As I read Scott Sumner’s most recent Substack post, I couldn’t help but think that the worries he talked about were about the wrong things. Here’s a snippet:
There’s a great deal of recent discussion about how AI will affect the economy. Too often, the debate centers around the issue of who will profit from AI. I am much more interested in the question of what AI will do to output.
Suppose you are applying for a job at Google, and they ask you to estimate the number of washing machines in America. You might think to yourself that the vast majority of American households have one washing machine, a much smaller number have either zero or more than one. So perhaps the number of washing machines is similar to the total number of households. You might recall that America has 340 million people, and guesstimate that we have somewhere around 130 million households, assuming an average of 2.6 people per household. (AI Overview says 132.5 million households and an unknown number of washing machines.)
He continues by citing examples of calorie consumption and big yachts. He closes in on this point:
The key to higher living standards for average people is to produce lots more output, which requires more automation. When I was born back in 1955, there were about 300,000 people working as telephone operators. At the same time, the restaurant industry was fairly small, people tended to eat at home. Many of the telephone operator jobs were done by single women. Was that demographic hurt by the automation of phone switching? I’d say no, as the decline in operator positions was offset by rapid growth of waitressing jobs in the restaurant industry. Indeed, the decline in jobs working as telephone operators actually enabled the growth of the restaurant industry, by freeing up labor.
Now I tend to agree with him. I think we need to increase production considerably and I don’t mean nominal production I mean real production. That’s one of the challenges of a transition to a “service economy”. Raising the prices you charge for your services doesn’t mean that you can provide more services. It may even motivate you to provide fewer services. And for many services it won’t impel the market to produce more service-providers. For some services the cost of entry and lead times are just too great to respond that way and there are regulatory barriers as well. And I think that removing all regulatory barriers on providing services is a very bad idea. Some regulations exist to protect quality, safety, or trust, and eliminating them may increase nominal output while degrading real welfare much like standardized food.
I did a little research and found that there was no clear, easy way to determine whether his comparison between telephone operators and waitresses actual stood up to scrutiny. I did learn that the average pay for a telephone operator in 1960 (not 1955) was $1.46 while most waitresses earned minimum wage of $1.00 per hour plus tips. Whether or not the analogy holds, it illustrates how easy it is to assume that labor reallocation preserves job quality.
What struck me was several things he talked about. I thought I’d arrange it into some Do’s and Don’ts.
Don’t worry: about AI taking all of the jobs. Do worry: about Fortune 500 CEOs believing that they can reduce payrolls and improve bottom lines with AI. The former won’t happen. The latter is already happening.
Don’t worry: about not enough affordability. Do worry: about administrative capacity. The former is manageable. The latter is unmanageable and renders any attempt at planning for the future impossible. Not only will it make housing unaffordable it will have serious effects on transportation, public health, healthcare, and education, just to name a few. Building roads, sewers, etc. requires a considerable lead time.
Don’t worry: about too many rich people with “mega-yachts”. Do worry: about the U. S. not being able to build “mega-yachts”. Jeff Bezos went to the Netherlands to get his yacht built. Our not being able to build such vessels on a timely basis has run-on effects on our military, shipping, etc.
Don’t worry: about too many ultra-rich people. Do worry: about state and federal governments becoming too dependent on ultra-rich people.
I welcome your own do’s and don’ts in a similar vein.
In conclusion there’s one thing in Dr. Sumner’s post with which I’d like to take exception. I don’t believe that restaurant meals are better quality today than they were in 1955. I ate in restaurants in 1955 and remember. Fast food burgers today do not taste as good as burgers from a diner in 1955. What is true is they are more uniform. Practically everything everywhere is made from mixes today. That wasn’t true 70 years ago.
I realize that old ladies have always claimed that strawberries tasted sweeter when they were girls but there’s another reason that bananas, strawberries, and many other fruits and vegetables don’t taste as good today as they did 70 years ago. The varieties of bananas, strawberries, etc. we ate then really tasted better. Nowadays they ship better and have a longer shelf-life. Furthermore, fresh produce came from truck farms not from thousands of miles away.
