Do Robots Dream of Personal Deductibles?

On 17 February, Bill Gates said in an interview with Quartz, an online magazine, that robots taking human jobs produce what economists call a negative externality. Rapid automation threatens to dislodge workers from old jobs faster than new sectors can absorb them, leading to costly long-term unemployment. Furthermore, he strikingly argued that governments should tax the utilisation of robots to slow the spread of automation and to fund other types of employment, at least, in the short-term. In particular, he alleged that a robot tax, either on the installation of a robot or on the higher profits firms enjoy through automation, could potentially finance an expansion of health care and education. He even suggested that it would help with jobs that involve taking care of senior citizens or working with kids in schools, for which needs are still unmet. Human beings are better suited for such jobs. Moreover, he proposed that the money created could be used to retrain previously displaced workers.

Significantly, Gates isn’t the only one to support this line of thought.

In a report by the European Parliament, it was suggested that robots should register with the government and be held liable for damages they cause, including loss of jobs. The European Commission expected that any firm that automates should pay individual taxes or contribute to social security too.

According to the Bank of England, 80 million US jobs and 15 million UK jobs are at risk from automation – mainly the ones that pay the lowest wage, meaning that robots could widen the gap between the rich and the poor.

The first and most obvious contention surrounding the debate is, of course, what a ‘robot’ truly is. Is it an anthropoid machine that beeps and boops while speaking in a monotone voice? Perhaps it is the giant mechanical arm that put doors on new cars in the factory? Or maybe a tool that saves labour but doesn’t have any moving parts?

Defining a ‘robot’ is crucial to understanding what kind of technology should be taxed. It might be the case that every capital good from the wheel to the pipette should be taxed, and it might not. As pointed out by Noah Smith, ‘the problem with Gates’ basic proposal is that it’s very hard to tell the difference between new technology that complements humans and new technology that replaces them. This is especially true over the long term.’

Economists typically advise against taxing capital investments – such as a robot – that give humans the power to produce more. Taxation usually discourages investment, making people poorer as a whole. To provide an example, workers may suffer by being displaced by robots, but workers, in general, might be better off because prices fall.

Besides, automation is not occurring as rapidly as we think it is. Though the displacement of workers by machines ought to register as an increase in the rate of productivity growth, Gates’ proposal could increase the expense of robots relative to human labour, therefore delaying an already overdue productivity boom.

One thing for which Gates is right about is that we should start thinking ahead about how to use policy to mitigate the disruptions of automation. However, despite the way Gates positions his message as forward-thinking, his ideas would mean more primitivism and less advancement, and would hamper progress and prevent us from solving the same problems to which he has personally dedicated his life and wealth. When sustainable innovation does arrive, robots might not be the right target, and we should look at alternative policies. One example is a wage subsidy for low-income workers that makes human labour cheaper by cutting payroll taxes, which disproportionately fall on low earners. Maybe we could simply redefine capital income to be broader to tax richer people who buy stocks and real estate, and then distribute the profits to the populace.

Throughout history, every new significant technological advance that has made labour more efficient has resulted in whole populations being better off. Since all capital is aimed at increasing the productivity of labour, societies can produce more of the goods in demand and need, and wages therefore increase. It is true that innovation can temporarily disrupt the working force – like when the invention of cars displaced horse carriage driver – but the overall effect of increasing productivity is positive, even for those who lose their jobs.

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