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The Economic Logic of Robots

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Commenting (by e-mail) on this recent Cafe Hayek post [2], George Selgin writes:

Amen!  I’ve always been aghast at finding many otherwise intelligent economists arguing as if technology had a mind of its own, developing willy-nilly, or even perversely, in relation to the relative scarcity of available factors, including labor.  Only thus can it happen that labor-saving technology develops to a point where labor, instead of being relatively scarce, becomes superabundant!

The fundamental problem, I believe, is confusion of the role of technological change with that of government interference with the pricing of labor services that is among the things to which technology in turn responds.  Labor-saving technology becomes associated with unemployment, not because the last is a consequence of the former, but because both are contemporaneous consequences of a common cause, to wit: minimum wage laws and other such interference that sets wage rates above their market-clearing levels.

Exactly so.  Innovative effort is scarce; a mind directed to dealing with problem X is a mind not directed to dealing with problem Y.  And, of course, material resources are also scarce: material resources – and the labor necessary to work with them – directed to building a robot to perform task X are material resources and labor not directed to building a robot to perform task Y.  So when we observe labor being displaced by robots (or machines, or tools, or non-human processes – call them what you will) we are almost always observing the third or fourth stage of the economic process that prompts the invention, construction, and use of such robots.  If the supply of workers to do X falls relative to its demand – and if government does not prevent the wage of those workers from rising as a result – business owners have stronger incentives than they had before to find and implement robots to replace those workers.

Mechanization is not exogenous, random, or without economic logic.

(I thank George for his kind permission to share his e-mail publicly.)

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