Ominous Cascading Effects of Accelerating Automation

When one paid worker appears or disappears in a community, it causes what economists call a “multiplier effect”. This has historically been estimated at 5 times the salary of the worker.

Here’s how it works: if a person earning an income enters a community, that worker will then demand various goods and services. The providers of those will earn money from the new worker’s spending, and will themselves increase their spending. And so on. (Hence, “multiplier”.)

Multiplier effects have not, to my knowledge, been applied to thinking about accelerating automation and technological unemployment. That is, clearly, a serious omission–by all of us who have been writing about the topic.

Zack Canter’s “How Uber’s Autonomous Cars Will Destroy 10 Million Jobs and Reshape the Economy by 2025” made me recognize this omission. He did so not directly, but by pointing out the multiple industries whose workers will lose jobs when the profession of driving disappears:

“The effects of the autonomous car movement will be staggering. PricewaterhouseCoopers predicts that the number of vehicles on the road will be reduced by 99%, estimating that the fleet will fall from 245 million to just 2.4 million vehicles.

Ancillary industries such as the $198 billion automobile insurance market, $98 billion automotive finance market, $100 billion parking industry, and the $300 billion automotive aftermarket will collapse as demand for their services evaporates.

The Bureau of Labor Statistics lists that 884,000 people are employed in motor vehicles and parts manufacturing, and an additional 3.02 million in the dealer and maintenance network. Truck, bus, delivery, and taxi drivers account for nearly 6 million professional driving jobs. Virtually all of these 10 million jobs will be eliminated within 10-15 years, and this list is by no means exhaustive.”

His 10 million figure greatly understates the problem. When those workers lose their jobs, there will be a reverse multiplier effect on up to 50 million other jobs as they spend less. And I don’t see US automakers cited by Mr. Kanter as being among those industries affected, an apparent oversight.

Further, while Mr. Kanter quantifies the revenues of support industries that will be affected (insurance, aftermarket parts, etc.), he doesn’t quantify the JOBS that will be lost. Those losses will surely add millions to the 10 million he quantified, thereby increasing the multiplier effects of those losses.

Also, his analysis does not include jobs in other nations, whose auto manufacturers will similarly contract and probably go bankrupt. Further, when various businesses and even whole industries go bankrupt, this will have serious consequences for the financial markets as, for example, the bonds issued by such companies become worth only pennies on the dollar.

The entire economy is a finely tuned, tightly integrated system (actually, a system of systems). When there is a serious disruption to a significant element—such as jobs employing drivers—the cascading effects will be huge, and could be disastrous.

If the loss of a single profession, driving, that employs perhaps 10 million Americans could potentially seriously affect the livelihoods of up to 50 million other Americans, that alone could trigger another Great Depression. And this Depression would be worldwide, since the exact same consequences will be rippling through most economies.

Even worse, automated driving is only one of the professions that will soon be automated. Therefore, I cannot think of anything else that carries the urgency or seriousness of this issue. Technological unemployment, and alternative ways to meet the needs of those soon to be unemployed, needs to be front and center in public discussions.