Robots, Artificial Intelligence, and the Future of Work

I think that robots/artificial intelligence and the future of work is a hugely important topic. This is a very active research field but it seems to me that people (some informed by this research but most without referring to the research) are rushing to one of two conclusions. The first of these conclusions is that up till now economic growth has resulted in rising wages and full employment and so it surely will in the future too. The other is that robots must mean structural unemployment and so the solution is to introduce universal basic income or some similar redistributive policy.

I don't think either is necessarily true. In the past, the elasticity of substitution between labor and capital seems to have been less than one - both inputs were essential in production. Also, the two inputs are q-complements - an increase in capital per worker results in an increase in the marginal product and, therefore, wage of a worker. But it's possible that now, or in the future, that the elasticity of substitution between labor and capital is or will be greater than unity so that labor is not an essential input. Or that there are techniques that are designed just to use machines. Acemoglu and Restrepo (2016) assume that as some low-skilled tasks become automated other new high-skilled tasks are introduced. But there may be limits to people's cognitive ability. Most people aren't intelligent enough to be engineers and scientists. And the people that are intelligent enough now, might be worse than artificial intelligences in the future.

The other premature conclusion is that, definitely things are different now, and robots will result in structural unemployment or immiserizing growth, so that government intervention is needed. Usually, universal basic income is mentioned. Sachs et al. (2015) argue immiserizing growth is possible. This is one of the better papers out there I think, but still the framework is quite limited. as technological change is exogenous. It is possible that there is some self-correcting mechanism similar to that in Acemoglu's (2003) paper on capital- and labor-augmenting technical change. In that model, capital-augmenting technical change is possible for a while, but it introduces forces that return the economy to a pure labor-augmenting technical change path. Another important question is whether people have a preference to have at least some of the goods and services they consume produced by humans. Sachs et al. assume that utility is a Cobb-Douglas function of automatable and non-automatable goods. That means that consumption of human made goods could become infinitesimally small in theory.

I think we need to consider a range of models as well as empirical evidence before we can say what kind of policy, if any, is needed.

I wanted to do research on this and started doing some research on this but concluded that it is not realistic given my limited time for research because of my administrative - I am still director of our International and Development Economics Program - and parenting roles and my existing research commitments. Twitter isn't the only reason that I haven't updated this blog in 2 1/2 months. Comparative advantage suggests to me that I remain focused on energy economics. However, I think that the Crawford School of Public Policy should be looking at these kind of issues, and I am trying to encourage that. This is going to be one of the key policy questions going forward I think.

Innovation Precincts vs. Cooperative Research Centres

I was wondering what the difference was between the "Innovation Precincts" recently announced by the Australian government and the existing Cooperative Research Centres (CRCs) program was. I even wondered if they were a replacement for the CRCs. Turns out they are intended to be two quite different programs. A very helpful government document explains the differences. Then there are the ARC Linkage grants...

More on Fusion

I've got a bit of feedback on the item on Lockheed Martin's fusion research. Apparently this is an improved version of the inertial electrostatic confinement technology. Also, apparently this is an active area of research with several research groups looking at it. Including at the University of Sydney.

Lockheed Promises Commercial Fusion Reactors in Ten Years

This news is on the face of it really exciting. But I can remember being very excited in 1989 about cold fusion. I would think a corporation would be more careful about what they announce than a couple of academic researchers, but you never know. I sent this to a person in the fusion area here at ANU and he said he thought it was pretty exciting too. That actually surprised me, though he is positive on the economics of fusion power, something I was quite skeptical about based on this kind of analysis. Fusion does seem to be technically feasible. The real question is it economically feasible relative to other non-carbon energy technologies.

The ANU Energy Change Institute Launches Website

The Energy Change Institute at the ANU is launching its website. As you can see from the website, the Institute brings together researchers from many different areas across the ANU from artificial photosynthesis to energy economics and policy and from enhanced oil and gas extraction to solar photovoltaics. Several of my colleagues in the Crawford School and Research School of Economics are involved.

Not only is the Institute aimed at fostering interdisciplinary collaboration across the ANU but it also is planning a strong educational program including professional short courses and a proposed masters by coursework. I am a member of the education committee, representing the energy economics, policy, and governance area. I am also developing a proposal for a course in my areas of research interest.

Synthesizing Diesel Fuel Using Cyanobacteria

A US firm called Joule has bioengineered cyanobacteria to secrete diesel or ethanol. The picture above is from the Washington Post version of the story and shows panels containing the organisms. But as is the case with other recent inventions the economics are not yet clear. The company claims they could produce fuel at $30 per barrel - a third of the current price of crude oil. They also claim that they can produce 128 tonnes of fuel per hectare. Yields of grain crops are usually measured in single digits of tonnes per hectare... Even so, I computed that it would take the area of California, Japan, or Sweden to supply the world with the current level of oil consumption.

Cold Fusion Again?

I still remember how excited I was back in 1989 when the original claim of achieving of cold fusion was made. I remember sitting in the communal kitchen where I lived in North London and excitedly telling someone about how important it might be if it was real. They were surprised that I was excited about this one news item. Tiananmen Square and the fall of the Berlin Wall were to come later that year.

Anyway, the claims couldn't be consistently replicated. But now some Italian scientists claim to have achieved cold fusion. By fusing nickel and hydrogen atoms. They claim a 12.4kW output from a 400W electricity input. They make a bunch of other claims. Their paper has so far not passed peer-review. Of course, I'm much more skeptical of outlandish claims after the first cold fusion debacle. Additionally, my understanding was that fusion only released energy for fusion of atoms less or equal to the atomic mass of iron. Producing copper requires energy. So this claim seems particularly out there.

And Today a New Lighting Technology...

Another new technology to report on: lighting using cathode ray tube type technology. The claim is that it is cheaper than LEDs and safer than fluorescents.

Artificial Photosynthesis

Interesting innovation - solar furnace that uses sunlight to convert carbon dioxide and water to carbon monoxide and hydrogen. These are necessary inputs in the Fischer-Tropsch process of synthesizing liquid hydrocarbons. So, this is effectively artificial photosynthesis. At the moment, the efficiency is no better than plant-based photosynthesis and the reactors would be more expensive than harvesting crops presumably. But with efficiency gains this might be a viable way to generate liquid fuels for aircraft and other applications where current electric technologies are not viable. Seems that it is one more nail in the coffin of the "hydrogen economy". Separating the low density hydrogen here would make no sense, I think. An article in Science provides details.

Porsche Develops Hybrid Technology

I blogged about the development of hybrid cars by BMW and Mercedes when I was visiting Munich. My point was that fuel economy standards were forcing luxury car makes to adopt hybrid technology. I saw this as a route to wider adoption of hybrid technology in mass-market cars. Non-luxury hybrids seem so far to only appeal to "green consumers" willing to pay a premium for lower fuel consumption. Anyway, the New York Times has an article on new hybrid systems developed by Porsche.

One is a hybrid version of the Cayenne SUV with a 35kW electric motor and a 250 kW petrol engine. Urban fuel economy is improved from 16 mpg to 21 mpg. Highway fuel economy only improves by 10%. Then there is a racing car that uses a flywheel to store energy from braking which can then be used to power a generator. It has two 60 kW electric motors driving the front wheels in addition to the 360 kW petrol engine. The third system is a concept car that has a 375 kW petrol engine and front and rear electric motors that can produce a total of 164 kW. For comparison, the current standard V6 Ford Falcon has a 195 kW engine.

There is an increasing diversity of body plans out there, which is a positive sign in the development of a new technology.

Will the Adoption of Solid State Lighting Lead to an Increase in Energy Use?

The Economist discusses an article in Journal of Physics D: Applied Physics by Tsao et al. on the effects on energy use of the adoption of solid state (i.e. LED) lighting (SSL) on global energy use. The Economist argues that it would be better to keep incandescent bulbs as a result. This seems a bit crazy. The literature on the rebound effect suggests that for energy saving innovations for consumers in developing countries the rebound effect is typically of the order of 30%. In other words, the net energy savings are around 70% of the amount of energy nominally saved by the innovation. Joshua Gans comments on this article taking a direction inspired by the Schumpetarian endogeneous growth literature where new innovations are sold by monopolist innovators.

To understand why the authors posit such a large rebound effect I took a look at the original article. The first key leg of their model is the following relationship between historical data on lighting use and a very simple model:



Most of the early data relies on the work of Fouquet and Pearson. The model treats light consumption as a function of two variables: GDP and cost of lighting. The elasticity of demand with respect to the cost of lighting is minus one and the income elasticity is plus one. Based on this data the model looks pretty plausible. It would be nice though to see this data in per capita terms or to see lighting intensity of GDP plotted against cost of lighting to get a better idea of how robust it is. The way in which the cost of lighting is computed will be very critical too. I'll look at that in a subsequent blogpost.

If the demand elasticity is minus one then any reductions in the cost of lighting will be exactly offset by increases in consumption of lighting services. Both these elasticities seem high in absolute value for developed economies. So it would be nice to at least test a model which allows the elasticities to vary with income level vs. a model which does not if you are going to make big predictions about the future.

Solid state lighting will certainly reduce energy costs of lighting but this is achieved partly by substituting capital for energy. At the moment, LED lights are expensive. This means that the cost of lighting is reduced by less than the energy use is reduced by the innovation currently. Therefore, even if the price elasticity of demand was minus one, adoption of solid state lighting would reduce energy use (ignoring indirect energy costs of capital). The authors argue of course that these costs will reduce rapidly. Historically, they argue that capital costs are typically 1/3 of energy costs of lighting. They assume that by 2030 the capital costs of SSL will be the same so that there is no capital-energy substitution in the adoption of SSL.

Role of Fuel Economy Standards in Effecting Technological Change

I was fascinated to learn yesterday that Mercedes has paid the US government $300 million in fines due to violating the CAFE standards. As fuel economy standards continue to rise manufacturers will need to find innovative ways to reduce the fuel consumption of their luxury and sports models in order to end up with acceptable cross-fleet mean fuel consumption figures. The interesting thing is that luxury cars is exactly where it is easiest to absorb the costs of new technologies. Most automotive innovations have been introduced first on luxury models and then trickled down to mass-market vehicles. Why should fuel economy technologies be any different? But up till recently, manufacturers have tried to sell fuel efficient mass-market cars. Some of the more innovative such as the Prius have only been competitive beyond a green signalling niche market with government subsidies. But experimenting first with up-market models makes more sense to me. There are already Lexus hybrids but now BMW and Mercedes seem to be following suit.

Today, I went to the BMW Welt museum/exhibition here in München where I happen to be visiting:



A major theme of the exhibition was new technologies to reduce fuel consumption while maintaining performance. The suite of technologies is termed BMW Efficient Dynamics. Several BMW models already incorporate the technologies, which include regenerative braking, engines which shut off when the car isn't moving, more efficient fuel injection etc. Hybrid vehicles will be available soon.

BMW is still pushing hydrogen cars, which seem to be a mistake to me. Especially, using hydrogen to fuel an internal combustion engine makes no sense at all I think.