The AI Automation Layoff Trap, with Gerry Tsoukalas and Brett Falk

This episode continues our investigation into the implications of advanced AI for jobs, and specifically, how to design an economic system that makes a huge success of full automation by AI.Back in 2017, Bill Gates mused that governments should address radical automation by taxing robots. Gates may not have known it at the time, but he was suggesting a Pigouvian tax. In a 1920 book called “The Economics of Welfare”, Arthur Pigou proposed levying taxes on activities that generate negative externalities — costs on third parties to a transaction. The classic example of that is pollution: a factory produces goods but creates pollution. The market price of the goods doesn't reflect the pollution costs, so the factory managers don’t try very hard to minimise them.A Pigouvian tax adds the social cost of the pollution into the price, so the producer is incentivised to minimise it.Gerry Tsoukalas and Brett Falk have published a well-received paper called “The AI Layoff Trap”, which recommends introducing a Pigouvian tax on automation that eliminates human jobs. Their proposal deserves credit for taking seriously the idea that AI may well cause severe automation, perhaps full automation – i.e. the Economic Singularity.The paper describes how firms face a prisoner’s dilemma. If they automate all their jobs then there will be no consumers to pay for any of their products. But if any of them don’t, their automating competitors will drive them out of business. Tsoukalas and Falk point out, counter-intuitively, that the fiercer the competition, the more acute the dilemma, so if we want to hold back automation, we might be better off with monopoly-ridden economies. Selected follow-ups:Gerry TsoukalasBrett Hemenway FalkThe AI Layoff Trap - The Wharton School Research PaperPDF of the AI Layoff Trap paperArthur Pigou - WikipediaPrisoner's dilemma - Wikipedia"Microsoft AI chief gives it 18 months—for all white-collar work to be automated by AI""Chinese court rules firms can’t lay off workers on AI grounds"Music: Spike Protein, by Koi Discovery, available under CC0 1.0 Public Domain DeclarationC-Suite PerspectivesElevate how you lead with insight from today’s most influential executives.Listen on: Apple Podcasts   Spotify