Is the World Becoming Wealthier or Poorer?


by Charles Hugh Smith, Of Two Minds:

There is nothing intrinsically profitable about either robotics or AI.

At the request of colleague/author Douglas Rushkoff (his latest book is Team Human), I’m publishing last week’s Musings Report, which was distributed only to subscribers and patrons of the site.)

The core assumption of Universal Basic Income (UBI) and other plans to redistribute wealth and income more broadly is that the world is becoming wealthier, and so the pool of income and wealth that can be taxed is always expanding.

This pool of available wealth and income is so vast, we’re assured, that taxing the super-wealthy will not really dent their wealth or the economy as a whole.

But what if the world is rapidly becoming poorer in every important sense?What if the decline in the standard of living of the bottom 90% of households that I’ve often addressed is not simply the result of the top 10% taking a greater share of the output (gains), but of the entire pie shrinking?

I believe the steady decline of the purchasing power of labor–the source of most households’ income–is not just the result of way income is distributed, but of a steadily diminishing pool of real-world wealth.

We must start any discussion of total wealth/income by asking: what are we measuring with currencies such as dollars? What’s not being measured?

As often noted in my writings, we optimize what we measure, and so since we measure financial accounts embedded in markets, we maximize the accumulation of currency and measure what it buys in markets.

But as I’ve explained in my books, markets only price goods and services in the here and now. They lack mechanisms to measure the lifecycle costs of the goods, the degradation of wild fisheries, the loss of soil fertility (depletion), the opportunity cost of what could have been done with money squandered on consumption, and so on.

The decline of fresh water tables and the shrinkage of glaciers that feed fresh water rivers don’t make it into “price discovery” of markets.

As a result, the expansion of “money” creates an illusion of rising wealth when in fact the natural capital we depend on is declining rapidly. But since we don’t measure this in “price,” it’s ignored.

If we combine the loss of purchasing power of labor with the tremendous loss of natural capital/wealth, it becomes self-evident that adding a zero to financial “wealth” hasn’t made us actually wealthier in terms of what we can buy with our labor and what resources are still available to us for future “growth.”

A second assumption of UBI/redistribution proponents is that robotics and artificial intelligence (AI) will greatly increase humanity’s wealth by replacing human labor at a fraction of the cost.

This assumption is made so easily and often, it’s easy to overlook that the claims never seem to originate from those actually manufacturing robots–a very capital and resource-intensive enterprise, and labor-intensive once maintenance and repair are added in.

There are a number of key economic assumptions being made beneath the surface of this claim that ignore all sorts of inconvenient realities.

Take the simple example of a Roomba robot vacuum. The presumption is this labor saving device will replace human labor. But since I don’t pay myself to clean my own house, there is no reduction in labor costs; there is only an additional consumption of resources and capital.

Proponents of the idea that robotics/AI will generate vast new wealth that we can all tap without trade-offs overlook the enormously deflationary impact of technology in general and of commoditized technology specifically: once robotics and AI become commoditized (i.e. the bits and pieces and coding are available everywhere at a steadily decreasing cost), prices will drop, reducing profits to razor-thin margins.

This is the story of commoditized manufacturing in China, where few companies reap significant profits and most scrape by on extremely thin margins.

Read More @