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Interesting Take On The Implications Of Automation And Current Policy

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It's a free to download PDF- worth a look,

The first big policy issue is faced by central banks which have given themselves the dual task of fighting both deflation and the rise in unemployment. But what if higher unemployment and the fall in prices are a structural phenomenon that has little to do with the cycle?

For example, if tomorrow Samsung is able to fully automate its production line and deliver to our doors a smartphone without the intervention of a single worker (save the lorry driver bringing the parcel) and, as a result, the price of a phone halves? Or what if, thanks to ever-improving robots, heart surgeons are able to operate on ten times as many patients as they are today, thereby collapsing the cost of the average heart surgery? Should we bemoan such deflation?

Should we lobby our policymakers to do something about these collapsing costs? And what could they do? Order surgeons to use leeches to treat heart problems and electronic contract manufacturers to go back to using child labor?

And does putting the cost of capital at zero, and printing a lot of money (the remedies so far espoused by most central banks in their bid to fight deflation) really help the laid-off Samsung worker, or now-unemployed nurse, find a job? Or does the zero cost of capital instead accelerate the trend of replacing labor with capital?

After all, if we make capital free, and labor expensive (through increases in regulations, increases in benefits etc…), should we be surprised that companies replace labor with capital?

emphasis mine.

Some other interesting factoids from the text;

Canon, the world’s largest digital camera vendor with a 20% global market share recently said that it is ‘fully robotizing’ its digital camera and lens factories. Canon has promised not to cut jobs and intends to shift existing employees to other roles as the company gears up for machine-only production by 2015; however, this shift to robotics is expected to improve margins over the long term
Indeed, while industrial robotics growth has been modest over the last decade, a number of compelling drivers will accelerate the greater use of robots from here. Namely:

An evolving necessity:

The new generation of miniaturized, multifaceted products with short life-cycles (e.g., cellular phones, cameras, etc.) requires quick adaptability, accuracy, and consistency on the production line that is now beyond the skills of human workers. Robots satisfy the need to retool much more quickly with now lower capital investment to move from one product specification to another.

A self-propelling spiral:

As more companies adopt new technologies, they force others to follow suit. Take the TV industry as an example. The TV industry was, until ten years ago, dominated by Japanese producers (Sony, Sharp, Panasonic…). Samsung emerged and, through the use of robotics, was able to dethrone the Japanese in what had until then been a highly homogeneous consumer electronics market. Samsung’s highly automated plants allowed the South Korean company to offer quality products at low prices. As prices declined, Japanese giants like Panasonic and Sharp followed suit and produced the latest generation of robotic television production facilities

So the possibility exists that QE is not a force for job creation but a force for job destruction as the cheap capital it provides facilitates the shift away from human workers to robots.

In fact, if anything symbolizes the Luddite nightmare of robots replacing humans, it must be the recent decision by Hon Hai Precision Industry

(the parent of Foxconn) to break ground on a US$223 million industrial robot R&D and manufacturing facility in Taiwan. Not only will Hon Hai/Foxconn potentially galvanize the global production of industrial robots—but the company will also increasingly staff its own factories with robot workers.,

Of particular interest to HPC'rs is the suggestion that taxation will be forced to move away from labor and on to;

Large increases in real estate taxes

: France already has a wealth tax (which hits holders of valuable real estate disproportionately), while in the UK, the debate over a mansion tax has been raging for years. Over time, as governments look desperately to make up for empty coffers, the temptation of taxing richly-valued real estate will just prove too strong (and politically popular?) to resist. Though, of course, any increase in real estate taxes comes with a Catch-22 in that the more the tax rate on property increases, the less desirable the property becomes, thereby affecting the property’s value and the tax receipts…

Unfortunately, however, in no Western democracies have we seen a move towards scrapping income and capital-gains taxes, to be replaced by sales, real estate and inheritance taxes. And so we are stuck in a situation where, even five years after the recession, the tax receipts of almost every Western government fall far short of their spending habits – a situation bound to get worse as Western countries age, blowing pension obligations and social security costs through the roof. And thus, to square the circle, central banks have been forced to transform themselves into the financing arms of their countries’ budget deficits; even if the consequences of adopting zero interest rate policies are ultimately self-defeating


Edited by wonderpup

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