is also a story of inadequate productivity growth. If we had rapid productivity growth then we would have all the workers we need.

In these and other areas, the conventional view of economists is that productivity growth is too slow. From this perspective, if Bill Gates gets his way then he will be making our main economic problems worse, not better.

Gates’ notion that rapid productivity growth will lead to large-scale unemployment is contradicted by both history and theory. The quarter century from 1947 to 1973 was a period of mostly low unemployment and rapid wage growth. The same was true in the period of rapid productivity growth in the late 1990s.

The theoretical story that would support a high employment economy even with rapid productivity growth is that the Federal Reserve Board should be pushing down interest rates to try to boost demand, as growing productivity increases the ability of the economy to produce more goods and services. In this respect, it is worth noting that the Fed has recently moved to raise interest rates to slow the rate of job growth.

We can also look to boost demand by running large budget deficits. We can spend money on long neglected needs, like providing quality child care, education, or modernizing our infrastructure. Remember, if we have more output potential because of productivity growth, the deficits are not problem.

We can also look to take advantage of increases in productivity growth by allowing workers more leisure time. Workers in the United States put in 20 percent more hours each year on average than workers in other wealthy countries like Germany and the Netherlands. In these countries, it is standard for workers to have five or six weeks a year of paid vacation, as well as paid family leave and paid vacation. We should look to follow this example in the United States as well.

If we pursue these policies to maintain high levels of employment then workers will be well-positioned to secure the benefits of higher productivity in higher wages. This was certainly the story in the quarter century after World War II when real wages rose at a rate of close to two percent annually.

Of course these policies will not ensure that no workers ever suffer from automation. While we can never guarantee that no worker is harmed by improvements in technology in a dynamic economy, we can look to soften the impact.

One obvious policy would be to require severance pay, for example two weeks of pay for each year worked. This would both give displaced workers somewhat of a cushion and changes the incentives for employers. If a company knows that it faces large payout if it lays off a number of long-term employees, then it has more incentive to think about modernizing its facilities and retraining workers. This would be a win-win where the company has an interest in ensuring that its workers are as productive as possible while the workers get to keep their jobs.

In short, there is no reason that productivity growth should ever be viewed as the enemy of workers. We just need the right set of policies to ensure that they share in the gains.

See article on original site

  1. February 28, 2017 at 3:14 am

    Federal government deficits are not necessarily a problem anyway, with or without productivity growth. As long as there are idle resources and under-employed people, and the economy is operating below its capacity, there will be a need for budget deficits if the economy as a whole is not to flounder.

  2. originalsandwichman
    February 28, 2017 at 4:05 am

    “Productivity as a Social Problem: The Uses and Misuses of Social Indicators”
    Fred Block and Gene A. Burns
    American Sociological Review
    Vol. 51, No. 6 (Dec., 1986), pp. 767-780

    ABSTRACT “The study of social indicators is valuable for understanding the role that the social sciences play in the political arena. One common pattern is for a particular social
    indicator to become frozen in place once it takes on political significance, and this can
    result in ironic consequences. This study traces out the case of indicators of aggregate
    productivity trends in the United States. These measures were initially developed as
    part of an underconsumptionist argument that was linked to the political left, but there
    was considerable debate over different measurement schemes. Over time, one
    particular measure of trends in aggregate productivity became central for wage
    negotiations and for government policy. This created a context in which the slower
    rates of growth of this measure of productivity in the 1970s helped to validate the views
    of those on the political right who saw the need for greater restrictions on wage gains
    and government civilian spending. The paper raises questions about the value of this
    particular measure and ends by emphasizing the problems of locking in place an
    ‘objective’ social indicator when the reality being measured is in continual flux.”

    “The Purpose and Method of Measuring Productivity”
    Harry Magdoff
    Journal of the American Statistical Association,
    Vol. 34, No. 206 (Jun., 1939), pp. 309-318.

    “The position taken here is that there is no ‘true’ measure of productivity or production for a group of diverse products; that measures of production and productivity should therefore not be considered ‘approximations’ to an ideal ‘reality;’ and that a clear understanding of the specific purposes for which they are to be used and of the questions that are being answered must dictate the method used to construct them.”

    See my further observations on the unreliability of “productivity growth” as evidence at: “Nineteen Ninety-Six: The Robot/Productivity Paradox”

    http://econospeak.blogspot.ca/2017/02/nineteen-ninety-six-robotproductivity.html

  3. Anna Zimmerman
    February 28, 2017 at 10:44 am

    Whilst Dean Baker is broadly correct if the primary motivations of society are to maximise productivity and hi-tech methodologies, he does not allow for the possibility of other goals and therefore is guilty of the monomania so habitual amongst economists. This is ultimately a value judgement and therefore glib notions of right or wrong are inappropriate.

  4. February 28, 2017 at 12:07 pm

    I agree with all you say about productivity growth, but I think you missed the point on this one. The problem is not robots replacing humans, but who owns the robots. It’s not productivity growth, it’s capital consolidation.

    Capital consolidation is not a new phenomenon. Every phase of industrial disruption came with one. Some were worse than others. The capital consolidation that came with the first industrial revolution was particularly severe, and its results can be felt even today in post-industrial Britain. It’s why millions of people live in drab housing they pay too much for, and eat bland food that shortens their lives.

    The tech disruption of the 80s, over which Gates and Jobs presided, was relatively benign. I’m a geek, so may be biased, but I think relatively little changed. Some firms changed places in the ranking of largest and most powerful firms, but it was mainly a capital churn rather than a consolidation or equalisation. Side note: The tech revolution had the potential to be egalitarian, turning consolidated industry into cottage industry, but for various reasons it didn’t.

    The upcoming transition to AI looks like it’ll come with a capital consolidation that will again be quite severe. That’s what Gates is warning about and I think he’s right. Companies like Google and AirBnB are replacing hordes of small facilitators and brokers. Amazon and Uber are centralising and replacing local fulfilment services. It’s a business model, more than an automation, revolution.

    The upcoming divide is between who owns data, an AI, and a brand to monetise them. That is entirely about consolidated, sticky capital. The people who can crunch data and make the AI will be a 2nd tier elite. Everyone else will have to make a living as a personality entertainer, disguised as a barista, micro-brewer, or baker.

  5. February 28, 2017 at 1:42 pm

    “There are two problems with this story. First productivity growth has actually been very slow in recent years. The second problem is that if it were faster, there is no reason it should lead to mass unemployment. Rather, it should lead to rapid growth and increases in living standards.”

    There seems to be a fundamental understanding of the economy here. GDP doesn’t have to increase when we get better at making things. GDP will only increase when more things are made and bought. If more things are make-able but fewer things are bought, then actual productivity (the kind Bill Gates is talking about) goes up while BLS productivity (the kind that leads to increases in living standards) goes down.

    “Gates’ tax would slow productivity growth even further.”

    Gates is not the one that does not understand economics. BLS productivity growth would accelerate with the kind of tax Bill is talking about if it is used to stimulate demand.

    “The quarter century from 1947 to 1973 was a period of mostly low unemployment and rapid wage growth.”

    And also a period of much higher taxes with similar effect to the sort Bill is talking about.

    • originalsandwichman
      February 28, 2017 at 4:15 pm

      Excellent point! It seems as though Dean has been bombarded with the supply-side mantra in Washington so long that he has forgotten Walter Reuther’s question about who is going to buy the cars the robots make:

      “Every tool on every operation has a green light, a yellow light, and a red light; and when all the green lights are on, it means that all the tools at each work station are operating up to standard. When a yellow light comes on, on tool No. 38, it means that the tool is still performing, but the tool is becoming fatigued and that is a warning sign, so that the operator sitting there looking at these panels will know that he has to get a replacement tool for tool No. 38. He stands by at that position on the automated machine, and at the point the red light would kick on, on the board, he walks over — the machine automatically stops — he puts the new tool in the place of the tool that is worn out, and automatically the green light comes on and the machine goes on.

      “When I went through this plant the first time I was told by a top official of the Ford Motor Co.: ‘Mr. Reuther, you are going to have trouble collecting union dues from all of these machines.’

      “And I said: ‘You know that is not bothering me. What is bothering me is that you are going to have more trouble selling them automobiles.’ That is the real significance. We have mastered the know-how of mass production, and what we need to do is to develop comparable distribution know-how so that we will have markets for the tremendous volume of production that automation now makes possible.”

  6. Rudolf Wrobel
    February 28, 2017 at 4:35 pm

    RE; Respose of Pavlos Papageorgiou “. . . but who owns the robots.” and originalsand;

    So, what is it to be? Jobs-jobs-jobs? Or ownership-ownership-ownership?
    Twenty-First Century Coaching and Team Building (http://just3rdway.blogspot.com/2017/02/twenty-first-century-coaching-and-team_27.html)
    is an approach for firms large and small. For any nation, the Capital Homestead Act (http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-a-plan-for-getting-ownership-income-and-power-to-every-citizen/) of the Center for Economic and Social Justice (www.CESJ.org) can provide a means of spreading ownership of the robots.

    RudyKS

  7. originalsandwichman
    • March 1, 2017 at 9:44 am

      Yes, of course productivity is a flimflam, whether used to support labor and workers or conservative politicians and business. But then most “measures” of sociological variables (so called economic ones included) are at least part flimflam. Intended to support or oppose some political or class interest. The “magic” of numbers created as part of the Enlightenment is too tempting a tool, and too powerful in its potential results for many to ignore. It’s the uses to which numbers, including such metrics as “productivity” are put that should concern us as social scientists. Right now productivity is used to divert attention from the main areas of concern about the future of capitalist society. These concerns are: 1) can humanity create the resources for a rewarding and satisfying life for all of humankind; 2) can humans live in mutually beneficial way with the world on which they depend and in which they are embedded? The answer to these questions now is a clearly, NO!

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