Wednesday, December 30, 2009

Automation and Unemployment

Since the industrial revolution began there has been speculation about the long-term effect of automation on employment. You can create plausible-sounding but completely opposing just-so stories: that automation will free humans from drudgery to focus on more important work or leisure, or that automation will destroy employment. The first argument is one made by the now silly-seeming futurists of the 1950s who predicted a 20-hour work-week for Americans.

That mid-century naivete works fine if all you want is to maintain 1955's level of productivity - but these decisions do not result from central planning. They result from individual humans that seek status and are competitive and want more wealth if there's more wealth to be had. (Fortunately, this is the path that results in economic growth, rather than stagnation and class sedimentation.) Consequently, the real work-week actually grew slightly in the second half of the twentieth-century.

The second argument - that the machines will put us all out of work - is a more pessimistic version of the same argument. In this scenario, the 20-hour work week exists not because that's all we have to do to maintain our current economic growth rate, but because there just isn't any more work to be done - the machines are doing it all.

There are examples in our past we can point to. Yes, there were labor shocks in the U.S. in the 1970s and 80s, due to automation and offshore competition; yes, the populations of many Midwestern American states are lower today than they were a century ago, because those economies are mostly dependent on agriculture, and one person with machines today can produce what many did a century before. But our population as a whole grew, and became richer in that time, even if in certain industries or geographic areas at certain times there were disruptions. No one in 2009 is complaining that the beaver pelt industry is moribund, because people learned other trades besides trapping. Likewise there are industries besides agriculture, and as economies expand, new industries appear, and with them new needs.

That's why, it's hard to see why we'll suddenly all be out of work, unless we're talking about full self-repairing AI, in which case we'll have other problems. There are many more examples of automation expanding work that we can point to now. What is most relevant for the future is "white collar automation". It's certain that the automation of physical labor that the world experienced in the last century and a half (and which it's still experiencing in many quarters) is not the end of the road, and that computers will start automating white collar tasks much more than they already have. (Forget about outsourcing to India.)

Have there already been "cognitive" tasks automated where we can gauge the impact on the industry in question? Yes. That computers and calculators are widely used does not seem to have put accountants out of business - except, of course, for those accountants who refused to learn how to use a computer - and now one accountant can produce what many did a century ago. The same is true for other white collar professions. The answer is that in the future, on some level, we will all be programmers. (Compared to our parents, aren't we already?) We'll use the much-afeared automation as additional tools to increase our productivity. Just don't be that guy in the office who won't learn how to use Excel, and you'll be fine.

One challenge to the coming white collar automation blitz is the existence of administrative sinecures. The invisible hand has clearly not yet done away with them in the private sector, nor in government or academia. Since their existence flies in the face of economics, it is likely that their persistence is best explained
by universal irrational aspects of human psychology that will exist even in competitor organizations. Once the expert systems start coming on-line in earnest, will these positions survive? Will they, over time, make them seem more and more suspicious and non-contributory? One down-side to the new automation is that sinecures are not quantized; it's likely that some percentage of your time is sinecurity, and the inefficiencies that allow it to persist will be erased, or at least known about. Your little sick days to catch up on soaps? Your argument that you really need to audit that company in Miami? Your coworkers' simulations will catch it.

Alternatively, it's possible to imagine that while producers are staying ahead of the automation blitz by learning to use it to produce, will sinecurists will learn new strategies to justify why their positions are "more art than science" that
can't be reduced to vulgar numbers by mere machines.

Monday, December 21, 2009

Robert Frank, Che Guevara and Chilean Miners

In the Motorcycle Diaries, Che Guevara and his roadtrip buddy come upon a couple huddling at a stony roadside in the nighttime Chilean desert. They're waiting for mining bosses to show up and hire them to work in Chuiquicamata mine. They're poor, and they're cold. Moved by their plight, Guevara and friend give their coats to the people. (This was the period before Guevara was killing his own soldiers for not being enthusiastic enough, something that it would be useful for the world's T-shirt wearers to remember.)

Of course we're led to assume (implicitly) that the Anaconda mining bosses (who are often unpleasant, to put it mildly) are villains. But it's hard to ignore that the mining company is what makes it possible for them to make this living, the unpleasantness of its bosses notwithstanding. I most emphatically don't mean to call this couple whiners, or to diminish the back-breaking grind of mining. But the salient point is that without the mining company and its bosses, the couple in question would go from making at least some living, to making no living. But because in general humans have difficulty thinking about counterfactuals and the effect of status on their actions and happiness, this reality remains masked.

What does that mean? Think about this: imagine you have a chance to be the only person making $120,000 a year in a neighborhood where everyone else makes $100,000; or, you could be the only person making $180,000 a year in a neighborhood where everyone else makes $200,000. For simplicity, let's say you can change neighborhoods at will, so you're not permanently committing. No equivocating about
relative purchasing power - in the second case, you get $60,000 more per year of stuff, including a safer neighborhood. If humans were rational optimizers of external wealth, this would be a no-brainer for everybody - take the $180,000, and who cares that the neighbors think you're low-class, right? Wrong. This is a tough
call for most people, because relative status matters a great deal to human beings. This of course is the classic Frank conundrum.

How does this apply to the miners? When the couple is making a living, their needs are taken care of, but they have to deal with unpleasant mine bosses (often foreign ones); they certainly aren't making $180,000, but they're at least making something, although in earning a living they have to deal with unpleasant and often foreign bosses whose own status reminds the miners of their station in life. On the other hand, when the miners are unemployed, they don't have to deal with unpleasant bosses to obtain the non-money that they're not making. It's a difference between being made acutely aware of their social status and under the control of people they don't like when they're making some money, versus not being hassled by non-bosses who are not giving them money they're not making.

(One obvious solution to diminish any reputation for being abusive imperialists is to enforce fairness in hiring and labor standards above and beyond what is the local norm. This works at home too, as American technology companies in the 1980s competing for talent began to realize. Of course, Anaconda was not forced by any such labor shortage to do so, which is where governments come into the picture. If you think free markets work, it's in your interest to take actions to make other people favor them too. Given their impact on Guevara, unpleasant bosses at Chuquimacata certainly didn't do capitalism any favors in South America.)

The default position of human societies is poverty, not wealth, and sometimes, only foreigners have the capital to begin profitable operations. The unpleasantness of earning a living seems especially acute when the work is difficult and the labor market is imbalanced, and mineral extraction is probably the best example. But if there were no mine, these poor would have been poorer. There is a lesson for Americans in this too. Yes, you might not like your boss, and you might not like that a Japanese company just bought out your plant. Given the state of credit markets in the U.S., without them the plant would have closed. And no one is making you work there. Remember - for simplicity, you can change neighborhoods at will.

Thursday, December 17, 2009

Don't Like the Nobel Peace Pick This Year? Start Your Own

Most of the Nobel categories are necessarily open-ended; the achievement that merits the prize is not defined in advance. No one can predict what will be useful in chemistry ten years from now, or medicine, or economics.

This isn't true in the peace category. I think we can all point to specific parts of the world where people are suffering, and exactly what's going on there to make this so. That being the case, why aren't we setting concrete, measurable goals in advance, with prizes to motivate people. Why wait for future Matt Peters and Greg Mortensons to have an epiphany; why not an epiphany catalyst fund?

A new Nobel - call it the X Prize of progress in human welfare - might work like this.

- Specific prizes would be set in advance, after lengthy consideration of rough cost, possibility, and time frame.

- Prize terms would be incrementally measurable solutions to local, measurable, concrete effects. There will be no debate over whether a winner or winners deserve(s) it, because the result will be concrete. No "help the children of Africa"; more like "80% literacy in Zambia by 2020", with staggered decreases for
every percent lower than that. (Or, "twenty million for a five percent increase in literacy in Zambia by 2020, and five million more for every percent increase above that")

- There will be standing conditions for all the prizes. You can't finance your operation leading up to the prize by stripping a place of natural resources; activities will be audited prior to avoiding the prize to root out corruption. The prize committee will establish how it will measure the achievement and include it along with each new prize announcement.

- On the other hand, the award can be distributed however the winners wanted - including to stakeholders. If you can think of a way to get Somalian warlords to establish a lasting government by paying them off in installments, fine.

- The prize committee would be happy to offer help to contenders who don't have the capital to begin the work (that's all of them) by linking them to whatever NGOs or multinational resources are already out there.

- The prize money would be private, and of course, bigger than the Nobel (I'm looking at you, Buffett and Gates and Soros). Start the endowment and announce a bunch of long-term (but still concrete) goals to allow it to compound.


- Lots of people with money want to make the world a better place but don't want to go to Sudan to make it happen. This outsources the work.

- Target governments might complain to the traditional interfering villains (the US, NATO, EU) - let them. They'll have to come into the light of day in an international forum like the UN to complain that evil imperialists are forcing their people to have clean water, literacy and open elections, and the governments
hosting the teams competing can always say "we can't do anything; they're private citizens". (Note Iran's efforts against Twitter; embarrassing when you're reduced to fighting your adversaries' companies, as opposed to actually confronting your adversaries.)

Pie in the sky? There are lots of people who want to make the world better, and a lot of money. The pie is getting the endowment set up. Writing the goals and getting applications would be a piece of cake. Encourage grad students. Start small and not overambitious; farm output in a single 10 km by 5 km valley? In a single village? Fine. Look at what has worked before and go do it.

Suggested prize targets to start out:
- Internet Censorship in China Ended by Year X

- Open Elections in China by Year X

- Literacy in [Developing Country] 80% by Year X

- Free Movement of People Between the Koreas by Year X

- Everybody in [fill in fourth-world country] Has Non-Cost-Limiting Access to Clean Water by X

- New Mexico Energy Entirely Green by X As Flagship to Rest of U.S.

- Iran Makes Official Announcement Abandoning Nuclear Weapons Ambitions by date X

- First weapons destroyed in Pakistan and India Nuclear Disarmament by X (note: new study shows that global nuclear winter could occur from Pakistan-India nuclear exchange alone)

- Israel and Palestine: No Troop-Driven Violence for Time Period X

- Iraq or Afghanistan (or Even just Anbar Province or Herat) Self-Governing with Minimal US Troop Presence (I daresay a private group outside the US government would be able to plan for this more effectively than has been done)

Sunday, December 6, 2009

Coastline and Wealth

Curve-fitting doesn't give strong R's; forper capita income (purchasing power parity) vs absolute coastline length or coastline per area, there's no linear relationship > 0.19.

However, average per capita income for the 138 countries I had both coastline and PCI data on $13,562, vs $9,040 for those with no coastline that I had PCI data on. No surprise.

Though Liechtenstein is not included in this analysis, it is one of two doubly-landlocked countries (the other being Uzbekistan); Liechteinstein is typically ranked first in per capita income rankings, so geography is not destiny.