Robot Tax = Protectionism Against Progress

Taxing automation would slow down progress and ultimately make most of us poorer than we would otherwise be.



Prophets of the impending automation apocalypse predict that robots will soon take 7 percent to almost 50 percent of all American jobs. Recently, billionaire Microsoft co-founder Bill Gates suggested that the job-stealing robots should be taxed just like the workers they replace. In an interview last month with Quartz, Gates suggested,"Certainly there will be taxes that relate to automation. Right now, the human worker who does, say, $50,000 worth of work in a factory, that income is taxed and you get income tax, social security tax, all those things. If a robot comes in to do the same thing, you'd think that we'd tax the robot at a similar level."

Of course, taxing anything means that it raises the price and less of it is produced. For example, if you want to have people use less electricity produced by fossil fuels because you are worried that the carbon dioxide emitted contributes to possibly dangerous climate change, you impose taxes on that. In a sense then, Gates' proposal is treating automation as a negative externality. In fact, automation (and the productivity it enhances) is the key to economic growth. Doing more with less is how people achieve prosperity.

In an insightful op/ed over at The Washington Post, Harvard University economist Lawrence Summers asks …

…why tax in ways that reduce the size of the pie rather than ways that assure that the larger pie is well-distributed? Imagine that 50 people can produce robots who will do the work of 100. A sufficiently high tax on robots would prevent them from being produced. Surely it would be better for society to instead enjoy the extra output and establish suitable taxes and transfers to protect displaced workers. It is hard to see why shrinking the pie, rather than enlarging it as much as possible and then redistributing, is the right way forward.

This last point has long been standard in international trade theory. Indeed, it is common to point out that opening a country to international trade is like giving it access to a technology for transforming one good into another. The argument, then, is that since one surely would not regard such a technical change as bad, neither is trade, and so protectionism is bad. Gates's robot tax risks essentially being protectionism against progress.

Taxing robots will slow down progress and ultimately make most of us poorer than we would otherwise be.

Nevertheless, with regard to the future of automation, Summers seems to buy into the notion that this time it is different. However, there are voices cautioning against dire forecasts of automation making humans economically redundant. MIT economist David Autor makes a persuasive case in which he identifies …

…the reasons that automation has not wiped out a majority of jobs over the decades and centuries. Automation does indeed substitute for labor—as it is typically intended to do. However, automation also complements labor, raises output in ways that lead to higher demand for labor, and interacts with adjustments in labor supply. Indeed, a key observation of the paper is that journalists and even expert commentators tend to overstate the extent of machine substitution for human labor and ignore the strong complementarities between automation and labor that increase productivity, raise earnings, an augment demand for labor. …

Changes in technology do alter the types of jobs available and what those jobs pay. In the last few decades, one noticeable change has been "polarization" of the labor market, in which wage gains went disproportionately to those at the top and at the bottom of the income and skill distribution, not to those in the middle. I will offer some evidence on this phenomenon. However, I will also argue that this polarization is unlikely to continue very far into the foreseeable future.

When considering whether Summers or Autor is right, I come down on the side of Autor. More on why the automation apocalypse is overstated at another time. In the meantime, a tax on robot "labor" is a dumb idea.