Robots, Not Trade, Is The New Danger For Jobs
Yesterday, I wrote about the PwC report that showed that 38% of jobs in the US were in danger of being replaced by robots and artificial intelligence in the next 15 years. Today, in the NY Times, there are two articles showing that transition has already begun. Yet the Trump administration does not even see this issue is being on its radar. That does not bode well for our future.
The first story comes from Treasury Secretary Steven Mnuchin’s own industry, the financial industry. Computerized, high-speed stack trading has been a feature on Wall Street for years and, according to some analyses, has created imbalances in the markets that favor the big Wall Street firms over the smaller investor. And now Blackrock, the largest fund companies in the world, has finally decided to hand over some of its actively manage mutual funds to the machines, replacing the human fund managers in the process. Part of this change is driven by the move toward index funds rather than a pool of specific stocks in managing portfolios. In layman’s terms, that means buying an exchange traded fund that represents the full S&P 500 stocks instead of just picking 10 S&P 500 stocks for your portfolio. This move to using computerized fund management will end up costing the jobs of at least 36 people associated with the funds that are being automated. In addition, because computers are now managing these funds, as opposed to individuals, Blackrock will be able to cut the fees on these funds as well.
Next, an article in the Upshot section details a new study that outlines the job losses and wage effects that robots are having on the work force. A new paper by two economists out of MIT and Boston University actually contradicts a prior theoretical study that the two did on the effect of robots on the work force. In their theoretical study released last year, the two concluded that robots would actually create new and better jobs so that their impact on human employment would be largely muted. This study actually looked at real world data and came to a far different conclusion, document large negative effects on workers. In general, one robot for every on thousand workers reduced employment by 3 workers and lowered wages by 0.25%. But in certain specific areas of the country, that one additional robot displaces over 6 jobs and decrease wages by 0.7%. In manufacturing, which has been the industry with the earliest adoption of robots, the study estimates that robots have eliminated 670,000 between 1990 and 2007. With the onset of the financial crisis and the drive to cut costs, along with the advances in robotics, that number has probably grown substantially in the last 10 years.
There is no doubt that in the 1990s and early 2000s offshoring and the entrance of China into the WTO led to significant job losses here in the United States. But the effects of those changes, while devastating to certain areas of the country and sectors of our economy, has largely diminished. The more recent job losses have more and more to do with automation and robots and it will only get worse with the improvements in artificial intelligence.
Like the trade issue before this, robots and artificial intelligence may actually help grow the economy, but there will be clear winners and losers. The largest problem with our reaction to job losses caused by offshoring and world trade is that we did nothing to force the winners to help decrease the negative effects on the losers. That, of course, is an anathema to the Republican party because it implies “redistribution”.
Steve Mnuchin, when asked about the employment effects of robots and AI, said, “[I]t’s not even on our radar screen….50-100 more years…I’m not worried at all.” And the Trump administration in general seems more intent on fighting a war on trade and offshoring that was lost about a decade ago and is over. Like generals over the ages, this administration is preparing to fight the last war. And by not being properly focused on the coming massive disruptions in employment and ideologically opposed to taking the steps to ameliorate that situation, our country seems ready to repeat the same mistakes we’ve made before.