On another note – the idea that technology will make people unemployed is a false one. It was the philosophy of the luddites of the 19th century – but what happens is that the ones who make a lot of money with technology find new ways to spend their money, and the labour force is shifted towards new leisure industries etc.

I could readily see a steady shift to taxation on capital to fund the ever increasing numbers of non diligent through the Negative income tax above. Manufacturing is hollowing out in the developed west. design remains. Services like call centres and administration are being out sourced to developing world.

It will not be too many decades until what remains is those services where human face to face interaction is the preferred method such as restaurants and retail, high end design and maintenance.

I agree that it hasn’t (although one way to view the Great Depression and preceding recessions is through the lens of “positive supply shocks” that temporarily reduced demand for labour). I also agree that this point indicates that the fear may be overblown.

But, even stating that this is a possibility, and taking the conditions that cause this possibility is given, we can make an argument as to why this isn’t a bad thing.

Fundamentally, having to work is a COST – if people don’t have to work and we get the same produce this is a good thing. The only problem is, without a functioning market for labour we probably get a poor allocation of resources compared to the current situation.

Furthermore, even with labour demand remaining, if greater captial does one day reduce the marginal product of labour (which is possible) we get a situation where wages falls while production rises – this may not be seen as welfare maximising.

As we know, in such a situation the government could transfer resources to make this change “pareto superior”. The best way for this to happen would be through Friedman’s idea of a negative income tax (http://en.wikipedia.org/wiki/Negative_income_tax). This ensures that workers will be indifferent, and that technological improvement would be always pareto superior. Excellent.

That is also very much a possibility – as we have something that is scarce and requires labour.

@Phil Sage (sagenz)

If only