Automation

Last week Mike touched on the fact that six stocks have made up almost 40% of the S&P 500’s returns over the last five years, and it should be no real shock that all six of those companies are tech giants.  If we think about how technology in general has changed our lives over the past 30 years; It’s astonishing. Things we take for granted now, were pie-in-the-sky ideas in the early 90s.  Computers in general were more of a luxury item, laptops even more so.  The internet was starting to gain traction with just 50% of Americans using it 20 years ago, and cell phones took second fiddle to landlines. Compare that to today where 90% of Americans use the internet, and it’s a safe bet that much of that internet usage comes from a smart phone.  The moral of the story?  Technology is here to stay, and it is only becoming more and more intrenched in our daily lives.

In early April, Walmart announced they are going to be adding almost 4,000 autonomous floor scrubbers, shelf scanners and cargo sorters in the next year.  Their stated plan is to free up employees to focus less on menial tasks and be able to assist customers more readily.  The fear is that over time the increased capabilities and usage will lead to many workers out of a job.  This fear is given life when McKinsey Global Institute estimated that upward of 70 million or 1/3 of US workers could be replaced by robots by 2030.  This could potentially result in the elimination of $2.7 trillion dollars in wages by 2055.  While that is terrible in its own right, the loss of income tax levied on those lost wages, which will inevitably put a strain on government services used by those same displaced workers.

So, if we can’t slow technology and its adoption, how do we remedy this problem?  Well the ideal outcome would be to train future workers in jobs that likely won’t become automated, or in jobs creating and servicing those robots.  On the other hand, Bill Gates has his own crazy idea… those robots taking human jobs, well they should pay taxes.  At the time governments across the globe balked at the idea.  President Obama’s top economic advisor, Lawrence Summers called it “profoundly misguided.”  Going on to state that taxing technology is a sure-fire way to stifle innovation and make a country poorer.  The EU also shot down a motion to tax robot owners to fund retraining for workers replaced by the machines.  There was a lone outlier though as in 2018 South Korea (the most robotized country in the world) reduced the tax deduction on automation, effectively creating a tax on robots.  While it is only about a 2% reduction, this shows that South Korea is worried about the potential ramifications of an increased robotic work force.

Where does this leave us? Well, while this isn’t anything that needs acted upon immediately it will be a topic of debate going forward.  If revenue garnered from income tax goes down and government spending continues to skyrocket there is going to be an impasse somewhere down the line.  Maybe the government should take a page out of retirement planning and realize that spending less goes a lot further than making more.

All the best,

Wesley R. Nicholson, Mike Allen and Aaron Everdyke