A common theme unifying recent debates about tax reform in North Carolina and in Washington is the idea that the punitive tax treatment of business investment is a bad idea — because it discourages the purchase of plants and equipment, and, thus, job creation and income growth.
Here in our state, the General Assembly chose to tackle this problem by slashing North Carolina’s corporate tax rate from 6.9 percent to 3 percent, among other changes. In Washington, congressional leaders want to couple a reduction of federal tax rates on corporate income — from the current 35 percent down to as low as 20 percent — with lower rates on capital gains as well as quicker and more complete deductions for businesses that buy new plants and equipment.
The usual response to such ideas from the Left is that taxes don’t affect business decisions as much as conservatives claim, so tax reform won’t boost capital investment. There is a radically different objection now making the rounds, however, and not just among the Democrats currently out of power. Some Republican populists raise the same objection.
Here it is: tax reform is a bad idea precisely because it would increase business investment in new technologies, plants, and machinery. These critics argue that the increasing automation across various industries is destroying the American Dream. Tasks once done by hand, or by the application of the human brain, are now being performed by machines or even robots. Displaced by automation, many workers can’t find new jobs that pay a decent wage, and can’t effectively be retrained to enter the shrinking number of occupations that will be remain as the robotic revolution works its way through the economy.
Claims that machines will supplant labor and lead to stagnation, poverty, and social unrest have been made for centuries. Many find such claims plausible or even persuasive, despite the fact that they always turn out to be wrong.
Learning how to produce more goods and services at a lower cost is essentially the definition of economic progress, not its bane. For most of human history, total production per person stayed within a narrow band — sometimes rising because of expanding trade or stable government, sometimes dropping because of wars or other disruptions of commerce. Until the 18th century, then, economies got bigger mostly by adding more people, which didn’t necessarily leave the average person in those societies much better off.
The bundle of technological, social, and political innovations now called the Industrial Revolution changed all that. Economic production began rising rapidly per person, not just in total. Adjusting for inflation, the average living standard of human beings today is 10 times what it was in the early 19th century.
What actually came first was an Agricultural Revolution that vastly increased the production of food and fiber per unit of investment. Vastly fewer people were needed to farm the land. They flooded into cities, helping to facilitate industrialization. Then, as new technologies and management practices increased the productivity of factories, workers were again displaced from their original jobs and had to find others.
At each stage in the process, there were counter-revolutions. Workers and political activists railed against machinery, often trying to ban or sabotage it. Fortunately for the human race, they failed.
But robots are different, say today’s counter-revolutionaries, who cite seemingly authoritative sources such as PriceWaterhouseCoopers and the McKinsey Global Institute that claim nearly half of American jobs will disappear because of automation within the next couple of decades. These studies either preposterously exaggerate the underlying data or fail to account for the jobs created as households and businesses spend their savings from automation on other goods and services.
The problem of dislocated workers is very real, of course. They need education, training, and better mechanisms for saving money for future emergencies. But on the whole, in the long run, innovation and automation are good for us, not bad for us — in the same way that it’s better to cut grass with a lawnmower than with scissors.
John Hood is chairman of the John Locke Foundation and appears on the talk show “NC SPIN.” You can follow him @JohnHoodNC.