Important post here. Is there a simple flaw in the theory that we’re all going to become slaves to our robot overlords?
“I think there is a fundamental problem with this way of thinking: as jobs and incomes are relentlessly automated away, the bulk of consumers will lack the income necessary to drive the demand that is critical to economic growth.
Every product and service produced by the economy ultimately gets purchased (consumed) by someone. In economic terms, “demand” means a desire or need for something – backed by the ability and willingness to pay for it. There are only two entities that create final demand for products and services: individual people and governments. (And we know that government can’t be the demand solution in the long run). Individual consumer spending is typically around 70% of GDP in the United States.
Of course, businesses also purchase things, but that is NOT final demand. Businesses buy inputs that are used to produce something else. If there is no demand for what the business is producing, it will shut down and stop buying inputs. A business may sell to another business, but somewhere down the line, that chain has to end at a person (or a government) buying something just because they want it or need it.
This point here is that a worker is also a consumer (and may support other consumers). These people drive final demand. When a worker is replaced by a machine, that machine does not go out and consume. The machine may use energy, resources and spare parts, but again, those are business inputs—not final demand. If there is no one to buy what the machine is producing, it will get shut down. Think of on industrial robot being used by an auto manufacturer. The robot will not continue running if no one is buying cars.*”
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.