Rise of the Robots: Technology and the Threat of a Jobless Future (41 page)

In other words, a $10,000 annual basic income would probably require around $1 trillion in new revenue, or perhaps significantly less if we instead chose some type of guaranteed minimum income. That number would be further reduced, however, by increased tax
revenues resulting from the plan. The basic income itself would be taxable, and it would likely push many households out of Mitt Romney’s infamous “47 percent” (the fraction of the population who currently pay no federal income tax). Most lower-income households would spend most of their basic income, and that would result directly in more taxable economic activity. Given that advancing technology is likely to drive us toward higher levels of inequality while undermining broad-based consumption, a guaranteed income might well result in a significantly higher rate of economic growth over the long run—and that, of course, would mean much higher tax revenue. And since a basic income would keep a consistent flow of purchasing power streaming to consumers, it would act as a powerful economic stabilizer, allowing the economy to avoid some of the costs associated with deep recessions. All these effects are, of course, difficult to quantify, but I think there is a strong argument that a basic income would, at least to some extent, pay for itself. Furthermore, the economic gains from its implementation would increase over time as technology advances and the economy becomes ever more capital-intensive.

It goes without saying that raising sufficient revenue would be an enormous challenge in today’s political environment, given that nearly all American politicians are terrified to even utter the word “tax” unless it is followed immediately by the word “cut.” The most feasible approach might be to use a variety of different taxes to raise the necessary revenue. One obvious candidate would be a carbon tax, which could raise as much as $100 billion per year while helping to reduce greenhouse gas emissions. There have already been proposals for a revenue-neutral carbon tax with a rebate for every household, and this might serve as a starting point for a basic income. Another option is a value-added tax. The United States is the only advanced nation that does not currently rely on such a tax—essentially a type of consumption tax that gets tacked on at every step in the production process. A VAT is passed on to consumers as part of the final price charged for products and services and is generally considered to
be a very efficient way to raise tax revenue. There are numerous other possibilities, including higher corporate taxes (or the elimination of tax avoidance schemes), some type of national land tax, higher capital gains taxes, and a financial transaction tax.

In seems inevitable that personal income taxes would also have to increase, and one of the best ways to do this is to make the system more progressive. One of the implications of increasing inequality is that ever more taxable income is rising to the very top. Our taxation scheme should be restructured to mirror the income distribution. Rather than simply raising taxes across the board or on the highest existing tax bracket, a better strategy would be to introduce several new higher tax brackets designed to capture more revenue from those taxpayers with very high incomes—perhaps a million or more dollars per year.

Everyone a Capitalist

While I believe that some form of guaranteed income is probably the best overall solution to the rise of automation technology, there are certainly other viable ideas. One of the most common proposals is to focus on wealth, rather than income. In a future world where nearly all the income is captured by capital, and human labor is worth very little, why not simply make sure that everyone owns enough capital to be economically secure?

Most of these proposals involve strategies like somehow increasing employee stock ownership in businesses or simply giving everyone a substantial balance in a mutual fund. In an article for
The Atlantic,
economist Noah Smith suggests that the government could give everyone “an endowment of capital” by purchasing a “diversified portfolio of equity” for every citizen when he or she turns eighteen. A rash decision to “cash out, and party” would be “prevented with some fairly light paternalism, like temporary ‘lock-up’ provisions.”
¹⁸

The problem with this is that “light paternalism” might not be enough. Imagine a future in which your ability to survive economically
is determined almost exclusively by what you own; your labor is worth little or nothing. In that world, there would be no more stories about the person who lost it all and then worked his or her way back to the top. If you make a bad investment or get ripped off by a Bernie Madoff type, then the error might well be unrecoverable. If individuals are ultimately given control over their capital, then it’s inevitable that this scenario would play out for some unlucky people. What would we do for individuals and families who found themselves in this kind of situation? Would they be “too big to fail”? If so, there would be a clear moral hazard problem: people might see little downside in taking excessive risks. If not, we’d have people in genuinely dire situations with little or no hope of escape.

The vast majority of people would, of course, act responsibly in the face of this kind of risk. But that might result in its own problems. If loss of your capital meant destitution for you and your children, would you be willing to invest a chunk of it in a new business venture? Experience with 401k retirement plans has shown that many people elect to invest too little in the stock market and too much in lower-return investments they perceive as safe. In a world where capital is everything, that preference might well be amplified. There could be huge demand for safe assets, and as a result the returns on those assets would be very low. In other words, a solution based on giving people wealth might result in something quite different from the Peltzman effect I suggested we might see with a guaranteed income. Excessive risk aversion could lead to less entrepreneurship, lower incomes, and less vibrant market demand.
*

Yet another problem, of course, is paying for these equity endowments. My guess is that redistribution of vast amounts of capital
would prove even more politically toxic than would be the case for income. One possible mechanism for prying wealth away from its current owners was proposed by Thomas Piketty in his book
Capital in the Twenty-First Century:
a global tax on wealth. Such a tax would require cooperation between nations in order to avoid massive capital flight into lower-tax jurisdictions. Nearly everyone (including Piketty) agrees that this would be impractical for the foreseeable future.

Piketty’s book, which was deluged with attention in 2014, argues that future decades are likely to be marked by an inevitable progression toward increased inequality of both income and wealth. Piketty approaches the issue of inequality purely from the perspective of a historical analysis of economic data. His central thesis is that the return on capital is usually greater than the overall rate of economic growth, so that capital ownership inevitably becomes a larger slice of the economic pie over time. He shows surprisingly little interest in the trends we’ve focused on here; indeed, the word “robot” appears on only one of his book’s nearly seven hundred pages. If Piketty’s theory is correct—and it has been subject to a great deal of debate—then I think advancing technology is likely to greatly amplify his conclusions, quite possibly producing even higher levels of future inequality than his model predicts.

It’s possible that as the issue of inequality, and especially its impact on the political process in the United States, gains ever more visibility with the public, the kind of wealth tax that Piketty advocates might someday become viable. If so, I would argue that rather than portioning out redistributed capital to individuals, it would be better to set up a centrally managed sovereign wealth fund (similar to the Alaska fund) and then use the resulting returns to help fund a basic income.

Near-Term Policies

While the establishment of a guaranteed income will probably remain politically unfeasible for the foreseeable future, there are a number of other things that might prove helpful in the nearer term.
Many of these ideas are really generic economic policies geared toward enabling a more robust recovery from the Great Recession. In other words, they are things we ought to be doing in any case, independently of any concern about the impact of robots or automation on jobs.

Foremost among these policies is the critical need for the United States to invest in public infrastructure. There is an enormous pent-up requirement to repair and refurbish things like roads, bridges, schools, and airports. This maintenance will have to be performed eventually; there is no getting around it, and the longer we wait the more it will ultimately cost. The federal government can currently borrow money at interest rates remarkably close to zero, while unemployment among construction workers remains at double-digit rates. Our failure to take advantage of this opportunity and make the necessary investments while the cost is low is likely to someday be judged to be economic malpractice of the highest order.

While I’m skeptical that policies geared toward more education and vocational training will offer a long-term, systemic solution to the problem of technological unemployment, there are certainly many things we can and should be doing to improve the more immediate prospects for students and workers. We probably can’t change the reality that there will be only a limited number of jobs available at the top of the skills pyramid. However, we certainly can address the issue of workers who don’t have the necessary skills for the opportunities that do exist. In particular, there is an obvious need for more investment in community colleges. Some professions with low unemployment rates, especially health care–related fields like nursing, are currently subject to significant educational bottlenecks; there is overwhelming demand for training, but students are unable to get into classes that are filled beyond capacity. In general, community colleges represent one of our most important resources for enabling workers to navigate an increasingly dynamic job market. Given that jobs—and entire occupations—may be poised to evaporate at an
accelerating pace, we should do everything possible to make opportunities for retraining available. Expanding access to relatively inexpensive community colleges, while doing more to rein in predatory for-profit schools that have been set up primarily to harvest financial aid dollars, would result in improved prospects for a great many people. As we saw in
Chapter 5
, MOOCs and other innovations in online education may also eventually have a meaningful impact on vocational training opportunities.

Another important proposal centers on expansion of the Earned Income Tax Credit, a subsidy paid to low-income workers in the United States. The EITC is currently subject to two primary limitations. First, the unemployed are not eligible; in order to ensure an incentive to work, the benefit is paid only to people who have earned income. Second, the program is primarily configured as a form of child support. A single parent with three or more children could get a maximum of about $6,000 per year in 2013, while a childless worker could receive only $487—or about $40 per month. The Obama administration has already proposed to expand eligibility for workers without children, although the maximum benefit would still only be about $1,000 per year. Transforming the EITC into a viable longer-term solution would require extending eligibility to those who are unable to find jobs—and that, of course, would amount to converting the program into a guaranteed income. The near-term prospects for expanding the EITC in any way seem bleak, as Republicans in Congress have expressed a desire to actually cut the program.

If you accept the argument that our economy is likely to become ever less labor-intensive over time, then it follows logically that we ought to shift our taxation scheme away from labor and toward capital. Currently, major programs that support the elderly, for example, are funded largely by payroll taxes that fall on both workers and employers. Taxing work in this way allows those businesses that are highly capital- or technology-intensive to, in a sense, free-ride—reaping the benefits of our markets and institutions while escaping their
obligation to contribute to the support of programs that are critical to society as a whole. As the taxation burden falls disproportionately on more labor-intensive industries and businesses, it will further increase the incentive to shift away from human labor and toward automation whenever possible. Eventually, the entire system could well become unsustainable. Instead, we ought to transition to a form of taxation that asks more from those businesses that rely heavily on technology and employ relatively few workers. We eventually will have to move away from the idea that workers support retirees and pay for social programs, and instead adopt the premise that our overall economy supports these things. Economic growth, after all, has significantly outpaced the rate at which new jobs have been created and wages have been rising.

If these proposals strike you as overly ambitious, then there remains at least one policy prescription that ought to be straightforward. Given the trends we’ve reviewed in these pages, it seems evident that we should not now be setting out to dismantle the social safety net we currently have in place. If there is, in fact, any good time to slash the programs that the most vulnerable segments of our population rely on—without also putting in place a viable alternate solution—then, surely,
this is not that time.

T
HE POLITICAL ENVIRONMENT
in the United States has become so toxic and divisive that agreement on even the most conventional economic policies seems virtually impossible. Given this, it’s easy to dismiss any talk of more radical interventions like a guaranteed income as completely pointless. There is an understandable temptation to focus exclusively on smaller, possibly more feasible, policies that might nibble at the margins of our problems, while leaving any discussion of the larger challenges for some indeterminate point in the future.