Robot Fallacy

The problem's plain to see
Too much technology
Machines to save our lives
Machines de-humanize
--Styx

Another refutation of what might be called the 'robot fallacy'--i.e., the wrongheaded proposition that machines installed to improve productivity will permanently displace workers.

Versions of this theory have been floated for hundreds of years and have been put down for hundreds of years.

What I like about this particular refutation is its focus on entrepreneurial calculation. Entrepreneurs constantly seek to employ capital in manners that will return more than the capital's cost. Thus, entrepreneurs constantly look for new ways to satisfy customers.

If customers believe that they will be satisfied, then they will trade with the entrepreneur. Customers trade portions of their income, obtained thru productive effort (of their own or of someone else's) for the goods and services offered by the entrepreneur.

However, this exchange can only occur if customers have been sufficiently productive to generate income for trade.

The robot fallacy basically proposes that the aggregate decisions of entrepreneurs to install machines to boost productivity will lead to a situation where the entrepreneurs will possess capital that is essentially worth nothing because there will be few buyers willing to afford the goods and services produced by robot-laden processes.

This is unlikely.

Because capitalism is a self regulating process, if their incomes are falling because customers are not buying their products, then entrepreneurs will cease allocating capital to processes that are not providing adequate returns on investment. Entrepreneurs will not purchase and install equipment to produce products for which there is no market.

Instead, as environmental uncertainty grows, it seems likely that entrepreneurs will employ more humans to do work. Human labor is far more versatile than machinery, and it can move rapidly in response to greater opportunities in turbulent times.

What bothers me is that we are seeing continued capital investment in many industries despite rising levels of environmental uncertainty that would seemly discourage high fixed cost investments. Capacity continues to climb at rates that outstrip demand, causing secular decline in capacity utilization.

The self regulating mechanism does not seem to be working properly. My sense is that interventionary forces are throwing off entrepreneurial calculation. In part, these interventions create moral hazards. Entrepreneurs take more risk than they should when they think that their behavior is being subsidized or insured.

Robots can be over-employed only in hampered markets that distort entrepreneurial calculation.