It’s the first thing a high school economics student learns. They call it the problem of scarcity: “Resources are limited while human wants are unlimited.” How we deal with this conundrum is the key question of economics.
For primitive man, it was simple. You consume what you produce. End of story.
Under feudalism, a select few own everything. They decide what’s produced and distribute it according to their own preferences.
The communists and socialists believed we could sever the link between supply and demand. Supply should be based on each person according to their ability to produce. And demand is met by an arbitrary distribution of the fruits of production based on need.
Capitalism lets demand and supply interact freely. It settles the problem of scarcity by using cooperation, markets and trade. Your ability to consume is defined by your ability to produce what other people want.
But the underlying constraint is always there, right? You can only consume what is produced, in the end.
And labour is the defining constraint of how much can be produced overall.
How much metal there is depends on the amount of miners.
How much food depends on the amount of farmers and bakers.
How many presents you get for Christmas depends on the amount of Chinese factory workers.
How much music depends on the amount of musicians…right?
Actually, that latter one is no longer true. You can now play as much music as you want thanks to technology. We don’t even need the Beatles to be around anymore. Your supply of music is effectively infinite and instant.
Well, I think we’re on the cusp of a similar revolution in many other aspects of our life too…
Getting rich one redundancy at a time
People are in a panic about job losses due to AI and robots. Which is nothing new. But examine the course of history and you’ll notice something different actually happens…
We used to need just about everyone to work in farming just to feed everyone.
But today, only a tiny proportion of workers work in agriculture. And food is more abundant than ever.
Did we get richer or poorer as a result of freeing up all that labour?
We got richer. Why? Because agricultural workers were freed up to make something else instead. They became factory workers and miners and politicians.
So, as strange as it may sound, our prosperity is driven by technology making labour redundant.
That’s because people go and produce something else instead. Which adds to the overall amount produced, and the size of the economy.
That’s how robots working in factories made us richer too. Hundreds of people used to be needed to assemble a car. Now, a few people oversee the robots.
We’ve achieved a whole new level of labour efficiency. But what if we could go one step further?
What if we are on the cusp of smashing through the key constraint of economics altogether?
Breaking the link between production and consumption
The trouble with miners, farmers, bakers and Chinese construction workers is that they don’t just produce. They also consume.
And the more they produce, the more they want to consume.
Robots, however, are different. Their desires are finite, unlike our own. They don’t demand a growing share of their economic output just because they produce more. They aren’t human…
My point is that the combination of robots and AI could sever the link between production and consumption in countless different activities.
No longer is the supply of things defined by the amount of human labour.
GDP per capita could be about to explode
Today, factories in China are turning off their lights because robots can work in the dark. No humans needed.
Mines are on the cusp of being fully automated too.
My sister’s small business could replace all her workers with humanoid robots once they go on sale.
The equation that has defined economics could radically change.
A shift comparable to the digitisation of music in the internet age, where our consumption of music is completely detached from the number of musicians in the world.
For example, if robots can mine, manufacture and drive autonomously, this upends the economics of transport entirely. Supply is no longer dependent on the number of humans.
Of course, this won’t be achieve in a single moment or epiphany. But the destination of the trend is an extraordinary one. We may have solved the problem of scarcity. At least half of it – the supply half.
Given that human desires remain infinite, we’re talking about a limitless surge in consumption intensity.
And that, my friends, is what’ll make Aussie investors rich.
Regards,
Nick Hubble,
Strategic Intelligence Australia
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