On Wednesday evening I was fortunate enough to attend the Annual dinner of the Society of Business Economists. The keynote speaker was the Ignazio Visco, Governor of the Bank of Italy, who gave a thoughtful and wide-ranging speech covering the whole waterfront of economic challenges. The key points for me of the speech were as follows:
- Inequality is high and rising (especially when considering the top 0.1%). And this is true in both income terms and wealth terms.
- Technology is developing that threatens to automate a staggeringly large proportion of jobs (Visco reckons that forecasting 45-50% of total employment will be replaced outlined here would not be outlandish), delivering a rolling disinflationary shock to the economy. The poster image of this view is the chart below that comes from Frey & Orborne‘s work.
- Macroprudential policy can be expected to be increasingly relied on to stop monetary policy stimulus feeding through into reckless misallocation of capital/ poor lending to risky projects that might undermine the stability of the financial system.
The governor had plenty of other interesting things to say (competing theories of secular stagnation, and a host of other questions), and I would encourage people to read a version of his speech here. But I don’t think I’ve misrepresented the three bullets above as three of the main points.
Now, I’ve already put my stake in the ground about where I stand on some of this stuff, and it stands in stark contrast to the bullets presented above. (I’m more of the view that there have been waves of concern stretching back pretty much forever about the degree to which technology will deliver mass unemployment and crippling real wage cuts, but these have all so far come to nothing. Meanwhile, there is a massive demographic transition coming through in front of our eyes, the upshot of which appears to me likely to deliver labour some bargaining power.) But what if he’s right and I’m just plain wrong?
Let’s run the idea ad absurdum (yes, I know, real life has a habit of getting in the way of running ideas to the extreme conclusions). But if we did:
- The folks who own the robots will own the means of production (as well as the means of accountancy, the means of lawyering etc etc), and there will be no room for pontificating about labour power: labour power will be kaput. Income from the sales of robot overlord kit and robot overlord output will accrue to these members of the capitalist elite, and they shall have a fine life. But given their microscopic marginal propensities to consume (and the fact that they will have become autarkic with the help of their robots) there would be a big demand problem in the economy, and disinflation (if not deflation) is the norm.
- If central banks continue to shy from helicopter money, focussing instead on setting the appropriate rate of interest at the short (and perhaps through QE, the long end), the days of positive nominal, let alone real, interest rates becomes but a halcyon memory. But permanently negative real rates (as set by the economy, and implemented by the central bank) inflate further the net present value of cash flows attached to the firms that own our robot overlords (in turn owned by the ultra-rich), heightening inequality outlined in #1.
- Given what might be decent returns to robot overlordship you might think that the sector attracts lots of fresh capital. It does, but in the form of equity finance, given the high risks associated with technology even in the robotic sector, and the macroprudential framework that has been thoughtfully put in place to guard against financial accidents that might result from speculatively financing start-ups that challenge the big players means, on the ground, that entrepreneurs are credit-rationed for the sake of financial stability. The folks that provide this equity finance are typically drawn from #1, although periodically someone does something truly clever and special, is lionised and held up as an example of how the whole system is actually very meritocratic (further buttressed by the fact that all the professional careerists go and work in the big robot overlord firms proving that the return to education is high).
Okay, I might have stretched the whole thing a little far, but let’s continue for a moment. What, exactly, is the problem that I’ve outlined? After all:
- The economy is larger (in volume terms) and more efficient than it would have otherwise have been (or the robots wouldn’t have been able to take over). Tick?
- There is a dynamic form of capital allocation in play (albeit in equity finance only, but that has less financial system risks anyway) to challenge the robot overlord firms, preventing complete monopolist behaviour. Tick again?
Would policymakers sit back and let this scenario play out? What happens when this sort of plutocracy collides with democracy? Put another way, what is the likely policy response to an Elysium scenario (good Blomkamp sci-fi film, underrated in my view), in which what really matters is ‘who owns the robots?’
There are some readers who might say “open your eyes, this dystopian future has been developing for decades and the answer is obvious: plutocrats win, democratic institutions are captured, and the cultural zeitgeist is also captured into knowing that the system of the day is both economically optical and morally sound“. I would counter that while it is hard to ever step out of one’s cultural context, a whole host of measures of well-being (life expectancy, health, literacy, etc) suggest that the fruits of economic growth have to a certain extent been widely-shared, and we are nowhere near the Elysium point at a national level (although this is certainly less true at a global level).
Through the instruments of the state, we collectively have in place a structure that facilitates/ optimises capitalism (contract law, property rights, state monopoly of violence etc) so that the economy can – in aggregate – grow to its potential, and we can then deal ex post with questions of distribution. This is what I understand Lord Mandelson meant when he said he was “intensely relaxed with people getting filthy rich as long as they pay their taxes“. Sort of Rawls, if perhaps not exactly.
It seems clear to me that addressing the dim and distant Elysium scenario with a traditional monetary policy response would be problematic (see #2 above). And given that it is a question of ‘who owns the robots’ in this dim and distant scenario, I wonder whether either (a) a wealth tax, (b) a heli-money financed acquisition of robot overlord property rights, or maybe (c) a Guardian campaign to nationalise the robots would gain popularity. Disregarding option (c), I think that option (a) would be fair, but it seems that few others agree. But option (b) rhymes with my understanding as to how assignats came into existence in France in 1789: as a way to finance the acquisition of venal offices off their pre-Revolutionary holders.* (Assignats have ultimately been associated with monetary instability and hyperinflation, although it is not clear to me that this experience serves to support the quantity theory of money as much as a view that money is a microtechnology of daily trust that is ultimately somewhat fragile.) It would be strange if we found ourselves revisiting techniques used in the late eighteenth century to deal with a twenty first or twenty second century problem.
After I wrote a draft of this blog I saw on Twitter that Andy Haldane spoke this evening on all of these issues in a reasonable amount of depth. Reading the speech I think his views are very interesting, and are of course laid out in a fuller, more eloquent, and well-contextualised manner. (To be fair, he probably spent more than two tube journeys typing them up on an iPhone.) He indicates that he, like Visco, are taking the potential implications of automation seriously as a prospective intermediate disinflationary force. He ends with the idea that there are three public policy solutions that might be put into motion (relax, retrain and redistribute), and this sounds pretty reasonable (actually, Visco did make a big play for retraining now I think about it). I would have loved to have asked Haldane a question on the prospective use of helicopter money for the Elysium scenario. I hope Duncan asked it.
*Rebecca Sprang outlines in her brilliant book that ‘no one (not even Marat or Robespierre) took the truly revolutionary position of suggesting venal offices might be illegitimate privileges that could be cancelled without payment’ (p87). It seems even in Revolutionary France that radical ideas of wealth tax were considered beyond the Pale.