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Will Automation Lead to Economic Collapse?

Most of the agriculture and industrial jobs are already phased out by machines. Over 70% of jobs and labor is currently to find in the service sector, but also this sector is being phased out and replaced by automation which means decreased purchasing power of the general public. Just take a look at this: http://www.thefiscaltimes.com/Articles/2012/08/20/Will-Robots-Cause-Mass-Unemployment-in-China.aspx#page1

Let's make an example as well. What exactly happens when people get automated by machines? They loose their jobs and need welfare to support themselves until they get a new job, if they ever do. But, where does welfare come from? It comes from tax payers. And do people on welfare pay taxes? They don't. So, what happens when everybody is on welfare due to automation and nobody pays taxes? This example is the reality in Michigan and the government there have been on the brink of shutting down due this exact issue. And we are beginning to see this never-ending spiral go out of control in the rest of the world. The trends are definitely there, but where's the solutions?

Is an economic collapse, in fact, an imminent event and a mathematical certainty, looking at the trends in Michigan and China? And is there a way out of this, looking at it in an economical perspective?

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  • Oct 1 2012: We should approach this topic from a pure economic perspective and the best way to do that is to measure the overall welfare of the economy before and after automation. We can all agree that, because of automation, there would be gains to certain groups and losses to other groups. We should notice that, if the gains are of greater absolute value than the losses, then the argument must support automation.

    First of all, we should look at why producers look towards automation. It is because of the fact that they are trying to reduce costs and produce their product at the lowest possible price. In other words, they are trying to achieve competitive advantage in order to gain market share and increase profitability. This act will eventually lower the prices of the products for consumers. From this, we can see that automation causes a gain for the producers (businesses) and a gain for the consumers (note that people that work at businesses are also consumers). The problem with automation arises from the fact that people lose their jobs as a result. This is the loss associated with automation (note that the people being laid off are also consumers of other products).

    So we can see that automation provides the economy with large gains to large groups (producers and consumers) but causes a loss to a small group (laid off workers). This is where the emotional argument against automation comes in. The individual that is laid off may suffer more in absolute value (loss) than a certain individual gains from the process of automation. We should notice that the companies are better off with automation, but would still be better off even if they were to pay these few existing employees their salaries until they died (sure, they would have to pay these people for not doing the work, but the long run benefits would still outweigh these short run costs).

    In other words, consumers gain, producers gain, and some workers lose, but the economy experiences a net gain.
    • Oct 1 2012: "We should notice that, if the gains are of greater absolute value than the losses, then the argument must support automation."

      No, you can't just "notice" that. A society where 1 million people make 20k is much better than one where 999.990 people make 2k and 10 people make 15bn. Now of course things would be different with redistribution...

      "So we can see that automation provides the economy with large gains to large groups (producers and consumers) but causes a loss to a small group (laid off workers). This is where the emotional argument against automation comes in."

      Most consumers are workers themselves, so if not enough replacement jobs are provided quickly enough the number of unemployed can reach very high levels and the impact on society would not be negligible.
      • Oct 1 2012: That is the premise of my argument; my argument is based on a purely economic perspective; no emotions involved.

        You give a certain scenario and state that the prior is "better" than the latter. How do you measure better? I use the one dollar, one vote metric; you do not.

        The cost to society would be less than the gain; as others have said, job creation would move towards different sectors and prices would be pushed downward (the income effect of price change should be noted here).

        It's really simple.

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