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Tags: automation | labor | minimum wage | economics | bill gates | roomba

We Should Encourage Tech Advances and Automation Rather Than Taxing

We Should Encourage Tech Advances and Automation Rather Than Taxing

By    |   Thursday, 18 April 2019 05:16 PM

Last Friday night I arrived home to find a large floor vase tipped over and broken, a dirty shirt from the laundry room laying in the middle of the living room, and a throw rug folded over and sideways. Fact check: we don’t have any pets or kids at home. An intruder perhaps? A robbery disrupted? Nope!

It was AI (artificial intelligence) run amok! Our Roomba — one of those ubiquitous robotic vacuum systems — had rebelled and thrown a tantrum.

Why it did what it did isn’t important, and neither is the fact that it even did it. What is important is that we even have a robotic vacuum. On a small scale our owning it has disrupted the economy. Our cleaning person — the one that put the vase where it could be knocked over and left my shirt on the floor where the Roomba could drag it out — works about an hour a week less because vacuuming is no longer part of her job description. She’s a displaced worker.

On a larger scale, what about the economy as a whole?

A recent Brookings Institute study identified certain jobs that, “involve routine, physical labor or information collection and processing activities,” as “high risk (and) over 70 percent of their tasks potentially automatable.” Further, that same study found that these types of jobs represent about a quarter of all jobs in the U.S. today.

Diving deeper, what is the demographic of that portion of the workforce?

Statistically it turns out to be mostly young people with limited education from predominately minority ethnic backgrounds. This is the group that automation will affect the most and it’s already starting. For example, McDonald’s has already replaced cashiers with computer ordering kiosks in thousands of locations and plans to continue installing them at the rate of 1,000 stores per quarter for the next several years.

The reason for McDonald’s strategy, and actually almost every case where AI replaces human labor, is a simple economic paradigm. Firms purchase (hire) labor until its cost is greater than the cost of capital (machines), and then they switch. In layman’s terms, higher minimum wages in many areas of the country have made switching to the ordering kiosk cheaper than keeping the cashier.

The tradeoff is higher unemployment versus a higher price (inflation) for fries and a Coke.

Yes, in the long run there is a solution — education.

Train the former cashiers to repair, or even design AI systems. But this is a long, long-term solution to a growing short-term situation. The people minimum wage laws are supposed to protect are the ones left without jobs or the education to get jobs. And, the economy not only suffers because these displaced workers no longer can care for themselves, but now they don’t pay taxes either.

Ah taxes! It turns out Bill Gates has a solution to this job displacement issue — a payroll tax on robots! That was not a misprint. Addressing the issue Gates declared, “You can’t just give up that income tax.” And further, he see the revenue from the robot income tax being used to fund government jobs for the displaced workers.

Let’s recap the plan so far.

Increase the minimum wage so that cheaper capital displaces the now expensive labor. Then tax the capital to create jobs for the displaced workers. But then that pesky economic axiom show up again. Taxing the robots makes them more expensive and then labor — even with its higher minimum wage — is cheaper and remains employed.

It’s not the outcome Gates expected, but there are two other things that also now occur. The more expensive labor causes inflation to rise, eating away the gains of the minimum wage increase. And, the new tax burden on automation causes developers to shift their resources elsewhere thus limiting innovation.

What if Samuel Morse had been taxed to level the playing field for Pony Express riders with his telegraph? Or, what if Thomas Edison had been taxed on his innovation of the electric light to correct the wrong it did to candle and lantern makers?

How about this: let a free market decide what labor should be paid, and encourage technological advances rather than taxing them. Personally, I'd rather eat cheap burgers in a bright room than expensive ones by lantern light — even if my Roomba does occasionally destroys things.

Kevin Cochrane teaches economics and business at Colorado Mesa University in Grand Junction and is a visiting professor of economics at the University of International Relations in Beijing, China. He is a regular contributor to several national publications including the Washington Times, Washington Examiner, and American Thinker. He previously was the economic correspondent for both CBS and NBC TV affiliates in Southern California. For 27 years he formerly was a senior banking executive with a major NYSE listed bank holding company and the CEO of a national multi-bank operating company. To read more of his reports — Click Here Now.

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How about this: let a free market decide what labor should be paid, and encourage technological advances rather than taxing them.
automation, labor, minimum wage, economics, bill gates, roomba
Thursday, 18 April 2019 05:16 PM
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