The Magic Employment Fallacy

Invoking the “Lump of Labor Fallacy” to shut down discussion of the labor market impact of AI and robotics is once again popular. Labeling something a fallacy is a powerful move. After all, who would want to hold “a mistaken belief, especially one based on unsound argument” (common definition for fallacy) and where one will be accused of zero sum thinking?

So what is the lump of labor fallacy? It is the belief that there is a fixed amount, a “lump,” of labor and so if machines take more labor, it must follow that there is less labor for humans. Those who deem this to be an unsound argument claim that automation of jobs allows the economy to grow which will over time create as many or more new jobs than were automated. To further strengthen this claim people tend to invoke historic episodes of automation that resulted in large economic expansion and gains in employment (such as introduction of mechanical looms and early industrial automation).

But it turns out there is a third option. It is entirely possible for the economy to grow as a result of automation and NOT deliver an offsetting amount of labor through growth. Just because that hasn’t happened in the past does not mean that it cannot happen. Believing that it must always happen is what I call the “Magic Employment Fallacy” (countering fallacy with fallacy). It is highly ironic when technology entrepreneurs unquestioningly invoked the “Lump of Labor Fallacy” because much of startup innovation is about making something work that hasn’t worked in the past!

The easiest way to see why growth doesn’t need to produce new employment is to conduct a thought experiment, one which Star Trek has already shown us. Imagine a device, the replicator, which can make anything from scratch with no human intervention. You can easily see massive economic growth as we think of all sorts of new crazy things to make, which in turn drives the demand for replicators. But how are replicators made? Well I am glad you asked. By replicators of course! So here we have a clear example of potentially massive economic growth without labor growth.

Now you might cleverly object: but what about people who want to buy something handmade because they value that? A replicator by definition can’t make that. In my book “The World After Capital” I call this “human qua human” jobs – a term that Yochai Benkler coined. And I can absolutely imagine a beautiful world of extremely high automation where we deeply value “manual” products and services.

This would be a radically different economic equilibrium from the one we are in today. Imagining such a world is the easy part, getting there from here is the real challenge. That of course is what my book “The World After Capital” is about so I encourage you to read that. I am thrilled to announce that the Second Edition is now available for reading online (it will soon also be laid out and available in print and as eBook download).

The Magic Employment Fallacy

Invoking the “Lump of Labor Fallacy” to shut down discussion of the labor market impact of AI and robotics is once again popular. Labeling something a fallacy is a powerful move. After all, who would want to hold “a mistaken belief, especially one based on unsound argument” (common definition for fallacy) and where one will be accused of zero sum thinking?

So what is the lump of labor fallacy? It is the belief that there is a fixed amount, a “lump,” of labor and so if machines take more labor, it must follow that there is less labor for humans. Those who deem this to be an unsound argument claim that automation of jobs allows the economy to grow which will over time create as many or more new jobs than were automated. To further strengthen this claim people tend to invoke historic episodes of automation that resulted in large economic expansion and gains in employment (such as introduction of mechanical looms and early industrial automation).

But it turns out there is a third option. It is entirely possible for the economy to grow as a result of automation and NOT deliver an offsetting amount of labor through growth. Just because that hasn’t happened in the past does not mean that it cannot happen. Believing that it must always happen is what I call the “Magic Employment Fallacy” (countering fallacy with fallacy). It is highly ironic when technology entrepreneurs unquestioningly invoked the “Lump of Labor Fallacy” because much of startup innovation is about making something work that hasn’t worked in the past!

The easiest way to see why growth doesn’t need to produce new employment is to conduct a thought experiment, one which Star Trek has already shown us. Imagine a device, the replicator, which can make anything from scratch with no human intervention. You can easily see massive economic growth as we think of all sorts of new crazy things to make, which in turn drives the demand for replicators. But how are replicators made? Well I am glad you asked. By replicators of course! So here we have a clear example of potentially massive economic growth without labor growth.

Now you might cleverly object: but what about people who want to buy something handmade because they value that? A replicator by definition can’t make that. In my book “The World After Capital” I call this “human qua human” jobs – a term that Yochai Benkler coined. And I can absolutely imagine a beautiful world of extremely high automation where we deeply value “manual” products and services.

This would be a radically different economic equilibrium from the one we are in today. Imagining such a world is the easy part, getting there from here is the real challenge. That of course is what my book “The World After Capital” is about so I encourage you to read that. I am thrilled to announce that the Second Edition is now available for reading online (it will soon also be laid out and available in print and as eBook download).