Automation: A Bright Future

From reading many articles and posts about the threat of AI to the job market, I am coming to the view that any automation, whether or not it is as result of AI, is good for long term economic prospects. Like most economists I have painted a simplistic view of the economic cycle, none-the-less I have faith that automation is a force for good.

Automation will help decouple the relationship between reducing employment and increasing inflation, a relationship that can quickly turn an economic booms into a recession.

The accepted view is that rising demand not only increases companies’ profits, it also raises inflation as prices rise in response to demand. Rising demand for a company’s products and services will lead to more hiring to increase output. As economies approach full employment, the cost of labor for companies faces two inflationary pressures; the first is response to increased demand for labor, and the second is in response to increased prices lead to hire wage demands. This leads to a familiar cycle: boom -> increasing inflation -> correction in the economy -> increased unemployment and reduced inflation/prices -> boom -> etc.  

Inserting automation into this cycle will allow companies to increase productivity without increasing labor cost – which erode profits and break the growth cycle. Increasing company profits will lead to increased share prices for public companies. Since many people’s retirement savings are invested in the stock market in one form or another, as companies profits grow, so will the value of people’s retirement savings. This will help make it easier for people to make the decision to retire. In short, the right amount of automation could a) reduce an economy’s overall demand for labor, and b) provide sufficient long term stock market gains to support a growing retired section of the population. This latter point is interesting since automation could reduce the overall demand for labor. If the pool of workers chasing fewer jobs is too large then wages would fall leading to deflation and a stagnated economy. The ideal outcome is that people remove themselves from the labor market, because they can afford to retire sooner, leaving the right balance between jobs and workers. The right balance of labor supply and demand will allow for moderate inflation, GDP growth, and a stock market that can support an growing number of liberated workers.

From an employment point of view, automation may also create the need for new jobs that do not currently exist. For example prior to 2007, a marketing department in a company did not need a Social Media Manager, similarly there were no Gas Station Attendants prior to the invention of the car. In other words, automation will reduce the need for labor in current roles, as companies look to increase productivity without baking in more labor costs, it will also create new roles as the labor force becomes liberated from repetitive tasks.

One area this is happening is in data analysis and data engineering.  My web app Knowledge Leaps is designed to automate the grunt and grind of data engineering. I am building it because I want people working in similar industries to be liberated from the chore of data management, so that they  can focus on interpretation and application of the findings.

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