A new study estimates that self-driving cars will save the United States more than $300 billion per year. The study adds up the costs of traffic accidents and assumes that self-driving cars will reduce accidents by 90 percent. That’s optimistic, but the study doesn’t even count the savings due to congestion relief, increased productivity while traveling, and the reduced cost of delivering goods and services.
On the other hand, one analyst estimates that self-driving cars will “wipe out 4 million jobs.” A taxi- and limo-driver lobby group has already begun to lobby the New York legislature to protect jobs by banning self-driving cars.
This is where it is important to understand the difference between benefits and costs. Jobs are not a benefit; income is the benefit. Jobs are costs: if more income can be produced with fewer jobs, everybody gains. That includes the people whose jobs are lost because–at least if the society is reasonably mobile–they can find better jobs instead, paid for out of the money people saved by reducing costs.
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The process of job automation has been going on for hundreds of years, yet there are plenty of jobs. For example, four hundred years ago the vast majority of people were farmers because one farmer could barely produce enough food to feed their family with only a small surplus to sell. Today, one American farmer grows enough food for 155 people. This means millions of farm jobs have been “lost,” yet the people who would have once worked on farms now make and do things that were inconceivable a hundred, or even fifty, years ago, and they sell some of those things to the remaining farmers.
Despite this historic trend, and the clear economic principles behind it, people still fear that each new wave of automation will lead to huge unemployment. Some of this is due to ignorance, while some is due to fear mongering by people who have some axe to grind.
We can create more work by reversing or banning automation, and then we can go back to working six days a week, 12 hours a day, earning less money in those 72 hours than people earn in 40 hours today. No one wants that, yet that’s the ultimate implication of a proposal to “save” jobs by banning self-driving cars.
Economists MUST figure out a way to explain why “jobs created” and “jobs lost” are so valuable in some situations but that jobs lost due to efficiency gains is not the same thing. Environmental impact studies are the worst and are really terrible economics that lead to bad decisionmaking.
That being said, the driverless car movement is great and will eventually be a boon, but it is still a long way away and will have some major setbacks.
I worked most of my career automating procedures and making huge gains in productivity as personal computers became available. However the benefits to automation are only a benefit to society if all society shares in the productivity benefit. From 1945 to about 1975 productivity roughly doubled and real wages roughly doubled. From about 1975 to 2015 productivity has roughly doubled again but real wages have notgone upand the middle class has not benefitted, see: https://en.wikipedia.org/wiki/Wealth_inequality_in_the_United_States#/media/File:Productivity_and_Real_Median_Family_Income_Growth_in_the_United_States.png or Google search terms “top 1% share of wealth historical.” This might be because of the decrease in the share of unionisation, use Google search terms “us unionization rate.”
The reason Trump and Sanders were so popular was probably a result of the frustration in US society in the last 40 years that most people are working as many hours as before with more productive equipment but not seeing any increase in wages. Many laid off because of automation are only able to find work at a lower rate and suffer a loss of standard of living. Therefore it is quite understandable that those with jobs threatened by automation will suffer because of that automation.
“That includes the people whose jobs are lost because–at least if the society is reasonably mobile–they can find better jobs instead, paid for out of the money people saved by reducing costs.”
Rose-tinted glasses much? This effect happens, but it is not quick, and these people suffer real losses. That shouldn’t change the analysis, but it shouldn’t be pooh-poohed either.
Real wages have stagnated since the US closed the gold window and increased regulations, which increased the cost of labor. In 1970, HMOs didn’t exist and employers weren’t mandated to provide expensive health insurance. ADA, OSHA, etc, etc. They’ve all come at a significant cost and have suppressed wage growth.
Paul, for an apples-to-apples comparison, you have to adjust for household size when evaluating median household income. And rising inequality is mainly caused by housing restrictions:
The world competitive environment is a factor too. Back in 1945 most of the world’s industrial base was bombed to rubble except for in the US. As a result US manufacturers had a near monopoly and enjoyed nice, fat margins, part of which they were only too happy to hand over to unions. Back in the 50s and 60s someone without a high school education could make a fine middle class income working on an assembly line. But with our help, by the 1960s the European manufacturing base rebuilt and started reducing those fat margins. Then the Japanese manufacturing base really started ramping up in the 1970s, further reducing margins. And in the last 25 years the PRC dumped socialism and further eroded US margins. The US is now operating in “normal” conditions, competing on an even footing with the rest of the world.
It’s unlikely that our competitors will have their industrial base bombed and/or devolve back into a communist idiocracy, so we’re going to have to adjust.
“Back in the 50s and 60s someone without a high school education could make a fine middle class income working on an assembly line.”
Middle class income? What do we call someone today that has a family of four to support, but can only afford a single car, can barely afford a single television, cannot afford air-conditioning, and can only manage 983 square feet of living space for their entire family? Back in the 1950s this was considered middle class. Today we would call this living in abject poverty.
The fact is, standards have changed, not the rewards for a given standard. Today, someone with a high-school diploma that is willing to work hard for 48 hours a week can easily exceed a 1950s middle class lifestyle. The reason someone with only a highschool dipoloma feels poor today is because so many of his peers went on to college and now live in McMansions with all the latest technology.
A common complaint in places like Ohio is that up to the 1970s one person could work in a factory support one parent at home in a smaller house and two cars, one old. Now it takes both parents working in those areas to maintain the same standard or living. The well paid factory jobs for the relatively unskilled have gone and re-training is not as easy as it should be.
I agree that housing cost is a factor but why has executive pay increased so dramatically since the mid 60s? Then it was 20/1 compared to the average worker, today it is 300/1. Shouldn’t the average worker have got some of that increase as they worked more productively? Google “executive pay vs average worker” or:
http://fortune.com/2015/06/22/ceo-vs-worker-pay/“
Paul-
From your link… “Top CEOs make more than 300 times the average worker”
Is it reasonable to compare top CEOs to average workers? Why not a comparison to top workers?
And how about this…
The AFL-CIO can only get a distorted and inflated CEO-to-worker pay ratio of 335-to-1 with an apples-to-oranges analysis that compares the total annual compensation of a small, select group of CEOs heading America’s largest multi-national corporations, who probably typically work 50-60 hours per week or more, to the average annual cash wages of part-time rank-and-file employees who work less than 34 hours per week on average. Once we make a more statistically valid apples-to-apples comparison, the CEO-to-worker pay ratio falls in half from the AFL-CIO’s 335-to-1 ratio to only 162-to-1 if we assume a 60-hour work week for the average worker (to be comparable to the workweek of an average CEO), and the ratio falls to less than 200-to-1 once we consider total compensation for both CEOs and full-time rank-and-file workers. Further, even if we could confiscate 100% of the compensation of all S&P 500 CEOs, the typical rank-and-file worker would probably get less than $1 per week in after-tax earnings.
From here:
http://www.aei.org/publication/on-the-new-335-to-1-ceo-to-worker-pay-ratio-for-2015-and-the-apples-to-oranges-methodology-used-to-generate-it/
Paul, the two-income complaint is common all over the US. My dad supported a family of five on a single government employee’s income, paying the mortgage on our 900 square foot house, and making car payments on our strippo Rambler American with three-on-the-tree. We got a window air conditioner in the late-60s and put it in the living room where we would all sleep on air mattresses on 90°+ nights. We got our first color television in 1972. I installed my parents’ first dishwasher in that house about ten years ago.
Can you imagine a family living in the same circumstances today? I think LoneSnark is right when today we’d refer to such a family as “poor.” But as a kid I didn’t feel poor back then. I felt–and was–solidly middle class. Expectations change.
CapitalistRoader +1
You nailed it. The standard of living has increased. The sizes of houses have increased. The quality of cars, televisions, refrigerators, housing, flooring, you name it. It’s all increased. With that increase in quality comes an increase in price.
It’s completely possible to be middle class and still live in a modest house with laminate counter tops instead of granite or marble and MDF instead of hardwood cabinets, have a basic TV for $10 picked up from the thrift store (or even a used 32 inch LCD for $50 from a garage sale), use an antenna and go without the $100+ cable bill, drive a modest used car, buy basic and raw food ingredients and eat plentifully and healthy.
Well, it’s completely possible if you get away from cities like SF, Portland, Seattle, LA, NY, etc. Those places are antagonistic to the middle class.
LoneSnark:
“Middle class income? What do we call someone today that has a family of four to support, but can only afford a single car, can barely afford a single television, cannot afford air-conditioning, and can only manage 983 square feet of living space for their entire family? ”
You call them a Seattlite. They need to GTFO.
Gee, in the 1970s the rich people paid $1000 a month to walk around with a huge “phone” that was just a radio. Today every 5th grader carries one that is 100 times better. And don’t even go into photos or video or games.
Remember when an “Encyclopedia Brittanica” was $1000 and the rich kids were said to have special “advantages” because they had one at home? Today the ghetto 5th grader has the far more complete Wikipedia in his pocket. Why isn’t he suddenly an “advantaged” student?
Sandy Teal,
“Remember when an “Encyclopedia Brittanica” was $1000 and the rich kids were said to have special “advantages” because they had one at home? Today the ghetto 5th grader has the far more complete Wikipedia in his pocket. Why isn’t he suddenly an “advantaged” student? ”
Because that kid isn’t using their phone to search through Khan Academy or Wikipedia but is instead surfing for clips on World Star Hip Hop or P***hub. No different than how that 90’s fear of the ‘digital divide’ proved to be a complete fantasy in the U.S.
I also think FantasiaWHT brings up a salient point: the low entry point/decent pay jobs are slowly evaporating as technology and efficiency improve. For people who peruse blogs like this, successful retraining in the face of a collapsing industry is within our grasp. But to say that taxi driver, hubcap riveter or trucker will be able switch over to something like nursing or the electrical field is probably too far afield.
Yet how are people with no jobs and no money be able to buy any thing? :$