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https://scottsantens.substack.com/p/pigovian-automation-tax-4-day-workweek-medicare-for-all>
"A recent economics paper laid out what I and others have been saying for years
about how companies are facing an automation arms race, and how they can’t stop
it on their own even when they know it’s going to hurt them. The solution,
according to the authors, is a
Pigovian automation tax. I agree (and disagree
on their UBI take), but I think the tax should be designed to do something
bigger than just slow automation down. I think it should give companies a
choice, to share AI’s productivity gains with workers through a 4-day workweek
at full pay, or share them with consumers through lower prices, or share them
with displaced workers through a Displacement Dividend, all while beginning the
transition to Medicare for All. If they don’t share the gains in these ways,
they should pay the cost of the economic damage they cause.
The paper is called “The AI Layoff Trap,” by Brett Hemenway Falk at the
University of Pennsylvania and Gerry Tsoukalas at Boston University. Here’s the
problem they examined in detail. When a company automates a job, it can see
higher profits through reduced payrolls, but the demand destruction by way of
the lost wages of the worker who no longer has money to spend gets spread
across the entire economy (that’s 70% consumer-based). Every other company
absorbs a fraction of the damage that the automating company barely feels.
So every company has the same incentive. Automate, automate, automate! Cut
labor costs. Let the demand loss be everyone else’s problem. It’s the
prisoner’s dilemma in the real world. Every firm acts rationally by each doing
the same thing, but as a direct result, they all end up collectively worse off
because they’ve destroyed the consumer spending that their own business revenue
depends on. Everybody loses; employers and employees both.
If that sounds too abstract, think of it this way. Imagine 20 people fishing
from the same lake. Every fish one person catches is a fish the other 19 can’t
catch. Everyone knows that if all 20 of them fish too aggressively, the lake
will run out of fish and everybody will go hungry. But every individual
fisherman reaches the same conclusion that the fish they each catch will feed
their own families, which is what matters most to each, and that so long as
they’re the only ones overfishing, everything should be fine. So everyone
overfishes. Everyone acts rationally. And eventually everyone starves.
That’s what’s happening with AI and incomes from employment. The lake is
consumer demand. It’s the consumer buying power of everyone spending their
paychecks. Every company is fishing from that lake. Every company that
automates and lays off workers pulls some fish out, and every company tells
itself the same thing, that the savings are theirs, and the demand loss is
everybody else’s problem, not theirs.
You cannot solve this by asking companies to fish less. You have to change the
economics upon which fishing exists.
That’s what a Pigovian tax does. If that term is unfamiliar to you, know that
it describes what I consider a genius way to design a tax. And once you
understand it, this entire proposal will make intuitive sense."
Cheers,
*** Xanni ***
--
mailto:xanni@xanadu.net Andrew Pam
http://xanadu.com.au/ Chief Scientist, Xanadu
https://glasswings.com.au/ Partner, Glass Wings
https://sericyb.com.au/ Manager, Serious Cybernetics
