Bill Gates: Here’s how you help workers compete against smart machines

As part of a Q&A session at the American Enterprise Institute, Bill Gates talked about how public policy can help workers, particularly in jobs subject to greater automation, better cope with technological change. Gates favors (a) taxing consumption rather than labor, and (b) subsidizing work rather than a wage floor through a higher minimum wage. Gates (about 46 minutes in):

I think tax structures will have to move away from taxing payroll. … Technology in general will make capital more attractive than labor over time. Software substitution —  whether it’s for drivers or waiters, nurses … it’s progressing. And that’s going to force us to rethink how these tax structures work in order to maximize employment given that capitalism in general over time will create more inequality, and technology over time will reduce demand for jobs, particularly at the lower end of the skill set. We have to adjust, and these things are coming fast. Twenty years from now, labor demand for lots of skill sets will be substantially lower, and I don’t think people have that in their mental model. … Economists would have said a progressive consumption tax is a better construct at any point in history. But what I am saying is that it’s even more important as we go forward because … I want to distort in the favor of labor. …When people say we should raise the minimum wage — I know some economists disagree — but I worry about what that does to job creation. The idea that through the Earned Income Tax Credit you would end up with a certain minimum wage that you would receive, that I understand better than intentionally dampening demand in the part of the labor spectrum that I’m most worried about.

A really interesting blend. To me, this sounds like what a smart person would recommend after having read Milton Friedman’s Free to Choose, Tyler Cowen’s Average is Over, Erik Brynjolfsson and Andrew McAfee’s The Second Machine Age, and Thomas Piketty’s Capital.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

10 thoughts on “Bill Gates: Here’s how you help workers compete against smart machines

  1. Seems to me a basic understanding of what factors into the hiring process would lead you to the same conclusions. I see this as a polite critique on current public policy. Less polite might be “only an ignorant fool would disincentivise hiring when worker participation is at a 30 year low”.

  2. Mr. Gates may be on to something. Notice how the paper industry has gone belly up with the advent of the computer? My old Smith Corona had to have the keyboard cleaned every 9 or 10 years. Just like my IBM, Sony, Dell, HP, Acer, Dell, Custom made 1 and 2 have done in the past 16 yrs.

  3. Nice of Bill Gates to dance around the main problems of government interference and protection of mediocre teachers…

    I applaud him for his efforts…

  4. Bill Gates was also arguging a few years ago for expansion of US immigration quotas-specifically in ways that would help his company make more money/avoid potential competitition.

    The only group to improve their financial position the last 35 years according to Ed Wolff of NYU are the upper 1%. I truly doubt a consumption tax will address that issue because control of assets is far more concentrated than income or consumption. We need to consider shifting taxes from payrolls/consumption onto concentrations of assets.

    • What do you mean by food? Soft drinks, chips, crackers? Any time you make an exception, you open the door for “interpretation”, which is why the current tax code is such a mess.

  5. The problem is not robotics or computers, it is government now soaking up well over half the GDP by spending and regulation cost, and still growing. Funny how even as overall income grows, government grows even faster. If we cut government in half, back to 30% of GDP as it was in 1950, that would boost the private sector’s share of GDP by 75%.

    The elephant in the room in the US, Europe and Japan is the same, and it is being ignored by all the geniuses – big government is crushing economic growth.

  6. He is so right on all these points. Software substitution is coming, and with it lower demand and wages for those in the lower end of the job market. In addition, it isn’t hard to forsee a reduction in the need for paralegals and other “skilled” white collar jobs (purchasing, inventory mgmt) over time. What will be their next job? The demand for labor “as we know it” will continually shrink. What are the skills that will be needed in the future? Should we all learn to write software?

    Hypothetical – Imagine if IBM developed a super-watson computer capable of true AI that could manage the entire supply chain process from supplier management to manufacturing and distribution, with the ability to “downsize” every white collar employee involved in the management of a supply chain. Only the hands-on-floor employees and vehicle drivers are left. If priced correctly, IBM would make enormous profits from this, but millions of workers, maybe 10s of millions globally, would be out of work. If it happened quickly, there would be little time for these workers to be retrained, and back to my question earlier…in what would they train? Consumption and growth would be hit hard as jobless workers do not spend like securely employed workers. The great recession would be a true depression. So the question is when does that happen? 15 yrs? 10 yrs? Say it can’t happen? We have driverless cars now.

    These are serious policy questions that are coming our way fast. I doubt many in DC or elsewhere have even contemplated this, much less watched the video with Bill Gates. What Gates is suggesting is the starting point. I hope AEI will really develop a knowledge base in this area of thought and become a real leader on this topic.

  7. If the American Enterprise Institute had its act together it would call on its own primary scholar in this area, Charles Murray, and have him discuss with Bill Gates the proposal in Murray’s plan to replace the welfare state with what amounts to “Basic Income” — the same proposal that Martin Luther King Jr. recommended in his last book*. If an AEI libertarian and Martin Luther King Jr. can agree on a plan that eliminates racial preferences as well as the welfare state as a way of dealing with the marginalization of labor, then why isn’t Gates, as guest of the AEI addressing this proposal in his thoughts on how to deal with the marginalization of labor?

    Something is very wrong here.

    *Quoting “Where Do We Go From Here: Chaos or Community?” (New York: Harper & Row, 1967):

    “In the treatment of poverty nationally, one fact stands out: there are twice as many white poor as Negro poor in the United States. Therefore I will not dwell on the experiences of poverty that derive from racial discrimination, but will discuss the poverty that affects white and Negro alike…

    …I am now convinced that the simplest approach will prove to be the most effective — the solution to poverty is to abolish it directly by a now widely discussed measure: the guaranteed income.

    Earlier in this century this proposal would have been greeted with ridicule and denunciation as destructive of initiative and responsibility. At that time economic status was considered the measure of the individual’s abilities and talents. In the simplistic thinking of that day the absence of worldly goods indicated a want of industrious habits and moral fiber.

    We have come a long way in our understanding of human motivation and of the blind operation of our economic system. Now we realize that dislocations in the market operation of our economy and the prevalence of discrimination thrust people into idleness and bind them in constant or frequent unemployment against their will. The poor are less often dismissed from our conscience today by being branded as inferior and incompetent. We also know that no matter how dynamically the economy develops and expands it does not eliminate all poverty.

    We have come to the point where we must make the nonproducer a consumer or we will find ourselves drowning in a sea of consumer goods. We have so energetically mastered production that we now must give attention to distribution. Though there have been increases in purchasing power, they have lagged behind increases in production. Those at the lowest economic level, the poor white and Negro, the aged and chronically ill, are traditionally unorganized and therefore have little ability to force the necessary growth in their income. They stagnate or become even poorer in relation to the larger society.

    The problem indicates that our emphasis must be two-fold. We must create full employment or we must create incomes. People must be made consumers by one method or the other. Once they are placed in this position, we need to be concerned that the potential of the individual is not wasted. New forms of work that enhance the social good will have to be devised for those for whom traditional jobs are not available.

    In 1879 Henry George anticipated this state of affairs when he wrote, in Progress and Poverty:

    “The fact is that the work which improves the condition of mankind, the work which extends knowledge and increases power and enriches literature, and elevates thought, is not done to secure a living. It is not the work of slaves, driven to their task either by the lash of a master or by animal necessities. It is the work of men who perform it for their own sake, and not that they may get more to eat or drink, or wear, or display. In a state of society where want is abolished, work of this sort could be enormously increased.”

    We are likely to find that the problems of housing and education, instead of preceding the elimination of poverty, will themselves be affected if poverty is first abolished. The poor transformed into purchasers will do a great deal on their own to alter housing decay. Negroes, who have a double disability, will have a greater effect on discrimination when they have the additional weapon of cash to use in their struggle.

    Beyond these advantages, a host of positive psychological changes inevitably will result from widespread economic security. The dignity of the individual will flourish when the decisions concerning his life and in his own hands, when he has the assurance that his income is stable and certain, and when he know that he has the means to seek self-improvement. Personal conflicts between husband, wife and children will diminish when the unjust measurement of human worth on a scale of dollars is eliminated.

    Two conditions are indispensable if we are to ensure that the guaranteed income operates as a consistently progressive measure. First, it must be pegged to the median income of society, not the lowest levels of income. To guarantee an income at the floor would simply perpetuate welfare standards and freeze into the society poverty conditions. Second, the guaranteed income must be dynamic; it must automatically increase as the total social income grows. Were it permitted to remain static under growth conditions, the recipients would suffer a relative decline. If periodic reviews disclose that the whole national income has risen, then the guaranteed income would hgave to be adjusted upward by the same percentage. Without these safeguards a creeping retrogression would occur, nullifying the gains of security and stability.

    This proposal is not a “civil rights” program, in the sense that that term is currently used. The program would benefit all the poor, including the two-thirds of them who are white. I hope that both Negro and white will act in coalition to effect this change, because their combined strength will be necessary to overcome the fierce opposition we must realistically anticipate.

    Our nation’s adjustment to a new mode of thinking will be facilitated if we realize that for nearly forty years two groups in our society have already been enjoying a guaranteed income. Indeed, it is a symptom of our confused social values that these two groups turn out to be the richest and the poorest. The wealthy who own securities have always had an assured income; and their polar opposite, the relief client, has been guaranteed an income, however miniscule, through welfare benefits.

    John Kenneth Galbraith has estimated that $20 billion a year would effect a guaranteed income, which he describes as “not much more than we will spend the next fiscal year to rescue freedom and democracy and religious liberty as these are defined by ‘experts’ in Vietnam.”

    The contemporary tendency in our society is to base our distribution on scarcity, which has vanished, and to compress our abundance into the overfed mouths of the middle and upper classes until they gag with superfluity. If democracy is to have breadth of meaning, it is necessary to adjust this inequity. It is not only moral, but it is also intelligent. We are wasting and degrading human life by clinging to archaic thinking.

    The curse of poverty has no justification in our age. It is socially as cruel and blind as the practice of cannibalism at the dawn of civilization, when men ate each other because they had not yet learned to take food from the soil or to consume the abundant animal life around them. The time has come for us to civilize ourselves by the total, direct and immediate abolition of poverty.”

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