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__________________________________________________________________
Adam
Murren
and
Walter
E
.
Block
What
Impact
will
Automation
have
on
the
21
st
Century
Economy
?
Introduction
In
this
research
paper
,
we
investigate
the
impact
that
automation
will
have
on
the
twenty-first
century
economy
.
Technological
progress
has
expanded
,
and
will
continue
to
expand
,
the
scope
of
work
that
can
be
performed
by
machines
.
We
broadly
define
automation
as
the
process
by
which
computers
or
machines
substitute
for
human
labor
.
To
examine
how
automation
relates
to
unemployment
,
we
focus
on
the
substitution
of
capital
for
labor
for
the
explicit
purpose
of
decreasing
labor
costs
.
First
,
in
section
I
we
discuss
how
firms
make
the
decision
to
automate
and
explain
why
the
trend
toward
automation
is
likely
to
continue
into
the
twenty-first
century
.
Then
,
informed
by
economic
theory
,
in
section
II
we
explain
how
markets
will
likely
react
to
automation
.
After
exploring
how
a
free-market
can
be
expected
to
respond
,
in
section
III
we
address
potential
government
interventions
that
might
be
used
in
an
attempt
to
mitigate
the
perceived
negative
effects
of
automation
.
We
conclude
in
section
IV
wi
Adam
Murren
is
an
independent
scholar
living
in
Palmsdale
,
California
.
Walter
Block
is
Harold
E
.
Wirth
Eminent
Scholar
and
Professor
of
Economics
at
the
College
of
Business
Administration
,
Loyola
University
,
New
Orleans
.
with
an
analysis
of
how
the
next
wave
of
automation
will
change
the
economic
landscape
.
I
.
What
is
Causing
Automation
?
Firms
automate
when
the
cost
of
performing
a
given
task
with
human
labor
exceeds
that
of
performing
the
same
job
using
a
machine
.
Specifically
,
profit
maximizers
will
automate
a
process
when
the
marginal
expected
benefit
of
doing
so
is
greater
than
the
marginal
expected
costs
.
We
assume
that
this
figure
is
positive
when
labor
outlays
are
reduced
by
more
than
it
costs
to
automate
.
To
the
extent
that
specific
benefits
and
costs
can
be
reasonably
estimated
,
firms
will
include
them
in
their
calculation
of
net
benefit
.
Qualitative
considerations
that
are
difficult
to
quantify
will
be
considered
after
calculating
net
benefit
.
For
example
,
a
grocery
store
that
is
thinking
about
installing
self-checkout
machines
would
also
include
expected
savings
on
employment
lawsuits
in
their
calculation
.
1
However
,
it
might
be
impractical
to
esti-
1
In
similar
manner
,
while
machines
sometimes
break
down
,
they
do
not
talk
back
to
their
bosses
,
do
not
hassle
customers
,
engage
in
sexual
harassment
against
them
,
do
not
need
coffee
breaks
,
never
leave
work
early
,
etc
.
Laissez-Faire
,
No
.
46
(
Marzo
2017
):
54-64
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__________________________________________________________________
mate
lost
sales
from
customers
who
would
rather
patronize
businesses
that
employ
human
cashiers
.
In
this
situation
,
management
would
decide
to
automate
only
when
the
expected
net
benefit
is
high
enough
to
compensate
them
for
the
risk
of
losing
certain
customers
.
When
firms
must
decide
between
competing
strategies
to
achieve
the
same
end
,
they
tend
to
increase
spending
on
whichever
medium
has
a
higher
marginal
effect
,
and
make
reductions
on
the
alternative
(
Froeb
et
al
.,
2016
,
p
.
42
).
Automation
is
a
strategy
and
,
in
order
to
explain
why
it
is
happening
,
we
must
examine
the
costs
and
benefits
associated
with
it
.
Public
policies
that
increase
the
cost
of
labor
,
like
minimum
wage
laws
and
other
regulations
,
escalate
the
pace
of
automation
.
For
example
,
in
an
interview
with
Business
Insider
on
March
16
,
2016
,
the
CEO
of
Carl
’
s
Jr
.
and
Hardee
’
s
,
Andy
Puzder
,
referenced
rising
minimum
wages
and
said
that
he
would
like
to
open
a
restaurant
where
“
you
never
see
a
person
.”
Puzder
also
explained
that
machines
“...
never
take
a
vacation
,
they
never
show
up
late
,
there
’
s
never
a
slipand-fall
,
or
an
age
,
sex
,
or
race
discrimination
case
”
(
Taylor
,
2016
).
If
the
cost
of
replacing
a
low
skilled
employee
is
only
slightly
greater
than
the
cost
of
employing
them
,
then
one
should
expect
a
minimum
wage
hike
to
result
in
their
replacement
.
Although
increases
in
the
minimum
wage
could
trigger
the
automation
of
certain
low-skilled
jobs
,
this
trend
seems
almost
inevitable
2
as
computers
2
But
not
quite
.
If
there
were
no
minimum
wage
law
at
all
,
and
unskilled
workers
could
be
paid
$
2
or
$
3
per
hour
,
they
might
long
stay
more
than
competitive
with
new
machinery
.
This
sounds
cruel
,
to
be
sure
,
but
,
that
$
2
or
$
3
per
hour
is
infinitely
higher
than
become
more
capable
and
affordable
.
3
As
MIT
professors
Erik
Brynjolfsson
and
Andrew
McAfee
point
out
in
their
book
The
Second
Machine
Age
:
“
…
there
’
s
never
been
a
worse
time
to
be
a
worker
with
only
‘
ordinary
’
skills
and
abilities
to
offer
,
because
computers
,
robots
,
and
other
digital
technologies
are
acquiring
these
skills
and
abilities
at
an
extraordinary
rate
”
(
Brynjolfsson
and
McAfee
,
2014
,
p
.
10
).
The
exponential
growth
in
the
amount
of
computing
power
that
can
be
purchased
for
a
given
amount
of
money
has
come
to
be
known
as
“
Moore
’
s
Law
.”
This
is
based
on
Gordon
Moore
’
s
prediction
in
1965
that
“
the
complexity
for
minimum
component
costs
has
increased
at
a
rate
of
roughly
a
factor
of
two
per
year
…
there
is
no
reason
to
believe
it
will
not
remain
nearly
constant
for
at
least
ten
years
”
(
Moore
,
1965
).
It
turns
out
that
Moore
was
too
conservative
in
limiting
his
forecast
to
just
one
decade
;
in
fact
,
“
Moore
’
s
law
has
proved
remarkably
prescient
for
almost
half
a
century
”
(
Brynjolfsson
and
McAfee
,
2014
,
p
.
40
).
The
compounding
effects
of
exponential
growth
have
resulted
in
the
rapid
advancements
in
technol-
3
For
more
on
the
unemployment
effects
of
this
pernicious
legislation
,
see
Becker
(
1995
),
Block
(
2001
),
Block
and
Barnett
(
2002
),
Boudreaux
(
2016
),
Burkhauser
,
Couch
and
Wittenburg
(
1996
),
Caplan
(
2013a
,
2013b
),
Cappelli
and
Block
(
2012
),
Deere
,
Murphy
and
Welch
(
1995
),
Gallaway
and
Adie
(
1995
),
Hanke
(
2014
),
Hazlitt
(
1946
),
Howland
(
2013
),
Klein
and
Dompe
(
2007
),
Landsburg
(
2004
),
McCaffrey
(
2014
),
Mc-
Cormick
and
Block
(
2000
),
Mercer
(
2015
),
Murphy
(
2015
),
Neumark
(
2015
),
Neumark
and
Wascher
(
1992
,
1995
),
North
(
2014
),
Powell
(
2013
),
Rothbard
(
1988
),
Rustici
(
1985
),
Sohr
and
Block
(
1997
),
Sowell
(
1995
),
Vedder
and
Gallaway
(
2001
),
Vuk
(
2006
),
Ward
the
zero
per
hour
due
to
this
legislation
.
(
2016
),
Wenzel
(
2013
)
and
Williams
(
1982
).
__________________________________________________________________
55
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__________________________________________________________________
ogy
that
will
drive
automation
in
the
21
st
century
economy
.
The
likelihood
that
a
firm
will
automate
will
continue
to
increase
as
technological
progress
improves
the
functionality
of
computers
and
machines
,
while
simultaneously
making
them
cheaper
.
As
managerial
economics
tells
us
,
“
the
art
of
business
consists
of
identifying
assets
in
low-valued
uses
and
devising
ways
to
profitably
move
them
to
highervalued
ones
”
(
Froeb
et
al
.,
2016
,
p
.
19
).
To
the
extent
that
a
company
can
redirect
spending
from
employment
to
automation
and
generate
more
value
,
we
should
expect
them
to
do
so
.
Profit
maximizing
firms
use
their
resources
efficiently
to
provide
consumers
with
goods
and
services
.
As
it
becomes
more
efficient
to
acquire
,
implement
and
maintain
machines
instead
of
paying
wages
to
employees
,
companies
will
do
exactly
that
.
II
.
How
Markets
React
to
Automation
.
Automation
is
“
…
merely
a
new
name
for
continued
technological
advance
and
further
progress
in
labor-saving
equipment
”
(
Hazlitt
,
1946
,
p
.
53
).
To
the
extent
that
a
technological
advancement
enables
us
to
produce
more
with
the
same
amount
of
labor
,
the
proverbial
economic
pie
will
increase
.
The
concern
is
that
the
size
of
each
individual
’
s
slice
will
not
increase
equally
,
and
that
some
people
’
s
slice
might
even
shrink
as
the
pie
grows
.
To
examine
whether
or
not
this
concern
is
warranted
,
we
must
carefully
consider
how
the
market
will
react
as
technology
enables
firms
and
individuals
to
economize
on
labor
.
When
managers
decide
to
replace
human
labor
with
a
new
technology
,
they
efficiency
.
This
initial
loss
of
employment
will
first
be
offset
by
the
fact
that
people
were
employed
in
the
creation
of
the
new
technology
;
however
,
this
offset
can
be
arbitrarily
low
,
depending
on
the
nature
of
the
new
breakthroughs
.
The
effects
following
the
firm
’
s
decision
to
automate
will
likely
result
in
sufficient
increases
in
employment
to
offset
the
initial
loss
of
jobs
.
When
automation
works
as
planned
,
the
first
firms
to
engage
in
this
practice
will
be
able
to
deliver
their
product
or
service
at
a
lower
cost
than
their
competition
.
This
ability
is
a
competitive
advantage
that
will
enable
them
to
earn
a
positive
economic
profit
.
Regardless
of
how
the
firm
’
s
owners
spend
this
profit
,
they
will
generate
economic
activity
that
will
increase
employment
.
In
the
long-run
,
competition
will
erode
the
excess
profit
by
pushing
down
the
price
.
As
it
falls
,
consumers
will
have
more
money
to
spend
on
other
goods
,
thereby
increasing
employment
wherever
they
allocate
this
spending
.
In
examining
the
central
question
at
hand
,
one
should
remember
Henry
Hazlitt
’
s
advice
that
“
the
art
of
economics
consists
in
looking
not
merely
at
the
immediate
but
at
the
longer
effects
of
any
act
…
”
(
Hazlitt
,
1946
,
p
.
17
).
The
first
firm
to
successfully
automate
will
exploit
this
advantage
over
its
competition
to
increase
profit
.
Assuming
that
demand
is
elastic
,
the
profitmaximizing
firm
will
increase
sales
by
lowering
its
price
until
marginal
cost
equals
marginal
revenue
(
Froeb
et
al
.,
2016
,
p
.
41
).
The
owners
will
either
invest
or
consume
the
extra
profit
generated
by
automation
.
4
Assuming
that
they
in-
4
Suppose
that
,
instead
,
they
stick
these
funds
under
their
mattresses
.
Then
the
real
balance
effect
will
come
into
play
.
Their
act
of
hoard-
will
decrease
their
workforce
to
improve
ing
will
increase
the
value
of
everyone
else
’
s
__________________________________________________________________
56
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__________________________________________________________________
vest
in
or
purchase
from
businesses
that
employ
people
,
they
will
indirectly
stimulate
employment
as
they
spend
the
extra
profit
.
As
this
innovative
firm
expands
,
its
competitors
will
adopt
the
new
technology
to
maintain
market
share
and
remain
profitable
.
The
industry-wide
trend
toward
automation
will
increase
employment
for
the
makers
of
the
new
technology
and
will
result
in
lower
prices
for
consumers
.
The
customers
of
the
newly
automated
firms
will
have
more
money
to
spend
,
which
will
lead
to
increased
employment
wherever
they
choose
to
allocate
their
spending
.
Clearly
,
automation
cannot
be
said
,
by
default
,
to
increase
overall
unemployment
.
5
The
specific
workers
that
are
displaced
by
automation
are
freed
up
to
employ
themselves
in
a
different
capacity
where
they
can
continue
to
fulfill
consumer
demand
.
The
more
difficult
it
is
for
the
workers
who
are
replaced
by
machines
to
reemploy
themselves
productively
,
the
more
they
will
suffer
from
automation
.
However
,
we
cannot
forget
about
the
money
;
this
,
in
turn
,
will
create
more
jobs
.
5
Back
in
the
1960
’
s
,
Yale
Brozen
wrote
:
“
Amateur
social
scientists
such
as
Norbert
Wiener
(
a
professional
mathematician
)
predicted
,
in
1949
,
that
we
faced
a
decade
or
more
of
ruin
and
despair
”
from
the
wholesale
unemployment
which
would
occur
in
the
1950
’
s
.
Cybernation
and
automation
were
going
to
abolish
jobs
at
an
unprecedented
rate
.
The
prediction
was
reaffirmed
by
a
parade
of
witnesses
in
the
mid-1950
’
s
before
a
congressional
committee
investigating
automation
.
Yet
,
the
decade
or
more
of
ruin
and
despair
from
the
unemployment
that
was
going
to
be
caused
by
automation
appears
to
have
been
postponed
by
at
least
17
years
.
Nevertheless
,
we
still
have
doom
criers
who
say
that
this
consequence
of
automation
will
be
appearing
in
the
near
future
”
(
Brozen
,
people
who
find
gainful
employment
as
a
result
of
the
increased
consumption
and
investment
made
possible
by
this
process
.
Furthermore
,
we
must
also
consider
that
technological
advancements
that
make
automation
possible
can
create
entirely
new
jobs
.
To
illustrate
this
point
with
an
example
,
touch-screen
technology
can
be
used
to
replace
fast-food
cashiers
but
many
more
people
are
employed
making
retail
tablets
and
smart
phones
using
the
same
technology
.
The
net
change
in
the
quantity
of
jobs
and
workers
ability
to
respond
to
the
changing
labor
market
will
determine
the
effect
that
automation
has
on
unemployment
and
living
standards
.
6
New
uses
for
labor
may
come
from
existing
industries
where
demand
increases
due
to
the
economies
generated
by
automation
,
or
from
new
industries
that
are
made
possible
by
advancements
in
technology
.
The
type
of
work
that
will
be
in
higher
demand
as
technology
advances
will
6
To
the
extent
that
displaced
workers
cannot
find
a
way
to
employ
themselves
,
they
may
suffer
from
what
Keynes
called
technological
unemployment
,
which
he
defined
as
“
unemployment
due
to
our
discovery
of
means
of
economizing
the
use
of
labor
outrunning
the
pace
at
which
we
can
find
new
uses
for
labor
”
(
Keynes
,
1930
).
But
this
is
an
economic
fallacy
.
As
long
as
we
have
not
achieved
post-scarcity
,
as
long
as
people
want
more
than
they
already
have
,
there
will
be
employment
opportunities
for
all
those
whose
marginal
revenue
productivity
is
greater
than
zero
—
i
.
e
.,
pretty
much
all
of
us
,
apart
from
those
who
are
severely
mentally
handicapped
,
children
,
and
the
very
elderly
.
For
a
critique
of
Keynes
,
see
Anderson
(
2009
),
Cochran
and
Glahe
(
1999
),
Dempster
(
1999
),
Garrison
(
1985
,
1992
),
Hammond
(
2012
),
Hazlitt
(
1959
,
1983
),
Hoppe
(
1992
),
Hutt
(
1979
),
Murphy
(
2008
),
Ritenour
(
2000
),
Rostan
(
2010
),
Rothbard
(
1992
)
and
Skousen
1966
).
(
1992
).
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