Sunday, December 9, 2012

Why does Paul Krugman hate robots?

I hold Paul Krugman in the very highest regard.   I do not recall ever disagreeing with his analysis before this post, but here we are.  Krugman is wrong.  What the hell is he even talking about?  The Rise of Robots is beneficial for the long-term prospects of the American economy and for our income levels and standard of living.

Krugman: The Conscience of a Liberal -  Rise of the Robots  

Catherine Rampell and Nick Wingfield write about the growing evidence for “reshoring” of manufacturing to the United States. They cite several reasons: rising wages in Asia; lower energy costs here; higher transportation costs. In a followup piece, however, Rampell cites another factor: robots.
The most valuable part of each computer, a motherboard loaded with microprocessors and memory, is already largely made with robots, according to my colleague Quentin Hardy. People do things like fitting in batteries and snapping on screens.
As more robots are built, largely by other robots, “assembly can be done here as well as anywhere else,” said Rob Enderle, an analyst based in San Jose, Calif., who has been following the computer electronics industry for a quarter-century. “That will replace most of the workers, though you will need a few people to manage the robots.”
Robots mean that labor costs don’t matter much, so you might as well locate in advanced countries with large markets and good infrastructure (which may soon not include us, but that’s another issue). On the other hand, it’s not good news for workers!
Krugman goes on to point out that the rise of robots is a capital-biased technological change which according to his old Economics textbooks means that income will shift from the workers to the owners of the capital equipment.  But he doesn't consider all the good things that come from investing in robotics that improve the economic viability of those companies and secure more jobs long-term.

Robots enable manufacturers and other businesses to become more profitable by improving build quality and reducing waste of raw materials and energy usage.  The higher quality levels reduce rework and warranty costs and the reduced utilities consumption brings lower market prices for commodities from which all businesses and consumers will benefit.

Robots eliminate a host of health and safety hazards that result in long and short term injuries along with costs for medical benefits and legal expenses.  Robots do dangerous work, helping keep human workers safe.  

Robots provide far more than just a few jobs as the article mentioned.  The robotics industry provides a wide variety of engineering, skilled trades, assembly, administrative and IT jobs in supply chain management, facilities, fabrication and construction as well as in the operation and service of robotic equipment and automation cells in diverse industries.  Those jobs didn't exist before the Rise of Robots.  Mr. Krugman should schedule a fact-finding mission to tour some of the high-tech firms along "Automation Alley" in the metro Detroit area.  There are companies based in this area that design, build and even export automation cells and automation expertise around the world.  That's a good thing for aggregate American income statistics, right?

Robots level the manufacturing playing field, which has long been a goal of labor unions in the industrialized nations.  Now, cheap direct labor isn't much of an incentive to relocate an entire manufacturing facility and all the peripheral jobs to a far-flung location in the developing world. The higher energy and infrastructure costs in those locations will likely offset lower labor costs when that cheap labor is replaced by robots back home.

Paul Krugman is tilting at robots.    His economics analysis may be valid, but his conceptions and assumptions about manufacturing are way-off base.

More here in a page at my favorite weblog, Little Green Footballs..

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