Brad Feld Reviews The Lights in the Tunnel_6 potx

THE LIGHTS IN THE TUNNEL / 180

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meltdown.Oncethecurrentglobalcrisiseases,wecanbe
surethatgovernmentswillturntothetaskofattempting
tocontainthisriskinthefuturebyimposingregulationon
themarkets.However,theimpactofadvancingtechnolo-
gy willnotbeconfinedto justthefinancialmarkets. We
will ultimatelyhave to address the issue of systemic risk
throughouttheentireworldeconomy,andthiswilleven-
tuallyinvolvetransitioningtoamorerobustmodel.
The Market Economy of the Future
The scheme that I have proposed above essentially in-
volvesadoptingspecialtaxestorecapturetheincomefrom
lost jobs and then having the government redirect that
income according to individual incentives—without the
requirement for traditional “work.” The conservative
readerislikelytoviolentlyrecoilfromthisidea.Isthisnot
theworstformofRobinHoodsocialism?AmInotpro-
posingtostealfromthosewhohaveworkedhardtobuild
abusinessandthensimplygivetheproceedstomassesof
indolentpeopleinreturnfordoingnothing?
IwillarguethatIamproposingnoneofthesethings.
Putyourselfinthe placeof a smallbusiness owner. Re-
memberthatwearestillthinkingintermsofourextreme
future scenario with 75 percent unemployment. How
wouldyourbusinesssurviveinsuchasituation?
The special wage recapture taxes thatyou would be
requiredtopayasabusinessownerwouldbeaninconve-
nienceto you;youwould,ofcourse,preferthatyounot
havetopaythem.(Thesamecouldbesaidofthewages

youcurrentlypaytoyouremployees.)However,thewage
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recapture taxes paid by every other business will collectively
powertheconsumersthatdriveyoursales(exactlyasthe
wagespaidbyotherbusinessesdotoday).
Wemustfindawaytoredirectincometolargenum-
bersofconsumers,ormarketdemandwillnotbesustain-
able. It is not necessaryto require workforthatincome
becauseinanautomatedeconomysuchworkwillnotbe
required.Therecipientsofthisincomewillnotdo“noth-
ing;”theywill,infact,bemotivatedtobehaveinwaysthat
benefitusall.ThenewtaxesthatIproposearesimplya
replacementforthewagesthatwouldhavebeenpaidina
lessautomatedeconomy.
Without government intervention of this type, free
market forces, together with increasing automation, will
driveoursocietytowardanunsustainableconcentrationof
income.Imagineamodern,industrializedsocietyinwhich
95percentofthepopulationisimpoverishedandleadsa
subsistence level existence with little or no discretionary
income,whiletheremaining 5percent receivesnearlyall
theincome.Insuchascenario,themajorityofindustries
now in existence would collapse. The businesses from
which most wealthy people derive their incomes would
fail.
Whilethisisobviouslyanextremeexample,thereality
isthateconomicdeclinewouldoccurlongbeforesuchan
extreme concentration of income was achieved, and that

declinewould be accompaniedbythedeflationofnearly
allasset values. Thewealthywill notbeableto maintain
their high incomes by selling things exclusively to each
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other.Thedaysofthefeudaleconomyaregone.Wenow
haveamassmarketeconomy.
Aslongasanenormousmassmarketofviablecon-
sumersispreserved,theprimaryincentivesthatdrivethe
free market economy will remain intact. In the future, it
willstillbepossibletobecomeextremelywealthybybuild-
ing a new business or product. In fact, it may in some
ways,beeasiertodosothantoday.Manybusinessstrateg-
ists believe that future marketing will increasingly entail
sellingcustomizedoruniqueproductstohugenumbersof
small market niches.
52
 Evolving online technologies will
makeiteasiertoreachtheconsumersinthesetinyniches
andofferthemhighlypersonalizedproductsandservices.
This will likely create many opportunities for entrepre-
neursandsmallbusinessestocreatenewproductsgeared
towardspecific marketsegments.Itwill alsoenablelarge
businessesandnewindustriestosellhugenumbersofdif-
ferentproductsonahighlytargetedbasis.
However,itshouldbeobviousthattheexistenceofa
hugenumberofviablemarketnichesdependsonarobust
and ever expanding universe of consumers. In order to
provide future entrepreneurswith a richmarket for new

ventures, we have to somehow ensure that the average
consumers in our population have access to reliable in-
comestreamsevenastraditionaljobsareincreasinglyau-
tomatedaway.
ConsiderthebusinessmodelofanInternetcompany
likeGoogle.Googlereliesonrevenuefromonlineadver-
tisementsthatarehighlytargeted.Theadvertiserswhouse
Google’ssystemdosobecausetheyhaveconfidencethat
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their adswill attractviableconsumerswithadequate dis-
cretionaryincome.Intoday’seconomy,nearlyallofthose
consumersrelyonjobs.Ifatsomepointinthefuture,it
becameobviousthattheuniverseofviableconsumerswas
substantiallydiminished,advertiserswould befarlessin-
terested and Google’s business model would clearly be
threatened.
Historyhasshownthatonlyaselectminorityofthe
populationhasthecombinationofskill,entrepreneurship,
accesstocapital,andluckthatisrequiredtostartandrun
a successful business. This reality will not change: most
people aredestined to bebuyers rather thansellers.The
individualswho do succeed inbuilding businesses inthe
future will likely find that wages paid to employees ac-
countforafarsmallerfractionoftheirexpenses.Howev-
er, they will have to pay higher taxes to compensate for
this;otherwise,theywillnotenjoyvibrantmarketdemand
fortheproductsandservicestheycreate.
An International View

Manypeoplemightobjecttotheideaspresentedhereon
the grounds that if acountry, such asthe United States,
weretoraisebusinesstaxessubstantiallyitwouldbecome
less competitive relative to other countries and would
thereforeattract less investment. Ifyou look backat the
table on page 165, which showed how a wage recapture
taxmightaffecttheunitcostofahypotheticalproductor
service,theunitcostisclearlyhigheraftertaxestorecap-
turelostwagesareimplemented.Forproductsorservices
thatfaceinternationalcompetition,thiswouldconstitutea
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problem.One solution might be to relymore on acon-
sumptiontaxratherthatadirectbusinesstax.Incountries
such as the United States, of course, the manufacturing
sector has already largelymigrated overseas and employ-
ment has become increasingly service oriented. In the
U.S.,thegreatestdangerisgoingoccurwhenthe service
sectorautomates,anddirectforeigncompetitionislessof
anissueinthatarena.
In the long run, job automation will clearly be a
worldwide phenomenon. No country will escape its im-
pact,andthisincludesdevelopingnationswithlowwages.
AsIpointedoutinthepreviouschapter,wearelikelyto
seeashiftintheincentivesthatdrivebusinessestochoose
wheretheyinvest.Politicalstability,minimizedtransporta-
tion and energy costs, and proximity to sustained con-
sumptionmarketswillbeprimaryissuesinthefuture.
Inthebroader sense,wecanspeculate thatanauto-

matedeconomywould,inmanyways,redefinethenature
ofglobaltrade.Sometradebetweencountriesoccursbe-
causeoftheavailabilityofnaturaloragriculturalresources
(oilorFrenchwine,forexample),butmuchtradeoccurs
becauseoflabordynamics.Ifaparticularcountryhaslow
wagesand/oraparticularlyskilledworkforce,itcurrently
enjoys an advantage that will lead to trade. In an auto-
matedeconomy,whereworkersplayafarlesssignificant
role,thistradedynamicwouldobviouslybelessimportant.
There are really only two primary reasons that the
government ofa country would want to attract factories
andbusinessinvestment:jobsandtaxation.Asautomation
reducesthenumberofjobs,taxationwillbecomeincrea-
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singly important. It seems likely that once this issue be-
comesapparent,somedegreeofcooperationbetweenna-
tions will develop. Perhaps international entities such as
the World Trade Organization will address this issue by
settingstandardsfortaxation.Wecannotexpectthatthe
transitiontoanewmodelwouldbeentirelysmooth,and
perhapsinsomecases,protectionistmeasureswillbene-
cessary.Whilefreetrademaybedesirable,itshouldclearly
bealowerprioritythanthepreservationofourentireeco-
nomicmodel.
Transitioning to the New Model
Now that we have seen how the government might be
abletosupporttheconsumersofthefuturebyredirecting
incentive-based income streams captured through taxa-

tion, we can begin to thinkabout howto transition into
thisnewmodel.Theprimaryproblemwefaceisthatthe
currenteconomyisstillhighlyreliantonhumanlabor.We
needtodevelopasystemthatavoidscreatingadisincen-
tivetoperformnecessarywork.Inotherwords,wedon’t
wanttocreateinequitiesbyrequiringsomepeopletowork
andnotothers,andwedon’twanta“moralhazard”that
pushes people to avoid work and seek government sup-
portinstead.
The answer must be sometype ofjob sharing solu-
tion.Theexactmechanicsofthissolutionwouldneedto
vary depending of the nature of the job. For many job
types,itmightbepossibleto simplymovetowardapart
time work schedule so that more people are employed
doingthesameamountofwork.Forjobsthatdonotlend
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themselvestoparttimework,arotationschemecouldbe
used. A worker might rotateinto a job on a monthly or
evenayearlybasis.Jobscouldbesharedbygivingworkers
asabbaticalatdifferenttimesoftheyear.
Ineachcase,workerswouldbesupportedbysupple-
mentary incentive-based income streams from the gov-
ernment. As automation progresses and more jobs are
eliminated,thissupplementaryincomestreamwillbecome
anincreasinglyimportantcomponentoftotal income. In
largecorporationsandorganizations,itmightbepossible
tohandlejobrotationsinternally.Insmallerbusinesses,it
would probably be necessary to set up external mechan-

ismssothatworkerscouldrotatebetweenemployers.Ob-
viously, regulationsand/or incentives
*
wouldberequired
toimplementthesejobsharingschemes.
Needless tosay, the businesscommunityis likelyto
initially opposethis idea and dismiss it as expensive and
unworkable.AsI’vepointedouthowever,businesseswill
ultimatelyhave to choose betweengovernment interven-
tion and taxation and the existence of a robust market.
Oncethistradeoffbecomesclear,oppositionwillbeless
vigorous.Weseeasimilarphenomenoninthehealthcare
arena, where many industries that opposed efforts at
reform in the 1990s nowat least recognize the problem
andhavelinedupbehindthegeneralconceptofreform—
althoughnoconsensushasyetbeenreachedonasolution.


*
Thetaxcodecouldbeusedtoprovideanincentiveforparticipation
inajobsharingscheme.InthepreviouschapterIsuggestedtheidea
of“progressive”deductionsforwagespaid.Inasimilarfashion,high-
erdeductionscouldbeprovidedtobusinessesthatagreedtoincorpo-
ratejobsharingintotheirbusinessmodels.
Transition / 187

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Onethingthatisabundantlyclearisthat,inaworld
where traditional jobs are disappearing, access to health
careinsurancecannotbecoupledtoemployment.Oneof

theprimaryneartermgoalsfortheUnitedStatesshould
be to establish auniversal healthcare system thatisnot
tied to jobs. Additionally, as I pointed out in Chapter 3,
payrolltaxes will become increasinglyunsustainable. The
firststepsintransitioningtoanewmodelwillhavetobe
toshifttheburdenformaintainingsocialprogramsaway
fromtaxesonindividualjobsandtowardabroader,more
sustainablemodelwhichfallsmorefairlyoncapitalinten-
siveindustriesthatemployrelativelyfewpeople.Thebur-
den that falls on a business should depend not on how
many workers it employs, but on how successful that
businessisatderivingwealthfromthemarket.
Onceasystemisputinplacethatallowsworktobe
shared on an equitable basis, it should be possible to
achieve a relatively smooth transition into an automated
economy.Overtime,theincentive-basedincomestreams
provided by the government would increase, and the
amountoftraditionalworkperformedwoulddecrease.As
jobautomationincreasesandthewagespaidbybusinesses
fall, the special taxes that have been put in place would
needtobegraduallyincreasedtorecapturetheincome.
Inadditiontotheprimaryeconomicobjectiveofsus-
taining consumer demand, this would of course, have
manypositiveimpactsonsociety.Individualswouldhave
moretime forfamily,leisure,personalhealth andeduca-
tion. Better educated consumers with more leisure time
andmoreconfidenceintheirfutureincomeswouldresult
THE LIGHTS IN THE TUNNEL / 188

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insustainedconsumerspending,vibrantdemandfornew
products and services, and long-term economic growth.
As incentive-based income became more important rela-
tivetotraditionalwages,individualswouldseeincreasingly
potent incentives to act in environmentally conscious
ways,andthatwouldpotentiallyhaveasignificant,favora-
ble impact on climate change and other environmental
challengesinthecomingdecades.


Transitional Economy
Average Income













Time
Machines Becoming
Autonomous
Consumers and
Workers

Decoupled
Machines Getting
Better
Value
Transition / 189

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Keynesian Grandchildren
While few contemporary economists seem particularly
concernedabouttheseeminglyinevitabletransitiontoan
automated economy, one legendary economist did have
remarkableinsight into the future.In1930, as the world
plungedintotheGreatDepression,JohnMaynardKeynes
wrote an essay entitled “Economic Possibilities for our
Grandchildren.”
53
 In his essay, Keynes coined the term
“technologicalunemployment,”writing:

Wearebeinginflictedwith anewdiseaseofwhichsome
readersmanynotyethaveheard thename,butofwhich
theywillhearagreatdealintheyearstocome—namely,
technologicalunemployment.Thismeansunemploymentdueto
ourdiscoveryofmeansofeconomisingtheuseoflabour
outrunningthepaceatwhichwecanfindnewusesforla-
bour.
*


Keynesrecognizedthat,in1930,technologicalunem-

ploymentwouldbeatemporaryphenomenonandthatthe
economywouldeventuallyabsorbtheexcessworkers.The
mainthrustofhisessaywastoattempttolookmuchfur-


*
Today,wheneconomistsdiscussthecausesoftheGreatDepression,
they tend tofocusalmostexclusively on themonetary policyofthe
FederalReserve.Whilethereislittledoublethattheoverlyrestrictive
policies of the Fed prolonged the Depression and perhaps turned a
runofthemillrecessionintoadisaster,itshouldnotbeforgottenthat
therewasawidespreadbeliefatthetimethatthetechnologicalunem-
ployment(andtheresultingplungeinconsumerdemand)thatKeynes
spoke of played an important role. Even Albert Einstein expressed
thisopinionwhenaskedforhistakeonthecausesoftheDepression
duringavisittotheUnitedStatesin1933.
THE LIGHTS IN THE TUNNEL / 190

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ther into the future. Keynes argued that over the next
hundred years (in other words, by the year 2030), the
economiesofdevelopednationswouldgrowdramatically.
Heshowedthat,overtime,economicgrowthwouldoper-
ate much like compound interest in a bankaccount and
make thesocietyofthefuture farmore wealthy.Keynes
hadaveryoptimistic viewofthelong-termfuture;some
wouldarguehewasunrealistic.Hebelievedthathumanity
was “solving its economic problem” and that the future
wouldbeoneofrelativeabundance.
Keynes also foresaw clearly that future technologies

would result in less need for human labor. He believed
thatwewouldenteranew“ageofleisure”andheworried
thatwemightstruggletofindpurposeinaworldthatdid
notrequirework.Importantly,healsoforesawtheneedto
sharewhateverworkwasrequiredacrossthepopulation:

…weshallendeavortospreadthebreadthinonthebut-
ter—tomakewhatworkthereisstilltobedonetobeas
widely shared as possible. Three-hour shifts or a fifteen
hourworkweekmayputofftheproblem[the“problem”
being a lack or purpose oractivity to occupy time]fora
greatwhile.

InevaluatingKeynes’essay,weshouldkeepinmind
thatattemptingtopredicteventsahundredyearsintothe
futureisaremarkablyambitiousundertaking.Whatecon-
omist(orstockmarkettrader)todayiscapableofpredict-
ing thestatusof theeconomyevensix months out with
anyconfidence? Personally, I think that Keynes’ take on
thefuturewasinmanywaysremarkablyprescient.Inpar-
Transition / 191

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ticular,Ithinkhisviewthattechnologicalprogresswould
be relentless and would ultimately reduce the need for
humanlaborisverylikelytobevindicatedinthecoming
years and decades.His view of how we would go about
sharingtheworkisalsoessentiallycorrect,butabitmore
problematicintermsofhowitwillevolve.Asapractical
matter,Ithinkthereareafewobservationswecanmake.

First,lefttoitsowndevices,the free marketisvery
unlikely to produce a viable system in which work is
sharedequitably.Employing(andtraining)multiplepeople
toperformajobthatcouldinsteadbedonebyoneperson
placesanexcessburdenonbusinesses.Theywillnottake
onthatburdenvoluntarily.Governmentregulationwillbe
required to make it happen. Where businesses do today
hire part time workers, they often do so in an effort to
avoidregulationorpayingforbenefits.Asecondobvious
problem is that the wages from part time work will not
provide anything approaching an adequate income for
workers. In today’s economy, part time workers often
havetostringtogethermultiplejobsinordertoearnaliv-
ingwage.
Ingeneral,Ithinkthreebasicthingswillberequired
forustomovetoaneffectivetransitionaleconomyandto
begintorealizethevision thatKeyneswroteofin1930:
(1) We will need the government to enforce a work-
sharingscheme.(2)Weneedtodecouplehealthcareand
other social safety nets from employment, and (3) We
need to supplement employment income with direct in-
comestreams—andIhavearguedstronglythatthesein-
comestreamsshouldbeunequalandbasedonincentives.
THE LIGHTS IN THE TUNNEL / 192

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Theseincentives—particularlyafocusoncontinuingedu-
cation—will offer at least a partial solution to the prob-
lemsofalackofpurposeandanexcessoffreetimethat
Keynesforesaw.

Transition in the Tunnel
Let’snowreturntoourtunnelandrewindthesimulation
tothe pointatwhichautomationstartstotakehold.We
canthenseehowourtransitionalstrategymightwork.
*****
Wearebackinourtunnel.Verygradually,justasbe-
fore,webegintoautomatethejobsheldbymanyofthe
averagelights. Asthis happens,the impacted lightsgrow
dimmerandinmanycasesdisappearcompletely.
Now,however,wenoticesomethingnewinthetun-
nel.Agreenlighthasappeared.Aswewatchclosely,wesee
thatmanymorelightsgraduallybegintoshiftinhue.The
intensity of the lights remains unchanged, but the color
rotatesbetweenwhiteandgreen.Somelightsrotaterapid-
lybetween greenandwhite light,whileothersshifttheir
colormuchmoreslowly.
Thegreenlight,ofcourse,representsthepurchasing
power of consumers who are supported by incentive-
based income streams rather than traditional jobs. The
lightsrotateincolorasjobsaresharedamongtheworkers
firstaffectedbyautomation.
Thegreenlightsinitiallyrepresentasmallminorityof
the lights within the tunnel. Most peoplecontinue to be
employedintraditionaljobs.Ifweweretowatchtheac-
tioninthetunnelovertime,however,wewouldseethat
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thenumberofgreenlightsisconstantlyincreasing.Like-
wise,ifweweretofocusonanyonelight,wewouldsee

that,asitrotatesbetweenwhiteandgreen,thegreenlight
graduallycomestopredominate.
While the color rotation among the lights captures
ourinterestforatime,themoststrikingrealizationisthat
nothingelsehaschangedinthetunnel.Aswewatch,we
seethatthelightscontinuetosoftlyimpactthepanelson
the walls of the tunnel as consumers purchase products
and services. The businesses in the tunnel make no dis-
tinctionsbasedonthecolorofthelights.Overtime,the
processofcreativedestructioncontinuesjustasit always
has.Inefficientbusinessesfailandnewonesriseuptotake
theirplace.
Amongthemultitudeoflightsinthetunnel,we can
see that there are still a significant minority which shine
withintensewhitelight.Thewealthiestpeopleinthetun-
nelmaybesubjecttosomewhathighertaxrates,butthe
businessesandassetstheyownareretainingtheirvalueas
themassmarketcontinuestothrive.
Overall, we sense that stability has returned to the
tunnel. As the collective light that permeates the tunnel
graduallyshiftsfromwhitetogreen,wecanalsosensethat
itisonceagainincreasinginoverallintensity.Evenasjobs
arerelentlesslyautomatedaway,thelogicofthefreemar-
ket has been successfully leveraged to once again drive
sustainedprosperity.

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Chapter 5

THE GREEN LIGHT



In the previous chapter, I proposed a mechanism for
adapting the market economy so that it can continue to
function even as machine automation inexorably elimi-
natesthejobsthatprovideincometoconsumers.Thees-
sentialideaisthatweshouldimposesomecombinationof
aconsumptiontaxand/oraspecialdirecttaxonbusiness
thatcapturestheincomewhich,inanon-automatedecon-
omy,wouldbepaidoutinwages.Overtime,asthewages
paidtoaverageworkersdecrease(asapercentageofreve-
nue),thesetaxeswouldbegraduallyincreasedtorecapture
atleastaportionofthisincome.Theoverallobjectiveisto
recapturejusttheoptimalamountofincomeandthenget
itintothehandsofconsumerssothattherewillbesuffi-
cientconsumerdemandtocontinuedrivingtheeconomy.
Once the income has been collected, I then argued
that it should be directed to individual consumers based
on incentives. If, in the future, most human labor will
someday be unnecessary, then it follows that the private
sector willnot bewillingto pay forit. Ifwe cannot pay
peopletowork,thenwemustpaythemtodosomething
elsethathasvalue.AsIpointedoutinthepreviouschap-
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ter, we can construct a number of incentives which will
drive people to act in ways that benefit themselves and

society, and which help to protect the environment. By
offeringunequalincentive-basedincometoconsumers,we
notonlysustainconsumerdemand,butalsodrivepeople
toactinwaysthatbenefitusallandprovideeachperson
withthepossibility ofadvancement anda higherincome
inthefuture.
Thishopeforthefuture—theideathatbystrivingto
completegoalsonecanattainabetterstandardofliving—
iscriticaltoboth individualandcollectivestability.It of-
fersawaytoavoidtheenormousproblemofaneverin-
creasing, impoverished, disenfranchised and unmotivated
underclass.Aswesaw,theincentive-basedincomescheme
can be combined with a job rotation or sharing plan so
that as automation progresses, the remaining work is
sharedonareasonablyequitablebasisamongthepopula-
tion.
Inthischapter,wearegoingtousesomeimagination
andpushforwardevenfurtherintothefuture.Let’ssup-
posethatourtransitionhasbeenunderwayforsometime
in the major industrialized and emerging economies.
Thingshaveprogressedtothepointwherethemajorityof
people inthe developed world no longerwork full time.
Mostconsumersnowreceiveasubstantialportionoftheir
income from incentive-based income streams. Based on
theirparticularinterestsandabilities,peoplepursuehigher
education,workinthecommunityandmakechoicesthat
benefittheenvironmentwiththeunderstandingthatdoing
thesethingswillleadtoahigherincomeandabetterstan-
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dardofliving.Averagepeoplehavesufficientincome,and
sufficientconfidenceinthefuture,sothatbothconsumer
spendingand overall economicactivityconsistently grow
overtime.
While most peoplework only part time, or in some
casesnotatall,asignificantminoritycontinuestopursuea
fulltimecareer.Somemaystillfindemploymentinspecif-
icareaswheretherecontinuestobeneed.Authors,artists,
and entertainerswillstillbe accorded the opportunity to
derive substantial income from their talents. And, of
course,therearestillpeoplewhohavethenecessaryskills
andabilitytostartsuccessfulbusinessesandengagedirect-
ly in innovation. Because the transition has successfully
preserved a robust consumer market, those with the ap-
propriate talent and ambition still have the potential to
becomewealthy.Infact,itislikelythatmuchofthetradi-
tionalworknowperformedbypeopleisentrepreneurialin
nature.Many peoplemay choose to engage in profitable
hobbies or part time businesses that augment their in-
come.
Prosperity has been preserved in the developed and
emergingeconomies.Ournexttaskistothinkabouthow
thisnewsystemmightbeextendedtothepoorestregions
oftheworld.
Attacking Poverty
Mostofusunderstandthatthereisabasicinequityinthe
fact that the vast majority of the world’s wealth resides
with a relatively small fraction of its population, and we
realizethatthisinequalityisanimportantfactorthatoften

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underliesconflict,terrorism,andgeneralpoliticalinstabili-
ty. Economists have tried for decades to come up with
strategies that might help developing nations climb the
ladder of prosperity. Relatively few of these efforts have
achievedanysubstantialdegreeofsuccess.
Partly,thereasonisthatfiguringouthowtoinvestin
adevelopingcountryinsuchawayastoensurethatthe
investment results in sustained growth is extraordinarily
difficult. A common problem is, of course, corruption
amongofficialsinthecountry.Thesepeopleveryoftenact
primarilyfortheirownbenefit—and,inparticular,inways
that preserve theirpositions and power—rather thanfor
thebenefitoftheircountryasawhole.Inthefinalanaly-
sis, it comes down to individual incentives. People are
primarilymotivatedtodothingsthattheyarepaidtodo.
Makinganarmslengthinvestmentinacountryandsome-
howinsuringthatthatinvestmentcreatesappropriateand
sustainable incentives throughout the economy is an ex-
traordinarychallenge.
54

Asecondissuewefaceinconfrontingpovertyisthe
environmentalimpactthatitimplies.Ifwelookatarapid-
ly developing county, such as China, it quickly becomes
apparentthataddressingpovertybyapplying thenormal,
historicalpathtoindustrializationthroughoutthepoorest
regions of the world could well result inglobal catastro-

phe.Theearthis simplynot equippedto support untold
billions of people who begin to utilize energy and other
resources at levels typical for the major industrialized
economies.
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Inthischapter,Iamgoingtoarguethat,inalargely
automatedeconomy,itshouldbepossibletoattackpover-
tysimplybygradually extendingincentive-basedincomes
to people in developing countries. The payments would
start outrelatively low andthe incentives would strongly
emphasize environmental considerations. By paying
peopledirectlytoconserveresourcesandprotecttheenvi-
ronment,itshouldbepossibletomovetowarddecoupling
economicprosperityfromnegativeecologicalimpact.
Clearly,suchasinitiativewouldrequireahighdegree
of international cooperation and probably the formation
ofanagencythatwouldimposestandardsandhelpdesign
income incentives for individual countries. It is possible
that some governments would initially refuse to partici-
pate.Overtime,however,iftheapproachprovedsuccess-
ful, it seems likely that the populations of nearly every
countrywoulddemandparticipation.
Once again, we are likely to run into the “paying
people for nothing” psychological stumbling block. The
initial reaction of many people would probably be that
such a scheme would be highly inflationary. To see that
this would not necessarily be the case, let’s start with a
somewhatsimplisticanalysisofwhysuchaschemewould

notworkinourcurrenteconomy.
Imaginethat,intoday’sworld,wesimplystartedpro-
vidingincomestolargenumbersofimpoverishedpeople
throughout the world. We might borrow the money for
this,orsimplyhavegovernmentsprintit.Oncethemoney
founditswayintothehandsofthesepeople,theywould,
ofcourse,starttospendit.Businessesbothlocallyandin
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other countries would try to ramp up to meet this new
demand. They would have to find and hire workers for
this.Wecaneasilyimaginethatshortagesofskilledwork-
ers might develop and that wages would therefore in-
crease. In short, the economy’s ability to produce real
goodsandserviceswouldnotbeabletokeepupwithall
thenewmoneynowinthehandsofconsumers.There-
sult,ofcourse,wouldbeinflation:thevalueofallthisnew
moneywouldfall,andpricesandinterestrateswouldin-
crease,perhapsdramatically.
But what if the entire economy were highly auto-
mated? Then, no new workers would need to be hired,
and there would be few if any labor shortages. There
wouldbeaneedforadditionalcapitalinvestmentintech-
nologytomeetthenewdemand,butthiswouldbeagood
investmentthat would continueto payoffoverthe long
term.Wecannotsaythatalltheconstraintsthatmightlead
toinflationwouldberemovedbecausetheremightstillbe
shortagesofenergyorresources.However,suchshortages
are not specific to this approach—in other words, if we

attemptedtoaddresspovertybythetraditionalmethodof
building up industry and creating jobs, natural resource
andenergyconstraintswouldstillcomeintoplay.
Moneyhasvalueonlybecauseitcanbeexchangedfor
real products and services. In our current economy, it
takesagreatdealofhumanlabortoproducethoseprod-
uctsandservices.Therefore,itisfairtosaythatthevalue
ofmoneyistiedverycloselytoproductivity,orthegeneral
efficiency of production. If in fact, the economy of the
futureishighlyautomatedandrequiresfewworkers,then
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wecanimaginethatitmaywellbepossibleto achieve a
level of economic efficiency that is far beyond what is
possible today.
*
 Furthermore, an automated economy
seemslikelytobehighlyscalable:inotherwords,itwould
bemucheasiertorapidlyandsmoothlyrampupproduc-
tioninordertomeetincreaseddemand.
Ibelievethatitmaysomedaybepossibletoleverage
thevastlyincreasedproductionefficiencyofanautomated
economytoaddresstheissueofglobalpoverty.Aslongas
incomes were provided in a gradual fashion so that any
inflationaryeffectscouldbecontrolled,andaslongasin-
dividual incomes were tied to incentives that helped ad-
dress environmental impact and resource constraints, it
should conceptually be possible to eventually eliminate
poverty.Additionally,Ithinkitmaybepossibletocreatea

“virtuouscycle”inwhichbillionsofnewlyviableconsum-
erswouldeventuallydriveglobaleconomicoutputtoun-
imaginablelevelsbycreatingmarketsofstaggeringsizefor
newproductsandservices.
Manypeoplewill,ofcourse,feelthatallthisis pure
fantasy.Obviously,thisis notanideathatisgoingtobe
feasibleinthenearfuture,anditclearlycouldnotoccurat
allifwedon’tfindawaytonavigatethroughthetransition


*
Additionally,wecanspeculatethatifproductionefficiencyreached
unprecedentedheightsasautomationinvadedtheeconomy,wewould
alsoneedamuchmorerelaxedmonetarypolicythaniscurrentlythe
case.Centralbankswouldprobablyhavetoallowthemoneysupplyto
expand at a rapid rate relative to historical norms, or production
would be needlessly constrained. This is a very strong argument
against theidea (asproposedbysome extremeLibertarians)thatwe
shouldreturntothegoldstandard.
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that I discussed in the previous chapter. Nonetheless, I
wouldarguethatthislieswithintherealmoffuturepossi-
bility—perhapsevenbyourcutoffdateof2089.Toflesh
this ideaout alittlefurther,let’suseevenmoreimagina-
tion and consider the possible economic implications of
truly advanced technologies that might conceivably be
availableinthedistantfuture.
Fundamental Economic Constraints

Giventhefactthatwehavebillionsofpeoplewhoallde-
sire material things,whydoesn’t global economic output
simply soar toward infinity? Obviously, there are things
that limit production. Let’smakealistofthemostbasic
factorsthatacttoconstraineconomicactivity:
1. Labor
Intoday’seconomy,humanlaborisrequiredtosomede-
greeintheproductionofnearlyeverything.Theavailabili-
tyofworkers,thecostofemployingthemandthespecific
skillsthattheypossessisanimportantconstraintoneco-
nomicoutput.Obviously,thepointofthisbookhasbeen
thatthisconstraintislikelytobecomefarlessimportantas
automationtechnologyprogresses.
2. Energy, Land, Natural Resources and Environ-
mental Impact
Clearly, production is constrained by the availability of
energyandoftherawmaterials,suitableland,water,and
other resources that are required to create products and
services.Additionally,economicactivitywillultimatelybe
limited by the harmfuleffectsit perpetratesonthe envi-
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ronment:includingtoxicpollution,overuseofpublicre-
sources, and, of course, the climate change effects asso-
ciated with the emission of carbon dioxide and other
greenhousegasses.
3. Technology
Productionisalsolimitedbythesophisticationofthema-
chines,processesandtechniquesthatareavailable.Ihave

arguedherethat,astechnologyadvances,itwillultimately
becomeindependentoflabor.Machineswillevolvetothe
pointwheretheyarenolongertoolsusedbyworkers,but
insteadautonomousproducers.
4. Consumer Demand
Viable consumer demand is also an absolute limiter of
productioninthefreemarketeconomy.Weare,ofcourse,
speaking here of demand in the economic sense, which
meansdesireforaproductorservicecombinedwiththe
abilityandwillingnesstopayforit.Nobusinesswillinvest
in production unless there is either existing market de-
mandorthereasonableexpectationofsuchdemandinthe
foreseeablefuture. The idea that productionrespondsto
demandisoneofthedefiningcharacteristicsofcapitalism.
Removing the Constraints
Now thatwe’ve listed the fourbasic constraints onpro-
duction let’s perform a thought experiment and imagine
howthoseconstraintsmightconceivablyfallinthedistant
futureiftechnologycontinuestorelentlesslyadvance.The
pointissimplytoimaginewhichconstraintscouldpoten-
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tiallybeeliminatedorminimizedastechnologyprogresses
overdecadesandevencenturies.
Themainthesisofthisbookhasbeenthat,eventually,
machines will become autonomous and there will be far
lessneedforhumanlabor.Therefore,let’sgo aheadand
removelaborasaconstraint.Ourlistnowlookslikethis:
1. Energy,Land,NaturalResourcesandEnviron-

mentalImpact
2. Technology
3. ConsumerDemand
Next,let’simaginethatadvancednanotechnologyand
newcleanenergytechnologiesbecomeavailable.Perhaps
wemanagetoderivenearlylimitlessenergyfromthesun
orfromnuclearfusion.Thecostofenergy,aswellasits
negative impact on the environment, fall to a near zero
level.Nanotechnologyallowsustoeasilytransformmatter
atthemolecularlevel.Wecaninexpensivelyconstructad-
vancedmaterialsfrommorebasiccomponentsandrecycle
usedandwasteproductsintousablerawmaterials.Envi-
ronmental policies and incentives have effectively mini-
mizedothernegativeimpactsthatresultfromproduction.
Wecanthenreduceourlistofeconomicconstraintsas
follows:
1. Technology
2. ConsumerDemand
Now imagine that, in the absence of resource con-
straints, technology continues its relentless advance and
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ultimately accelerates to the point where new processes
and machines can be conceived and constructed almost
effortlessly. Technology, much like energy, becomes un-
iversallyavailableandvirtuallyfree.
Ourlistcannowbereducedtoasingleline:
1. ConsumerDemand
Andnowwemuststop.Consumerdemandasacon-

straintisfundamentaltothearchitectureofthefreemar-
ketsystem.Ifweeliminatethisconstraint—ifproduction
occursinresponsetosomethingotherthandemandfrom
consumers who have the ability to pay for the products
andservicesproduced—thenwenolongerhaveamarket
economy.
Obviously, this exercise has been purely imaginary.
While it might be centuries before technology advances
sufficiently to actually remove these constraints, we can
reasonablyexpectthat,overtime,technologywillgradual-
lyacttoreducethem.Bythinkingaboutwhichconstraints
couldpossiblybeeliminatedfarinthefuture,wecanbe-
gintoseewhatistrulyimportant.Eachoftheconstraints
couldconceivablybereduced,orperhapseveneliminated,
exceptconsumerdemand.
The Evolution toward Consumption
Historically,theprimaryeconomiccontributionof anin-
dividual has been his or her work. Our economic rules
emphasizeproductionbecauseprosperityhasalwaysbeen
heavily dependent on human labor. The incentives built
into the market economy reflect this historical reality.