Power & Market

Andrew Yang Fears Automation. He Should Fear Inflation.

It is not automation that scares people, it is inflation. Might sound odd, but what I mean is that the promise of a fully (or at least a more extensively) automated future seems like a threat because modern currencies are fundamentally inflationary.

When we work and save, the purchasing power of our saved funds diminishes with time. This is not a natural state of things, as many nowadays would assume. It is created. The reason prices tend to go up over time is that money loses its purchasing power.

If you think about it, shouldn’t innovations and competition mean we become more productive and thus can get the same benefits (goods, services) at a lower cost?  That is exactly what is happening, and it is evident in some industries like hi-tech (smartphones, tablets, PCs). Wherever there are private businesses producing and competing with others, prices fall.

The reason the number of dollars required to buy an item increases is that the number of dollars in circulation is increasing at a faster rate than productivity. Prices go up because banks, especially through central banks “run” by governments create new money. Prices of goods adjust to the additional money in circulation.

In other words, the 2% inflation target many central banks have is really, though simplified, a matter of creating new money at a rate that exceeds productivity gains by two percentage points.

So what does this mean for automation?

Inflation means it is immensely difficult to save for retirement, to accumulate funds to last a lifetime--or to use savings to cut down on work time. Because those savings, if in cash, lose purchasing power over time, or must be invested, which means you risk losing them.

In other words, losing one’s job is a huge problem whether or not you have savings. Which means the lack of work in a future where machines can do the work (or, perhaps, all work) appears to be a threat.

Economically speaking, it is not a threat, but an opportunity: machines relieve us from hard, time-consuming, and dangerous work so that we can do other things – and since machines save us from working because they increase productivity (produce at lower cost), prices should fall even faster. So our wages and savings should last much longer!

But in a world with inflationary currencies, this seems impossible because the perception is that we must work longer hours to keep our standard of living (imagine if you never had a raise--your standard of living would fall due to inflation’s rising prices).

This loss of purchasing power, compared to the increased purchasing power we should benefit from, is basically taken from us through taxation. And this is what makes an automated future seem like a threat.

Without inflationary money, that is in a world where we benefit in full from our (individual and collective) increasing productivity, automation means we can work less while at the same time have an even higher standard of living – because all prices would consistently fall, likely at an increasing rate.

How is that not a promise?

Adapted from Twitter @PerBylund
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