The River of Purchasing Power Dries Up at Detroit

Frank Pasquale

This rise of [robotized manufacturing] violates the deal that the capitalists made with American consumers after the great Depression, which is that they would provide people with well-paying jobs and the workers in turn would buy the commodities the factories produced, in a cycle of consumerism. If the goods can be produced without many workers, and if the workers then end up suffering long-term unemployment (as Detroit does), then who will buy the consumer goods? Capitalism can survive one Detroit, but what if we are heading toward having quite a few of them?

Martin Ford has made a similar point in his book "The Lights in the Tunnel." Some powerful, clarifying metaphors were at the heart of Adam Smith's and David Ricardo's work. Although they'd never be published in a contemporary economics journal, that style of thought is particularly useful now. Ford revives it with this counterintuitive characterization of overly capital-intensive industries as free riders:

Imagine that the mass market consists of a “river” of consumer purchasing power. Along the banks of this river are located industries of all types. When an industry sells a product or service to consumers in the market, it pumps purchasing power from the river. An industry also pumps purchasing power back into the river in two primary ways: first it pays salaries and wages to workers, and second as technology advances, the prices that the industry charges fall and this results in more money in consumers’ pockets. . .

At some point, the industries on the banks of our river will become too capital intensive (the machines they employ will begin to run themselves). Once this happens, they will collectively begin to pump more purchasing power from the river than they return to it. The river will begin to run dry. . . . Economists do not consider the market itself to be a public resource. However, I will argue that the market (or the collective purchasing power of consumers) is really the ultimate public resource.

With robot labor, cheap wind and solar power, and a shrinking global population, post-2050 human beings could have universally high standards of living. They could put their energies into software creation, biotech, and artistic creativity, which are all sustainable. The stipend generated by robot labor would be a basic income for everyone, but they’d all be free to see if they could generate further income from entrepreneurship or creativity. And that everyone had a basic level of income would ensure that there were buyers for the extra goods or services.

The efficiency gains from automating production tend to create an abundance of products, which forces down prices. This sounds like a good thing: if goods and services are cheap and abundant, people can have whatever they want, can't they? Well, not if they are unemployed and have no unearned income. It is all too easy to foresee a nightmare future in which people who have been supplanted by robots scratch out a living from subsistence farming on motorway verges (all other land being farmed by robots), while lorries carrying products they cannot afford to buy flash past on the way to the stores that only those lucky enough to have jobs frequent.