The issue of new technology replacing human labor and causing unemployment has been a concern of industrial societies for hundreds of years, despite the almost constant increase in both employment and wages in capitalist economies.
We have two real-world examples of technology causing panics in the last 20 years: “software outsourcing” triggered by the Internet in the early 2000s and “robots” in the early 2010s. The result is that economies have performed at their best in human history (pre-COVID 2019), with the highest-paying jobs ever.
Now, we are entering the third “panics” phase called AI. Will AI take away jobs or lower people’s incomes? Normally, we would make necessary arguments to refute this, but it seems unnecessary because another issue will impede AI development in most economies. That is: AI is not being used in most economies and will not be used in nearly 99% of all economies.
Why? Because technology is not used in most economies, and this is becoming increasingly true over time.
The chart above shows the changes in prices, adjusted for inflation, across the main sectors of the economy. We are actually living in two different economies.
The blue lines represent sectors that are allowed to innovate technology to reduce prices while improving quality. The red line represents sectors that are not allowed to innovate technology to lower costs. In reality, the price of education, healthcare, housing, and anything provided or controlled by the government will skyrocket, even if these sectors are lagging behind in terms of technology.
We are living in a world where a flat-screen TV costs only $100, while a four-year university degree can cost hundreds of thousands of dollars, yet nobody seems to propose a solution to this issue.
Why? It is because the red-tape industries are tightly controlled and managed by both the government and the industries themselves. These industries have a monopoly, are highly regulated, price-fixed, require occupational licenses, and face many barriers to prevent innovation and change. Technological innovation in these fields is practically prohibited. Meanwhile, in less regulated green-tape industries, technology has helped lower prices and improve quality.
The price of non-technology products increases while the price of technology-supported products decreases. The red-tape industries continue to grow as a percentage of GDP, while green-tape industries shrink. At the limit, 99% of the economy (GDP) will be non-technology industries. Therefore, AI cannot lead to an overall increase in unemployment rates.
