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The Machine Economy
24th Jul, 2016

ChartGo1

Human (red) vs Machine (green) production

Business is stuck in the mindset that if you cut the pay of your workforce: you gain a competitive edge (as you can reduce costs). Which is true. This usually happens during an economic downturn with an increase in labour. However, as soon as all businesses follow suit you lose this competitive edge. The problem with this stratagem is that the workforce are also customers. When you cut the pay of your workers: you are also cutting the amount of money customers have to spend. This will lead to a decline the economy. What was once a sneaky ruse to gain an edge (which worked so well in the beginning) ends up as ‘standard practice’. Which unfortunately leads to the whole system degrading. It then becomes very hard to buck this downward trend. If a decent company decides to pay good wages this will increase the money their workforce has to spend. This, in turn, will increase customer demand. But often this demand will be for other company’s goods. (Unless the workforce spend all their money with their employer!) If other companies do not follow suit: the decent company will end up in trouble. (As the cost of its products increase.) In reality, this rarely happens: hence to battle the downward spiral we have the ‘Minimum Wage’.

Businesses now have enough experience to realise they cannot get out of the wage reduction drive. Even with government intervention on the minimum wage, business always looking for the next way to cut costs and regain the edge. (Gain an edge for a short while until everyone else cottons on.) This is where the idea of out-sourcing, moving manufacturing to other countries, comes into play. Taking advantage of the lower cost of living in a developing country to reduce costs relative to the original country. The problem is the same as before: soon everyone does it, and their competitive edge. But now the company is paying workers in another country, and the customer base in the original country shrinks further. To further compound the suffering: the government (of the original country) does not receive any tax from workers in far away lands. Combined with the loss of jobs in the original country, shrinking VAT income from sales as the customer base collapses, along with increased benefits payment, leads to the whole lot heading on a downwards spiral.

Businesses know this, and the trap they are in. So they are looking for the next wage cut, and they are running out of countries. China was a good bet, but wages are rising. One day even China will be too expensive. With this in mind, businesses are looking to automation and machine intelligence. Machines are the prefect solution to this trap. They are far more productive than a human, and a company does not have to pay tax on their machines. The company can reduce its wage bill. There is now a race to replace humans with machines. A race that cannot be stopped, as the ‘wage cut trap’ strangles humanity. We are doomed by our own self-interest.

The logical conclusion to all this is not rosy. One day machines will make everything , all customer support will be a bit, and everything automated. The issue is that humans do not work in this system. They have no income other than a government pay cheque or investments. The government will collect the bulk of its taxes from the corporations and VAT. These corporations spend a lot of their resources avoiding paying tax. In the end, the government has to cut benefits and social care. The wealth gap between the rich and poor is destined to ever increase. But the machines make goods and services ever cheaper. As technology advances, the companies use machine intelligence to further increase productivity. The system is gradually taken over by said machines. Once say the machines are making the decisions, and if they didn’t the economy would collapse.

Hence the rise of the machines.

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