Insight on Automation

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A Sloper sent me an email, which I liked so much that I asked if I could make a post out of it; he kindly agreed to this, so here you are:

I read your post Pity the Sub Genius and agreed with a lot of what you wrote. However you missed what I think is the biggest killer of middle class jobs, and that is technological innovation. For sure many companies moved production overseas for the cheaper labor but I do not believe that to be the biggest reason for job loss. I can remember all through the 90’s up until today that one of the main drivers of corporate profits was the steady, incremental increases in productivity. Many interpreted that to mean employees were working harder or faster or becoming more efficient. What it really meant was that employees were being displaced by technology and that made the work flow more efficient while bringing costs down.

I will use as an example Briggs and Stratton headquartered in Milwaukee, WI. In 1980 they employed 20,000 workers in their factories making small engines. Today that number is down to 5000. And the reality is that they moved no jobs out of Milwaukee and are manufacturing more product than they did in 1980. And many of the 5000 now employed are skilled technicians that service the mechanized assembly operations.

The same is true in the automotive industry and pretty much every other manufacturing segment of the economy. And it is not just the factory floor. Computers have slimmed the size of office staffs, phone answering systems have replaced call receptionists and so on. Computers have not only trimmed workforces but eliminated entire manufacturing companies as their products became obsolete.

And the future does not look any brighter for the middle class. The shrinkage of available jobs due to technology is a trend that will never abate. The economy will never be able to grow out of this predicament. Small companies can now buy robots like Baxter for about 20 grand that can do many repetitious tasks performed by human employees. He can work 24/7 if necessary, requires no health care or benefits, and robots are going to be the next big thing. There are mechanized processing lines developed that will eventually replace many low paid fast food workers as well.

Individuals with the mental aptitude to train and adapt to work within the technology and medical fields will do fine, but those without that aptitude will continue to struggle. Just where the increasing numbers of displaced workers will find meaningful employment that will provide a comfortable existence for them and their family’s is ever harder to predict. The large influx off immigrants that are mostly filling manual labor and menial jobs suggest the middle class is not going to step backwards to fill those types of positions even if it is an available source of jobs.

This not at all a good prospect for the sub genius. Maybe it is the reality and bleakness of the situation that the role of technology is rarely mentioned when economists and politicians express concern over the growing wage disparity that is happening not only in this country, but other developed countries everywhere in the world. It is not a causation that has a solution as far as I can tell.

Being as in tune as you are with markets and technology I would love to read your thoughts on this issue, whether you agree with my position or not.