Tuesday, March 24, 2015

Reich on the Alleged Horrors of An Economic Cornucopia (technology)

From Cafe Hayek.
"Here’s a letter to the editor of Alternet:
In what is a prime candidate for the most economically mistaken essay ever penned, Robert Reich calls a future in which technology makes ever-more high-quality goods and services widely available at virtually zero cost “horrifying” (“In Our Horrifying Future, Very Few People Will Have Work or Make Money,” March 17).
Where to start?  Perhaps with the fact that the history of such Luddite fear-mongering is as long (at least 200 years) as its batting record is low (.000%).  Or maybe with the illogical worry about the unemployment created by an imaginary device that Dr. Reich uses to scare your readers - a device “capable of producing everything you could possibly desire, a modern day Aladdin’s lamp.”  In fact, in a future filled with such devices unemployment wouldn’t be a problem because no one would have to work in order to acquire the means to consume lavishly.  (Indeed, in such a future there would technically be no unemployment because no one would want to work.)
But Dr. Reich’s most wrongheaded claim is this one: “when more and more can be done by fewer and fewer people, the profits go to an ever-smaller circle of executives and owners-investors.”  This claim is exactly backwards.  By far the greatest part of the gains from entrepreneurial-driven advances in technology are, as they have always been, widely dispersed to the masses in the form of more and better consumption options available at lower and lower prices.  Examples include the factory production of textiles that clothed the masses, the mechanization of agriculture that saved the masses from famine, the assembly line that brought the likes of automobiles, kitchen appliances, telephony, and air travel to even the modern-world’s ‘poor,’ and the technology revolution that enables those yearning to read Dr. Reich’s economically uninformed commentary to satisfy their demands 24/7/365 by using their smartphones while sipping lattes and attending protests against the predations of the one percent.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030
Reich himself, in listing some modern devices (that he uses as evidence of the coming calamity of abundance), unwittingly gives examples against his proposition that all of the gains of labor-saving technological advances are captured by ‘the few.’

Indeed, even if one focuses exclusively and literally on the profits from entrepreneur-driven technological advances (rather than, more broadly, on the gains from such advances), they, too, are not destined to go to fewer and fewer people.  Higher profits spark competition which, in turn, drives profits down to ‘normal’ rates.  It’s this very process of competition that causes the gains from technological advances to be shared with the masses: the entrepreneurs might all like to keep their profits without sharing them, but competition obliges them to share those profits with the public, in the form of lower prices and improved product quality.  And with technology advancing as fast as Reich fears (and I applaud), the ability of entrepreneurs to compete against each other will only intensify.  If technology makes the production of the likes of clothes and cups of coffee cheap, easy, and fast, so, too, does technology make the production of other machines for use in competing in the production and sale of consumer goods cheap, easy, and fast.

UPDATE: Regular Cafe patron W.E. Heasley sent the following note to me by e-mail:
Is it not poetic justice that Reich managed to post his argument on a platform that uses little manpower, plenty of technology, and is distributed on mass? Shouldn’t Robert have had his essay hand delivered to each and everyone interested?"

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