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Chris Martenson: Welcome to this Peak Prosperity Podcast. I am your host Chris Martenson. Today we’re going to take slightly different look into the future. As you probably know, Adam Taggart and myself have a new book out called Prosper. That walks the reader through things they can do individually to prepare for what is certain to be a very disruptive future, however, there’s another quiet form of disruption happening to people’s jobs and lives right now, and it’s only going to increase in the future. I’m talking about robotics. Automation is completely reshaping the entire global-economic order, and it could threaten to complete undo literally everything about how we value time, money, and even find meaning in our lives. But how could it do all of that. To help us understand that is one of our very favorite and most thoughtful guests, Charles Hugh Smith. Charles has a new book out on this topic. It’s entitled A Radically Beneficial World: Automation, Technology, and Creating Jobs for All: The Future Belongs to Work that is Meaningful. Welcome, Charles.

Charles Hugh Smith: Thank you, Chris. Glad to be here.

Chris Martenson: Now that’s a really big title and it’s a really big concept, so let me open this up. I want to quote a recent Ambrose Evans Prichard piece in the Telegraph. It just came out about a week ago in early November, 2015. It reads, “The pace of disruptive technological innovation has gone from linear to parabolic.” Says Bank of America, “Robotics and robots will take over 45 percent of all jobs in manufacturing and shave $9 trillion off labor costs within a decade, leaving great swaths of the global society on the historical scrap heap. In a sweeping 300 page report–300 page, I haven’t read it yet, but I will. I’ll look at some of it–Bank of America predicts that robots and other forms of artificial intelligence will transform the world beyond recognition as soon as 2025 shattering old business models in a whirlwind of creative disruption with transformation[al] effect amounting to $30 trillion or more each year. Help us understand that. Is this a hyperbolic report from Bank of America potentially or are they on to something here?

Charles Hugh Smith: Well, Chris, it’s only one of almost a flood of automation-related stories. There was a big McKenzie report called the four fundamentals of workplace automation that came out that same week. Just today there was a big piece, a speech by a guy from the Bank of England. He extrapolate [forecasts] that as many as 80-million U.S. jobs could be at risk from automation. Well, there’s only about 130-million jobs, of which 27-million are part time, so 80-million is like pushing 65 percent of the total labor force. So even if the guy is wrong by half, as you say, then we’re still talking 40, 45, 50 percent of all jobs being wiped our or replace by software, Artificial Intelligence (AI), and robots.

Chris Martenson: Well, this raises so many questions, I don’t even know where to begin. I mean first of all what do you do if nobody is working? Then in our model who ends up buying any of your products, that’s one, and then the second thing that pops up in my mind, I want to get to both of these, is isn’t this just sort of like what capitalism has always done, which is to take highly labor-intensive processes, capitalize them, create a more automated, streamlined process? Isn’t this automation just really another evolution [adaptation] in the streamlining process. Part of this feels like capitalism to me, but the first thing I mentioned, capitalism doesn’t work if everybody is out of work. So I don’t know how to put these two pieces together.

Charles Hugh Smith: Yeah. You know, Chris. It’s interesting that we know that automation has been a force in the global economy since the beginning of the first Industrial Revolution in the 19th century, and of course, the initial wave of creative destruction [transformation] of labor was what led Carl Marx to extrapolate the end of capitalism in a social, political, economic implosion because he could see that as automation lowered the value of labor, people had very little money, and capitalism itself has no real means to, or really any interest, in employing people at wages that don’t allow for profit. In other words there’s an internal tension to capitalism because capitalism has one simple law. The capital has to grow, and it has to create profits, and if doesn’t do that, then that enterprise or organization will eventually go out of business.

It will eat through its capital as it loses money, and then it will shut it’s door. We can disagree about the goal of capitalism or say that it’s a bad system or whatever we want, but the bottom line is, if it can’t create a profit and expand its capital, it will go out of existence. It’s a very Darwinian system. In my mind it’s creating two sort of memes that are developing as solutions to this automation problem of the destruction of labor. One camp holds that technology always creates more jobs than it destroys. That’s proposed as sort of a natural law.

Regardless of anything else, technology always creates more jobs than it destroys because that’s what it’s done through the first two industrial revolutions, but I’m not so sure that’s true, and here’s why. Each previous complete disruption of the economy by the destruction of entire industries and employment created a lot of new entry-level jobs, so the guy who lost his job on the farm in 1890 or in 1910, he went to a Ford factory where he was taught his job in [on] the factory line in five minutes. He didn’t really need any special knowledge to go and become and industrial worker at a Ford plant.

It took five minutes to show him how to put this part on this thing, and then you just do this for eight hours a day for the rest of your life, and welcome to the industrial revolution. The second industrial revolution of telephony, radio, and marketing, consumption, consumer credit, all of the things that developed in the ’30s, ’40s, and ’50s, there were a lot of entry-level jobs there for sales and telephone switch operators and millions and millions of relatively low-skilled jobs were created. This industrial revolution that’s digital and software, it’s not creating tens of million of entry-level jobs, and it never will.

Chris Martenson: It never will because?

Charles Hugh Smith: Because profit only flows to what’s scarce, and so what’s scarce is– It used to be [that] what was scarce was a high level of skills, so that you’d get high wages for those high skills, and capital itself was scarce and so the capital earned a good return. As Economist Michael Spence and some of his colleagues have described recently, the problem is labor is no longer scarce. There’s an abundance of people with college degrees. There are a bunch of people who have entry-level skills.

I mean essentially hundreds of millions of people have surplus labor. Capital is no longer scarce either. It’s in vast abundance, which is why the interest rate you earn on capital is tenth of one percent. Spence says that there’s a third kind of capital. It’s the kind of capital about which we talk at Peak Prosperity because it’s the capital of social capital, intellectual capital, of news ideas, and new business models, and so all of the profit in the global system is flowing that way.

The question for an entrepreneur or a business owner is if I hire some entry-level persona at $15/hour or whatever the wage is, can I make a profit off of that person’s labor. Increasingly the answer is, no, you can’t. If you can’t make a profit off of that person’s labor, you’re going to go out of business. You’re going to be eliminated from the economic gene pool.

Chris Martenson: Well, absolutely, and of course there’s another trend pushing under all of that, which is to have an employee, particularly if you’re in Europe, France, I’ll pick on France. That’s a major, major, investment potentially a lifelong investment if you’re in a country like France, but even here in the United States to take on an employee is not to find somebody you’re paying for $8.15/hour or whatever the minimum is at this point. You’re signing up for a whole lot of bookkeeping, recordkeeping, Occupational Safety and Health Administration (OSHA) laws. You’re signing up for, potentially, Obamacare. You’re signing up for Workman’s Compensation (Comp). There’s a giant raft of things that go along with that. Certainly, none of those sorts of overages or complexities apply to a robot do they?

Charles Hugh Smith: No, Chris. I used to hire when I was a building contractor. I hired dozens of people at various times, and I learned the hard way that you can pretty much double the wage that the person is earning. Your employee is getting $10/hour. He’s costing you, the employer, about ten bucks to cover Worker’s Comp, Disability Insurance, Unemployment Insurance, [FICA], all the labor overhead you mentioned. Of course the problem is, Chris, is [that] the labor overhead is rising by leaps and bounds because it include healthcare, which goes up like 7.5 percent a year while the economy is growing at 1, 2, 3, percent a year and wages are like stagnant, but to the employer the costs keep going up, so the employee might not see any raise at all, or he might get ten cents more an hour, but the employer is seeing much higher costs. That’s true in the U.S. as well, despite the reputation of being like a low labor-cost society. That’s no longer true.

Chris Martenson: Well, let’s talk about that labor for a second. One report I read said that the threshold for when somebody a business might decide to go with a robot over workers is if the robot is 15-percent cheaper on an hourly basis than, say, an employee. Looking at American and Japanese car industries right now, it costs, once you factor in the total cost of ownership for a robot, $8/hour to employ a robot for spot welding. We compare that to about $25/hour for a worker, but as you say, you might have to almost doublet that number to get the true fully burdened cost of having an employee. But even just comparing the $8 to the $25, that’s a no brainer isn’t it.

Charles Hugh Smith: Yeah. Absolutely. The other dynamic here, Chris, of which I know you’re aware, is that the cost of robots and software are declining rapidly. A robot that used to cost $40,000 now costs $22,000. These two lines are crossing in the wrong direction for hiring. In other words the cost of labor keeps going up, and the cost of robotics and software keeps going down. These are not trends that are limited to any one area. There’s a guy, Emmanuel Walerstein a Socioeconomist who’s famous for proposing the way that we understand our whole economic and social system is called a world system, and that include the economy and the society that economy supports and creates.

He’s pointed out that it’s a global phenomenon, the cost of labor rising, and it’s due to urbanization, it’s due to the externalization of costs finally coming due, to the demand on governments for more of everything in terms of social service, education. That’s why wages in China have tripled in the last decade as well. It’s not just the U.S or France, it’s everywhere That’s why we have global problem. It’s that the automation and software are getting cheaper and cheaper, and in the case of software, free. For instance, I just have heard that AutoCAD, which produces the software used to design all kinds of widgets, CAD systems, they’ve just released almost a free version of their powerful software. In other words they’ve realized that they can’t sell this thing for thousands of dollars per copy anymore, and so they’ve made it available for very low cost, and so this is giving really powerful tools to anybody with a few bucks. That means, yeah. So then they can automate more work at a much lower entry price.

Chris Martenson: Some of this gets lost, I think for the average listener because it’s a big world, and so what if one factory goes slightly more automated over there in Tennessee somewhere. I like to do this thought time. Let’s just go silly. Let’s pretend I just invented a machine today where I can produce anything, anything in the world, from a car to a radio to toilet paper, it doesn’t matter, but I can’t produce anything cheaper [more cheaply] than anybody else can with my big, fancy robot. It cost me a bunch of capital to build this thing, but literally I am the only source of products in the world because I can undercut everybody. Doesn’t that sort of lay bare where this is all going. How can it be that one person with one machine has all of the capital in the world, is producing all of the goods, and everybody else is doing what exactly?

Charles Hugh Smith: That’s right, Chris. That’s extending this trend to the sort of singularity if you will. The second sort of solution meme that’s out there is, well, let’s just tax your one guy, the owner of the robot.

Chris Martenson: Okay.

Charles Hugh Smith: Or all the owners of the robots. We’ll tax the heck out of them, and then we’ll use that money to fund a guaranteed income for every household. This has been catching a lot of interest because it appeals to people’s innate sense for [of] social justice. Like, well, gee if there are no more jobs or only half of the workforce can find a job, then we’re going to have to support the other half, so [that] they can buy all of the stuff, the goods and services that they need to live and also all of the goods and services that are produced. In my book I go through this by actually putting some numbers because actually all of these people who are suggesting this is a wonderful idea and a real solution, they never put any number on the page.

Where is the money going to come from. How much money are we talking about? Can those owners of those robots generate enough profit that we can tax them to fund this. Again, we’re just going to throw out a few numbers. I hope I won’t lose the audience too much. But just as an example, the federal government of the U.S. spends $3.2 trillion. State and local governments spend another $3 trillion. The government, as it is right now without any guaranteed income for everybody, is already spending $6.2 trillion out of a $17 trillion economy, so it’s already sucking up about 35, 40 percent of the entire Gross Domestic Product (GDP). Now we don’t know how much more it’s going to cost to give a guaranteed income to every household, but if 40-million people lose their jobs, we can anticipate that $6.2 trillion is not going to be enough.

Another $3 trillion, $4 trillion, another $6 trillion. I mean we’re talking about huge amounts of money that we’re going to have to acquire. Let’s take a really super profitable business like Facebook, I mean, immense money, right. Its gross margins are 40 percent or something. It makes a little under, about $3 billion in profit. Well, that means we need 2,200 Facebooks just to fund the current federal government. Then we’d need another 2,000 Facebooks to fund state and local governments, but guess what? There’s only one Facebook. There’s not going to be 2,000 Facebooks. It already dominates its entire sector. The same goes for Google and Apple, these highly profitable firms. If we took every cent of their profit, we would only have a tiny slice of the current federal revenues, never mind the money needed to fund another 30-,40-million households guaranteed income. It just simply doesn’t work.

You know, Chris, there’s another reason it doesn’t work, [which] is automation cuts profits too because, if I can buy a robot for $22,000 and slash my labor and generate more profit, well, you can buy the same robot. The barriers to entry for competitors keep dropping instead of requiring, like, if you were going to start an engineering firm to design a lot of great stuff, and the AutoCAD program was $3,000 per engineer. Well, now it’s $100. Well, what’s to stop me from hiring some engineers and giving them the $100 software. The process of automation is actually just devastating to profits. I think we can look at some of these big firms like [like, such as] IBM that are seeing their sales and profits absolutely implode. I think this is evidence that this process is already well underway.

Chris Martenson: Well, it does seem ridiculous to think that we would be able to sort of tax, under the current as it’s structured, given how money operates, right, and we understand particularly at peak prosperity there’s a growth imperative built into our money system that has nothing to do with humans’ need for growth or the factual realities of the world being a finite place. But we have this money [monetary] system, and it’s pretty insistent on this idea that it needs to grow, so if we have that money system, and we’re trying to then keep inflation at a few percents where banks don’t implode and let the banks just siphon off tens if not hundreds of billions of dollars every year from the system.

That all has to get siphoned off from the productive class [proletarians], and as well, all the taxes that would have to be siphoned off to give to the families who are not longer working. I mean what you really have is that then your manufacturing class, such as it is, is really the only wealth-producing engine in your country, and you have tax them at a high enough rate, so that everybody else can live the life they feel they’re accustomed to and deserving of. Have you run the numbers? I mean with the Facebook example, you take it one direction, but just that feels fundamentally unworkable to me.

Charles Hugh Smith: Yeah. I think it is, Chris. As you point out, the system is set up not just for stagnation. If we don’t grow the money supply and pay more interest and pay more taxes, the system basically implodes. And so that’s the other thing we have to ask. A huge percentage of the federal revenues and state and local government revenues come from wages, taxes on payroll, so if payrolls are slashed by 45 percent, where is the government going to get all of that money.

The people who say, well, we’re just going to tax the owners of robots, well, they forget that one feature of automation is it commoditizes everything it makes, that’s products and services. That’s why having a call center or having a factory, it can be anywhere in the world. If someplace like [-like, such as] the United States is going to tax all of the owners of robots profits and 95 percent to fund its guaranteed income, well, guess what, everybody is going to leave. They’re going to move their robots to some other country because they really have no choice. If they don’t grow capital and make a profit, then they’re going to go out of business.

Chris Martenson: Yeah.

Charles Hugh Smith: The two solutions that are constantly offered to automation, number one, that technology always magically creates more jobs than it destroys, that seems false.

Chris Martenson: Wait! Let me add to that one before you go to number two.

Charles Hugh Smith: Yeah.

Chris Martenson: I think that many of those observers, who say that, that technologies always come with greater jobs might be confusing correlation with causation. One of the other dynamics that we had, up until about 1972 or 1973, in this country was we had rising per capita energy coming from oil. Right. If you remember that was the golden years like 1950s, 1960s, early 1970s. People were like whoo, one-income households. It sort of balanced. Staring in the mid ’70s it went downhill to the point that you can’t even get by on two incomes if you’re both earning minimum wage at this [that] particular point. The fact that we always had more jobs being created during a long stretch of history might have been due to new technology. It might have been due to that, plus the fact that we also had abundant surplus energy there with which to do whatever we wanted. I just always want to hold that one out.

To me it’s a very interesting observation that right around the time per-capita oil production in the United States maxed out, things started to get progressively and steadily a little bit more difficult for the middle class, a whole host of reasons impinging on that as well, but to me that’s a piece of this. Okay. Step one, part one of what you’re saying is that there’s potentially a fallacy here around this idea that new technology always created more jobs. I will weigh in on the plus side of that. Then, number two.

Charles Hugh Smith: Yeah, and number two is that we can tax the owners of robots an software to fund guaranteed income for all. But, you know, Chris. You raise a very good point about jobs. It’s not just a function of technology. It’s energy and it’s also the way that we create money. As you have often discussed with Mish and John Rubino and myself on podcasts in the last couple of years, the way our money system works is essentially free money is created and given to those at the top of the pyramid who can then use that money to enrich themselves further. The general idea in Economics 101 is, oh well, when Joe and Suzy Capitalist borrow a billion dollars for almost nothing that someone is going to create a lot of jobs.

What we’ve seen is that the money flows into stock buybacks, which doesn’t create a single job, or it flows into overbidding for apartment buildings in London and this kind of thing where the new owners jack up the rents to make more money, and they didn’t create new jobs [by] doing that either. The amount of maintenance on that apartment complex is the exact same before and after the new owner bought it for a gazillion dollars and then doubled the rent. So the money that’s being creating is flowing into completely non-productive hyper-financialized [financed] ways of greatly expanding wealth that don’t create a single job.

Chris Martenson: It’s almost like you’re saying that creating debt money doesn’t create jobs.

Charles Hugh Smith: Yes. I’m afraid that’s true. As Mish and others have pointed out, what this dynamic of lowering the cost of money to near zero while the cost of labor keeps rising, basically, it puts every business in a vice. The vice is crushing them that the cost of money is so cheap that it’s like, well, why shouldn’t I borrow money at 1 percent or 2 percent and replace my employees with robots and software because the cost of those employees keeps rising while the cost of money makes it even more and more compelling to replace them with automation and software.

Chris Martenson: Right. Right. A couple of things here. Look. I guess we could imagine a utopian sort of a place, which is where humans always wanted to get to, and if we’re lucky, we’ll get to back to what our hunter-gatherer forebears had, which was plenty of time, right? Isn’t there an argument to be made here, which is like, well listen. Why are we shackled this ideology of 40-hour work week. That’s the bare minimum. That’s what it takes to earn a living.

France is sort of decoupled from that. So that how about 35, but you’re making a case here that, if automation really goes forward, a, we don’t need that many workers, and by the way we have so few as it is already. I mean, what, 130-million workers out of 320-million. I mean it’s less than half. It’s just ridiculous. Maybe it’s not ridiculous. Maybe it’s okay. But wouldn’t it be less ridiculous, if instead of having 130-million people working their tails off and everybody else sort of kicking around– Are you saying we could maybe distribute that out a little bit and have everybody have a 20-hour work week? Is that one way this goes, or how do we begin to make sense of this?

Charles Hugh Smith: Well, Chris, that is one option. A lot of people find that [to be] a valuable idea. In other words if we just cut the workweek in half, at least everybody will have half of the income. Of course, as you point out, it now takes two full-time jobs to maintain a quasi-middle-class existence. What we’re really saying, if we do that, is everybody is now going to be poor.

Chris Martenson: Yes.

Charles Hugh Smith: That may be sustainable [maintainable], but it’s not the happy future everybody was promised. There are two issues that your question raises. One is what is work, and you know that’s another question to which we think we know the answer like what is money? Well, we think that work is what’s paid, but let me give you an example of work that cannot possibly be profitable. Let’s say that a town or community wants to put in a bike lane dedicated to bicycles only, no cars allowed. It’s not a little bike lane that’s created with a gallon of paint that paints a strip on the road. This is a legitimate real bike lane like [-like, such as] the kind you have in Europe where bikes can operate safely. Why would they do this? Biking has so many benefits, right. It’s good for the health. It takes cars off of the road, reduces pollution. I mean the list goes on and on. It’s an absolute economic win, right, on multiple levels. Well, where’s the profit in building a bike lane? Is Google going to come in a build a bike lane, so it can make a lot of money? No.

There’s absolutely no money to made on this at all because the benefits are generalized and they can’t be scooped up by one company. So in the current arrangement, well then, the government taxes us all to raise the money, and then it hires, at enormous expense, some private contractor who’s going to try to make as much money as possible to construct this bike lane. But if neither of those things is possible, in other words, the government doesn’t have the money to do this, or there’s no private enterprise that can make a profit off of it, where does that leave us? The point to me is there’s an enormous amount of work that would benefit our communities that can’t be done and paid for in the current arrangement. And so what we really want to do is we want [to create] a system that pays people to do this useful work that is not profitable and doesn’t really align itself to governments that depend on high taxes.

Chris Martenson: Well, you’re touching on something as well. I love really talking about what work is. I do agree that that’s something maybe we all think we know, but maybe we should think that through a little bit more and make sure we’re clear on that. Something else that you’re touching on is also touched on in our new book, you’re touching on something as well. I love really talking about what work is. I do agree that that’s something maybe we all think we know, but maybe we should think that through a little bit more and make sure we’re clear on that. Something else that you’re touching on is also touched on in our new book, Prosper, is this idea of how we find meaning in our lives, right, and that there are lots of different things and ways we can value both our experience in life and feel valuable in all of that.

Work is very traditionally not just work. Work sounds like drudgery, so let me reshape it. When people can bring their gifts out and provide some measure of service to their community and in return they’re supported for those efforts, and now that might be money, right, and we might call it work. That’s how we combine those two things. I go out and work and I get a paycheck, and so that’s how I know I’m valued, but there might be another way to go about this, but really isn’t work really just a way for us to be productive and express ourselves and find a way to really keep ourselves not just occupied but, if you do it right, really grow into and become a master of whatever it is you’re doing. That’s fulfillment.

Charles Hugh Smith: That’s right, Chris. That’s one of the big holes, I think, in the current narrative, at least in my view. The current narrative is all dominated by consumerism. In other words, we’re basically told every day thousands of times a day that our source of meaning and identity and pride is all in what we bought today or what we own.

Chris Martenson: Right.

Charles Hugh Smith: Right. What’s odd about that is it turns us into these sort of atomized individuals with no connection to any community, and it makes us very dependent on profitable economic activity. It turns out that if we really look at that closely, that doesn’t actually make us fulfilled, and so it’s actually a false promise. We all know this, and I think it’s the source of a lot of anguish, unhappiness, and despair, that when people’s livelihood is taken away, then they lose their purpose, pride, and meaning. Just giving them free money to go buy stuff to be a consumer, what I call the super welfare state of guaranteed income, that’s not really providing them with the necessities of human life.

It’s actually a form of serfdom. Like, here’s a few bucks for you to go spend, have a nice life. If we look at human nature as you say going back to the way that humanity developed, our core identity is a social one. In other words we need to belong to a group, we need a chance to contribute to that group and perhaps even [to] sacrifice for that group. That’s our source of pride, purpose, and meaning. If we don’t have that, we’re going to be unhappy.

There was an article recently that came out from I think the Atlantic magazine where people studied middle-aged Caucasian people in America and discovered that their death rate is rising rapidly. Their dying from despair was the conclusion of these sociologists. To me it’s no mystery at all. The middle-aged Caucasians who are not highly educated and don’t have opportunities for work, they are dying of despair because they’ve lost their sources of meaning.

Chris Martenson: Well, you’re raising a bunch of, obviously, very important points here. It looks to me like this robotic and automation trend, I agree, it’s not just advancing, it’s going parabolic. We can expect more of that to continue, yet we already can see all around us the impact of not just that automation but the [of] the off shoring to the cheapest common denominator location. Right. In the United States, that’s translated into a relative paucity of jobs especially good jobs and not a lot of opportunities for advancement for entire swaths of the economy at this point in time, particularly those who are not tied in at the hip to the insider-trading information that the fed gives to its favorite clients and all of that. It really feel like there just this growing disparity not just in wealth but in opportunity. That’s not really a recipe for social happiness. What’s the opposite of social unrest? Social rest?

Charles Hugh Smith: Yeah. That’s right, Chris. You combine the rising wealth inequality, then I think one of the conclusions I came to is that people want to think that if only we could tax the top one-tenth of one percent and we could change the fed and all of that stuff that we would fix all of these problems. What we’re really talking about here is these problems cannot be fixed by just taxing the one-tenth of one percent as good as that would feel or [by] abolishing the fed. I mean that would be a good first step, but the kind of conventional economic fixes such as more education to train a more highly trained workforce.

None of those things is going to really fix any of these things. We need to ask, what kind of system do we want or need that would produce the output we want, which is guaranteed work for all, meaningful work, not just bs work, but meaningful work for everyone. That would, of course, mean a stable or secure income because ultimately our wealth and our income flows from performing work that’s valuable in our community. That’s the system that we obviously want and need. And so that’s the system I try to work on outlining.

Chris Martenson: Now it’s interesting. Now is this dangerously close to Marxism there? Is it not? There’s this idea of work for everyone or something like that. I know that there are going t