Robotics is going to change the world in ways we never imagined.
When these start to enter the economy on a large scale, things will be radically different. Before diving it, we have to be clear there is no forecast this will happen immediately. While the industry is moving at fantastic speed, we are still in the infantile stages.
That means we are likely looking at 5 years before we see mass production reached. By 2027, a guess of a few million robots makes sense, depending upon when the exponential progress point starts to slow. If it carries on, this will push the production back even further.
With that out of the way, get ready for deflation (technological) like you never imagined.
Image by Ideogram
Technology Is Deflationary
The interest in robots is the fact that is could, eventually, replace labor. With many countries facing demographic issues, there is obviously a built in need.
Most people follow the idea of a robot replacing a human, putting forth a cost savings. This is pretty straight forward.
Here is where people can embrace the most evident aspect. If we remove the labor rate, replacing with a robot that cost a dollar or two an hour, we could see how the cost of producing something is drastically reduced.
The same is true in the services realm.
What is a robot could mow and edge your lawn? How much more cost effective would this be?
At this point, it is impossible to predict where all this will go. The point to grasp is that replacing humans will provide a cost savings for the product or service.
Naturally, we cannot have a discussion about technology without having some exponentials.
Localized Production
The 1980s and 1990s saw what most refer to as globalization. This was the outsourcing of manufacturing to countries with lower labor costs, primarily China.
Here we are back to discussing the above scenario.
If China reduces its labor rate by replacing humans with robots, the products would cost less to produce.
The question then becomes, what other cost savings are there.
One of the things about building stuff in China is that it has to be shipped. For something like semiconductors, it isn't a big deal. When the product is an automobile, that can get a bit costly.
Robotics is going to allow for the production of goods on a localized basis. Why pay for shipping? It is easier to set up a plant near where the products are consumed as opposed to the other side of the world.
Removing the majority of transportation costs is extremely deflationary. It is one of the benefit of localized production (most likely regionally).
Supply Chain
Our tendency, unless we work in manufacturing, is to look at a product as a single entity.
The reality is most products are a series of smaller products. In other words, some company is selling its product to the manufacturer.
Using the automobile example, someone makes the tires. Another company does the seats. Windows are yet a third. Spark plugs come from a 4th entity.
You get the point.
What happens when each of these products experiences something similar as to what was describe above? The net result is these companies are able to offer their product for less, further reducing the cost.
Of course, this is compounded if dealing with something that is on its own S curve like battery technology.
Department Elimination
The piece that I want to cover here is auxiliary employees who are no longer necessary. At a minimum, these departments could be reduced.
For example, if the majority of the company is robots, do you need an extensive HR department? The answer is no. You also could likely get rid of the majority of legal, at least those who deal with worker related issues. Those who write policy and are responsible for overseeing the implementation can be gone. Robots are simply programmed with whatever is needed.
Consider the costs that companies incur to maintain people. Heck, even the coffee service can be eliminated.
Just think in the savings from not having to buy so many safety glasses since, after all, robots do not have eyes.
All of this means organizations are going to be much leaner in spite of having massively higher output. Costs such as healthcare, workman's comp, and other benefits are eliminated.
Ultimately, all of this makes many products commodities. The net result is massive downward price pressures.
Eliminating the labor costs are just one part of the equation. As we can see, there are many others.
Posted Using InLeo Alpha
The danger that I see is that all that increased productivity and profitability goes to the 1% as prices of products and services do not decrease and fewer people have full time employment and disposable income. Should be an extremely interesting next few decades.
When things are digitized, prices go down.
I can see how that works in theory... but I think what tends to happen is that costs go down when things are digitized, but those cost savings don't always get passed onto the consumer.
Groceries should be cheaper since staff don't have to put stickers on every item and ring up every item into the register themselves, but my understanding is that households are paying as much or more for groceries as ever.
Are you paying more for music? Computers? How about telecommunications? Photography? Information? When was the last time you bought a road map?
How about smartphones? They came down in price? Data plans? Text cost?
Technology by definition is deflationary.
There are many factors in pricing, most of which gets overlooked. Regulation, taxation, supply chain disruptions.
The entire world felt that kick the last few years as the global economy was shut down.
That's exactly my point... I don't think we can say that technology is deflationary because there are so many factors in pricing. It should definitely reduce costs to corporations... but whether those savings get passed onto consumers is a whole different discussion.
Again, if it was true, you would expect household grocery expenditure to be significantly cheaper than in the 1970s, or the 1940s - and I'm just not sure that's happened.
I think you could say the same for cars.
In 1967 a new Ford Sedan cost $2,199 which is about $20,086.33 today. I'm sure Ford has so many more robots and process efficiencies now, but the average new car price now is around $43K.
Technology is just one piece of the puzzle and I don't think it can cause deflation just by itself.
We most certainly can. I just gave a list of technology products that have all gone down in price.
Lets look at more. Compare these to 1990:
Hell look at the cost of digging a hole with a backhoe compared to doing it by a shovel.
Now when you see prices going up, like with food, that is not because of technology. Technology demonetizes, dematerializes, and democratizes. Anything the digital realm has touched in the last 40 years has followed that pattern.
If you want to isolate on food, since 1940, have wages gone up? Did real estate price increase? How about the cost of regulation?
Certainly there are reasons for this. When you have areas that were 80K people in 1950 and now there is 1.9M, real estate is going to increase since there is no more land (as they say). That shows up in rents. Of course, real estate taxes always go up too.
Then we have regulations. Surely we want things such as pesticides monitored, both the production and destruction. Environmental factors are important. Yet there is a cost to that whether it is on the creation of the product or the wages paid to the inspectors. Since this is desirable, we pay the price.
So yes Excel reduced the cost of a spreadsheet to a corporation but it doesnt change the scenario when it comes to the other factors.
As I said, technology is naturally deflationary. Other aspects of society, not so much.
I think I'm really struggling with this as a concept... and maybe it's product-specific.
Obviously food is way, way, way, way more automated now than in the 1990s, both with fresh produce and processed-food. The economies of scale for farms now in comparison is far more efficient, but you're right, there are a ton of other factors involved in pricing.
Televisions are absolutely cheaper... but mobile phones are harder to compare - we might be spending as much or more on the devices themselves and data... but these devices do so much more than in the 1990s and need way more data.
Again, even though automotive factories are way more automated than in the 90s, cars themselves are still a decent percentage of people's expenses... but again, they are safer, more efficient, etc.
I guess where I'm struggling is if technology is deflationary, and I'm sure you're right that it is, but there are other factors like wages, protections, real estate, etc are not deflationary, then how much is the overall effect will be?
Can robotics cause overall deflation if other factors are too inflationary? I guess the real question is... will robotics positively impact my life?
100% agree with this point. These are great talking points but if there's one thing we know, it's that the upper echelon of humanity wants to stick it to the people who are not as fortunate as they are in any and every way possible.
Yeah, we've seen it already... productivity has risen by so much over the last few decades and yet prices are either steady or rising... and the minimal wage has barely budged.
The minimum wage concept has been parasitized for sure. It's used now as a tool to push inflation to even higher heights than it should be. Those pushing for 15$, 20$ or higher for the minimum earnings are short sighted, thinking that it will lead to better outcomes. It also hurts small businesses because only the bigger companies can shoulder the burden of an increased wage.
It goes back to corporate greed, ultimately. The companies make more and more record profits, yet cry poor because of that same parasitization of the economic process. We need to somehow force them to get back to a sound money concept, where debt isn't encouraged. So many other things to say along this direction!
Maybe... but the minimum wage has been stagnant in the US for decades but inflation has been continuously rising. I would have guessed that corporate profit contributes more to inflation than the minimum wage rates, but I honestly don't know.
Honestly... if it were up to me... I'd just end the stock market.
Corporations doing everything possible to increase shareholder value means they are highly incentivized to keep wages as low as possible, costs as low as possible, avoid paying as much tax as possible and lobby governments to produce policy that keeps them extremely profitable.
Of course though, now that pensions barely exist and everyone's retirement is linked to the stock market, it doesn't really seem possible - and it would be harder for industry to raise money to build new factories, etc... but I'm sure we HAVE to come up with a better solution than we have now because it's completely unsustainable to keep going in the direction of ever-increasing wealth inequality.
This is the problem. The problem is not corporations themselves. The problem is, whenever government exerts control over the business sector (any business sector), it is just a matter of time before corporations co-opt the decision-making power and get the government to enact regulations that entrench the status-quo corporations and lock out would-be competition -- a process known as regulatory capture.
Here's a potential solution I encourage my students to evaluate and critique: transfer all regulatory power and authority in the U.S. to the individual states.
Under that scenario, if Jeff Bezos wants to get legislation enacted to hinder all would-be competitors, he has to bribe (or otherwise influence) 50 state legislatures and 50 governors, instead of just a handful of powerful D.C. politicians.
All it takes is one hold-out state to provide fertile ground for a would-be competitor to take root. Under the current system, regulatory capture is endemic and impossible to stop.
Oh. That's interesting...
I've never thought of giving the states control like that... I definitely can see how smaller industry entrants could thrive in individual states... and I guess to a degree the US already has that with several states/cities banning ridesharing apps for example.
I guess the potential unintended consequences it could make the US less efficient for industry that gets economies of scale from operating nationally... a railroad company might get all the approvals to run East to West, build all the infrastructure, and then a competitor gets them banned in a middle state which disrupts the entire business case.
Incumbents might have an advantage because they have the resources to lobby 50 states whereas a new entrant wouldn't have the resources to compete.
I know that monopolies and oligopolies are the ideal scenario for corporations, and it's hard to think through all the consequences to see if individual state laws would help or hinder that process... I think I'll have to sit with it a while... I imagine industries would be affected very differently.
What a great comment exchange I need to read it more :D thanks for the reply I’ll catch up on it!
Agreed, so many great concepts here.
Moravec’s paradox is in play here.
https://en.wikipedia.org/wiki/Moravec%27s_paradox
As such, I’d say we are a long way from robots doing yard and house work.
Machine learning doesn’t have this limitation.
As such, it’s the white collar jobs that are more likely to be automated. Even then, though, the automation will simply allow humans who know each knowledge “space” to be more productive in that space.
Bits are a lot easier than atoms so, yeah, AI will blow robotics away.
Robots are at the point of replacing tasks, something that AI was focused upon for much of the last decade. It will take a while before they can start looking at jobs in totality.
I think you listed a lot of things why big companies are excited for robots. We've seen how companies are all about savings and increasing their sales. I've seen some companies outsource their work to other countries just to cut costs. So robots that are just one big purchase, and should cost less over time compared to humans will be very exciting for them.
All this robotics is just coming in to increase the stability and monetary value of the companies. I just hope this minimum wage work out and help on the inflation