Fair wages for robots
No, seriously.* Hear me out.
Citi’s Willem Buiter offers one possible explanation to stubbornly low-inflation, and by extension, sluggish economic growth. Here’s the excerpt:
“We draw attention to one additional hypothesis: that we underestimate the amount of slack in the economy not primarily because we underestimate the amount of slack in the labor market or overestimate the degree of utilization of tangible capital but rather because potential output can be boosted greatly at effectively zero social marginal cost and without increased use of labor and tangible capital, through the use of new production methods based on recent advances in information technology, machine learning, artificial intelligence, big data, the internet of things, robotics, automation, autonomous machines and nanotechnology.
Because the value added in many of these new activities is mostly pure rents (returns to genius, luck and monopoly power) the distribution of income and wealth created by these activities is increasingly unequal. That weakens the aggregate marginal and average propensity to consume. Unless this shortfall of demand is made up for by increased consumer demand through fiscal redistribution towards households with higher marginal propensities to spend, or by capital expenditure, public consumption or net exports, some of the potential output gains may not materialize but turn into excess capacity and a growing (or at least larger than expected) output gap. Lower-than-expected inflation is the result.”
As Paul Caple pointed out on Twitter, there’s a simple mismatch at play here. Advances in technology mean you can boost potential output without the need for (mere) humans, yet consumption remains a human-driven activity. With more profits accruing to owners of capital — the Piketty-esque element in Buiter’s argument above — consumption drags. After all, there’s only so much a billionaire can spend, much as they might try. Meanwhile, the proximate cause of greater potential output is paid nothing, and presumably contributes nothing to consumer demand beyond potentially making goods more affordable or producing them more efficiently, which may or may not encourage people to by them (As the cycle of improvement continues there’s only so many times you’re going to upgrade your TV. iPhones appear to be the exception here).
The solution is simple: pocket money for robots.
A politically-unpalatable solution for sure, but think of the “fiscal redistribution” that could be achieved. The nuts and bolts spending, if you will. Unlike human beings, robots can also be programmed to spend consistently, thereby avoiding the over-savings problem that has plagued the 2000s. So long as the robot-owners don’t extract the wages as rent. And so long as the robots themselves don’t go off the rails: I can save I I everything else to me to me to me to me to me to me to me to me to me.
*Readers assume all responsibility for taking this seriously.