Will technological progress lead to greater wealth inequality?

By Tim Worstall , written on March 10, 2014

From The News Desk

Short answer: no.

Long answer: no, because.

I received the following request Friday:

Maybe you could write a followup article that describes what sort of changes we would need to make as a society to ensure that the technological progress brings about more interesting jobs, more craftsmanship, more entrepreneurship, more art instead of simply an increasingly large wealth inequality.
So, here goes the reason why technological progress isn't going to lead to greater wealth inequality. A common myth is that robots are coming to take all of our jobs. The usual assumption is that the capitalists, who own most of the robots, will grab all that income in the economy as profits. We, the unemployed proletariat, will then starve as our overlords ground our faces into the dust.

But this doesn't ring true for a number of reasons.

The first is that we in the tech world can look around us and see that there's no way that any interesting new technology will remain in the hands of any one small group. Open Source is far too advanced for that. If any level of a truly robotic economy becomes possible (which I define as where the robots make the robots that repair the robots that dig up the ore to make more robots) there's absolutely going to be one group of geeks out there who will release the plans to build the first step in ones' garage.

That's all it takes. If the robots are building the robots then we only need one out there in the wild not owned by the capitalist class to give us, in pretty short order, a robot for everyone. In which case we'll all be capitalist robot owners. Then what inequality are we talking about?

We could also look through the lens of standard economics. The original complaint is that the upper class will grab all the cash because robots are more productive than labor. Unfortunately, that's where the analysis seems to stop and it ought to go further. If we make something more productive that is the same as the statement that we have made more of that thing. The worry here is that capital will become more productive: but that's the same statement as that we've just made more capital.

What usually happens to something that we've just made more of? Yup, the price goes down. So, if robots do make capital more productive, and thus we've created more capital by producing those robots, that means that the price of capital falls. So, the gap between those with capital and those of us without it falls. This, I must point out, is the opposite of increasing wealth inequality.

We can also look at the same point historically. The last really major bout of mechanization that we had (which is indeed the same as robots taking our jobs) was that of agriculture, which occurred between the two world wars. In this case it was farmland that became more productive. It was the same as if we'd created more land. And what happened to the price of land? The same as will happen to capital with the robots: it sank like a stone. To the point that nearly all the farmers went bust and they've been sucking on the public teat ever since.

Making farmland more productive did not make farmers plutocrats, it bankrupted them.

Finally we can look at a new economic idea. Thomas Piketty has, just this month, a book out that looks at capital, what happened in the 20th century, and what will occur in the 21st. Most are looking at it as a justification of the usual lefty ideas, that we're going to need to do more redistribution otherwise inequality will increase, yada yada. But that's not actually what he's saying at all. Rather, he pins the reduction in mid-20th century inequality on the way in which economic growth was faster than the returns to old capital.

No, not on unions, high minimum wages, high tax rates or any of the other nostrums offered to us. But quite simply the fact that if new wealth is created faster than old wealth can add to itself then clearly we're going to have a decrease in wealth inequality.

He also makes this point:

 In Mr Piketty’s narrative, rapid growth — from large productivity gains or a growing population — is a force for economic convergence.
That "large productivity gains" there is extremely important. For what is it that we are saying if the robots do come for all our jobs? That productivity will be rising strongly. Thus the very fact that the robots are coming is going to lead to a decrease in wealth inequality. Because that's what large productivity gains do.

So, what is it that we need to do to make sure that technological advancement doesn't increase wealth inequality? Make sure that that technological advancement is happening fast enough to reduce income inequality.

At which point of course we can have the usual arguments about how we encourage disruptive innovation. We can try Jaron Lanier's idea of protecting the incomes of the middle classes through cosmetology licences and taxi medallions or we could let rip with a bit of free market capitalism red in tooth and claw.

Or to be slightly more puckish, a proposal that I've made before. We can keep all that licensure, all those rules about who may do what when, to whom and with what permissions, but simply insist that each and every State license do whatever is valid in all 50 States and DC. Congress does have this power to regulate interstate commerce, after all. And I'm sure we'll always be able to find somewhere that will issue the combined horse massage/taxi/hair braiding license for a write-in $10 plus a promise to play nicely.

This would neatly increase competition and provide disruptive innovation, thus reducing wealth inequality all in one fell swoop.