New York City Mayor Bill de Blasio. AP Photo/Mary Altaffer

New York City Mayor Bill de Blasio, a 2020 Democratic presidential candidate, rolled out a "robot-tax" plan that would tax companies who "automate" jobs.

The idea is not only bad but also unnecessary.

Data shows there is not a massive number of US workers being replaced by machines right now.

There are also a slew of other, smaller issues with de Blasio's "robot-tax" idea.

George Pearkes is the Global Macro Strategist for Bespoke Investment Group.

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Last week, 2020 Democratic presidential candidate and New York City Mayor Bill de Blasio unveiled a new policy proposal that is easily the worst innovation of the still young 2020 presidential campaign. His "robot-tax" would require "major" companies to seek a permit before installing any technology that might "automate" new jobs.

It's easy to fall into an ideological reaction to big government introducing stifling a new regulation, and de Blasio's blundering image doesn't help in doing an honest analysis of this idea. But falling back with yells of "Luddite!" would be a mistake.

To avoid reinforcing our own ignorance, let's start at square one. Has de Blasio identified a real problem in the American economy of workers being replaced by machines?

The answer is a resounding, decisive, and downright indisputable no.

If workers in general were rapidly being replaced by machines, output - the goods and services produced - per hour worked (in aggregate) would be rising quickly. Either through faster output growth, or by fewer hours worked, or both, total output divided by total hours worked would be rising quickly.

Put another way, if workers were being replaced by robots, the amount workers in aggregate produced per hour would be increasing.

For instance, say a human in a factory can make one widget in an hour unassisted, and a factory owner employs four workers to produce four widgets per hour. Hoping to increase output, the widget-factory owner installs a machine to assist in production, helping workers produce four widgets per hour each, or 16 total.

De Blasio's policy is trying to address the worry that since output per worker is quadrupled with the help of the robot, the factory owner can lay off two workers, save labor costs, and still end up with twice as many outputs being produced at the factory per hour.

Almost all economists would call the process above a natural and useful feature of capitalism, but we don't even have to go down that road to evaluate whether it's a specific problem worthy of aggressive new policies to address it.

Looking at the data, the evidence for this sort of replacement of workers with machines is nonexistent. As shown in the chart below, real output per hour worked is growing, but much, much slower than has historically been the case. That's true across developed economies too.

George Pearkes

Basically, robots are not rapidly replacing workers like de Blasio seems to think. If anything, the economic problem of our times is not too much productivity but not enough.

During the 1970s, when productivity was growing quickly, the US economy's fixed-capital base grew at a pace of about 8% of GDP after adjusting for the depreciation of assets over time. In other words, each year, the amount of productive assets - technology, new equipment, new buildings - substituted for and used in complement with labor resources rose substantially.

In recent years, that number has been slashed as companies have spent less and less on new capital investments. The growth of the capital base relative to GDP reached a low of 2% in 2010, and today, the US has bounced back to only 4.5% of GDP in terms of new productive assets each year, net of depreciation.

George Pearkes

If GDP per hour worked is growing slowly, and investment in new capital goods or other productive assets is running at a very slow pace, how is it possible that America's most pressing economic issue is automation?

Even in an economy where labor productivity and net fixed investment are growing slowly, there are sure to be workers forced out of their jobs by the natural competitive processes of capitalism. Has there been some uptick in those workers who are fired but then manage to find work elsewhere?

Absolutely not.

Gross losses of workers captured in the Bureau of Labor Statistics' quarterly Business Employment Dynamics report are very low relative to history. Maybe during the late 1990s, when productivity growth was stronger and gross job losses higher, a case could be made for the automation police de Blasio argues for ... but not now.

George Pearkes

To be sure, the government could do a better job of strengthening the social safety net for unemployed workers, keeping labor markets strong enough for hiring across the whole country, and avoiding the economic catastrophe of recessions.

More compelling ideas to achieve those goals exist across the political spectrum. On the left, recent developments include the job-guarantee program favored by economists in the modern monetary theory school of thought or the "Freedom Dividend" universal basic income (UBI) proposed by de Blasio's competitor Andrew Yang.

Centrists might be more attracted to more targeted ideas, like an expanded Earned Income Tax Credit, while the current administration's efforts to support American workers were probably best represented by the tax cuts for corporations and higher-income households passed at the end of 2017.

If we're being entirely fair here, de Blasio's uniquely unnecessary effort to attach costs to capital investment isn't his only economic-policy proposal. The current New York City mayor has also proposed broader worker protections and a wealth tax, which are more consistent with the redistributive and countercyclical policies that other Democrats have brought forth.

None of the other programs proposed by de Blasio or his competitors are designed to prevent automation specifically but are instead designed to deal with a variety of negative labor-market outcomes from the emergence of new technology, as well as general economic weakness. These ideas provide a more cohesive set of solutions to weak hiring or mass firing than a singular focus on automation.

There's a lot of room to debate the efficacy, cost benefit, or popularity of the various programs, but they all at least start from a position of recognizing a real problem. De Blasio's automation plan most certainly does not.

Of course, I'm not even getting into the mess of finer details that make de Blasio's plan half-baked at best: How big is a "major" company, what counts as "automation," and how is the decision over which jobs are lost because of automation versus other factors made? And so forth.

But even without going spelunking into the very messy and fraught process of creating an agency to micromanage equipment purchases across the economy, there's no justification for de Blasio's "robot tax" in the data, and ultimately that's where the impetus for radical policies must come from.

George Pearkes is the Global Macro Strategist for Bespoke Investment Group. He covers markets and economies around the world and across assets, relying on economic data and models, policy analysis, and behavioral factors to guide asset allocation, idea generation, and analytical background for individual investors and large institutions.

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