Shifting From Labor to Capital Reduces Demands

Finally, it’s easy to see how a shift in income from labor to capital would lead to a similar reduction in overall demand. Capitalists tend to save more of each marginal dollar than laborers. In the short run, a transfer from laborers to capitalists reduces total consumption, and thus total GDP. This phenomenon is summarized in a classic though possibly apocryphal story: Ford CEO Henry Ford II and United Automobile Workers president Walter Reuther are jointly touring a modern auto plant. Ford jokingly jabs at Reuther: “Walter, how are you going to get these robots to pay UAW dues?” Not missing a beat, Reuther responds: “Henry, how are you going to get them to buy your cars?”

Erik Brynjolfsson, Andrew McAfee, Race Against the Machine (2011)

• automation
• employment