Guest Post: The Siren Song Of The Robot

Tyler Durden's picture

Submitted by Gergor Macdonald of Peak Prosperity,

The quest for cheap energy and cheap labor is a conquering human urge, one that has played out with notable ferocity starting with the Industrial Revolution. The introduction of coal into British manufacturing, and the more recent outsourcing of Western manufacturing to Asia, have marked key thresholds in this ongoing progression.

But despite the harvesting of additional productivity gains from the more recent revolution in information technology, the suite of macro data suggests that the rate of advancement in physical production has slowed, notably, in the past thirty years.

Seen in this light, the greatest gains to global industrial production were probably enjoyed from the late 18th century (when coal extraction and use began in earnest) into the mid-20th century (when oil reached broad distribution). In contrast, computers, the Internet, and the leveraging of developing world labor might eventually be seen as the finishing touches on this great industrial wave.

The Siren Song of the Robot

Indeed, the world now faces a double constraint to any further revolutionary gains to physical production: resource scarcity and the diminishing supply of the cheapest global labor, as wages in the Non-OECD have most likely seen their low.

That we have reached this juncture probably explains why a new idea has arisen: The advent of robots.

That fleets of more technically-proficient robots becoming ever more encompassing in their role in the economy will trigger the next Industrial Revolution, the one that does indeed deliver extraordinary productivity gains. The Rise of Machine Intelligence, it's now anticipated, will finally pull GDP back to the higher growth path seen in previous industrial advances.

The past year has been a fertile time to consider this possibility. In March of 2012, bought the warehouse robot company, Kiva Systems. It seems not coincidental that Amazon has also engaged in a new wave of construction, building distribution centers poised to leap into an age of next-level automation. Each one, in its vastness and architecture, seems perfectly set up to reduce the quantity of human labor required to run Amazon's business. From The New York Times article:

“Amazon has not had great margins,” Jason Helfstein, an analyst at Oppenheimer & Company. “One has to believe they looked at this and thought, ‘Why not just own it and take all the technology in house?’” The acquisition comes as Amazon aggressively adds distribution centers to service its growing consumer base. The company has heavily promoted its Prime service, which provides customers two-day shipping for $79 a year. Last year, Amazon said it planned to add 17 warehouses, bringing its total to 69.

You can see the video of Kiva robots here, acting as automated shelf and inventory movers. Note also the remark from the Oppenheimer analyst, concerning Amazon's poor margins. (Well, that's not news). However, it's a key theme to the pressures fated to drive the rise of machine intelligence (Capitalism demands it).

Accordingly, it's not surprising that even energy companies like ExxonMobil are thinking about the global shift to automated manufacturing, data centers, and, importantly to Exxon, the rise of electricity (I have been writing continually over the past year about the transition from a world running on liquid BTUs to a world running on power. Please see Rise of the Global PowerGrid, August 2012).

In its just released Annual Energy Outlook, looking ahead to the year 2040, Exxon writes:

One of the emerging drivers of demand globally relates to digital warehouses. The New York Times reports that on a worldwide basis, these data facilities use about 30 billion watts of electricity, roughly equivalent to the output of 30 nuclear power plants. Data centers in the United States are estimated to account for one-quarter to one-third of that load.

2012 was also a year in which military drones finally penetrated public awareness levels, given their widespread use by the military. WIRED magazine has declared that 2012 was the year of the drone in Afghanistan. Indeed, the military drone is increasingly carrying the weight not only of U.S. ground operations globally, but, assuming that the U.S. is in a leadership position now in the field of military drones, we can conclude that unmanned craft are creeping up to become a feature of U.S. foreign policy.

Let's pause here and consider that in just these two examples. We have one type of robot – the military drone – whose greatest contribution is to radically reduce the amount of resources required to deliver lethal strike capability. And we have the other, whose promise is to displace human labor on the shop floor (or in Amazon’s case, the inventory floor).

The replacement of human labor and its myriad, associated costs is revolutionary. The promise for robots to take energy input costs down a notch, at a time when the price level for energy has gone through a phase shift higher, is compelling. If we assume that the I.T. revolution so far has delivered only small, incremental gains to the production of physical goods, then a robot revolution could finally usher in the changes that critics correctly say has not yet been delivered by a world of bits.

The combination of robots and cheap electricity could well unleash a new phase of profitability for corporations – and, of course, the owners of the means of production. What’s less likely, however, is that any such revolution is sustainable.

Because unlike the Industrial Revolution, which added powerful BTUs in the form of coal to augment human labor, thus creating a tidal wave of profits and increased wages, a robot revolution promises to furnish the world with stuff at the expense of human employment.

Many thinkers currently writing on this subject believe that a labor force deprived even further of purchasing power, yet given greater access to cheap goods, will wind up richer on the whole. I won’t say that’s wrong, but I will say it seems unlikely.

Radical Price Shifting

Let’s engage in a thought experiment, a scenario in which robots almost totally disrupt a particular type of consumer good. I’m choosing an example that I think would be most favorable to those who are sanguine about a robot-manufactured world, in which our wealth and free time are enhanced and people “become liberated to engage in other activities.”

Given the daily drudgery of cooking and meal preparation, let’s imagine that a company is able to take high-end cooking ranges, high-end cooking equipment, and high-end refrigerators and freezers, and deliver them to market at discounts up to 50% off current prices. There is already a cultural shift underway to eat home-prepared food. Arming consumers during a time of higher food costs with the very best tools to prepare and store food dovetails nicely with current trends and household cost pressures.

White goods, such as these, are a substantial part of furnishing a home. By radically lowering the price of these high-end tools, the owners of private homes and also apartments are more easily able to buy, prepare, and freeze food, thus freeing up capital  (time) for other pursuits. Taking a look at the manufacturing locale, and input costs, of our hypothetical new company will be instructive.

We'll call our new whiteware manufacturer Man Who Fell to Earth, Inc. (MWFE).

No Need for China

Western economies burden corporations with complex labor regulations and even more onerous tax liabilities. The decision to place a human being on the payroll in France, Britain, or the United States is not taken lightly, and it represents a huge increase in costs for health care, taxes, and unemployment insurance. A person hired at a salary of $125,000 can imply total costs double that amount. This is why cheap labor in Asia has been such a draw for Western corporations. But now that China has reached the Lewis Turning Point, there is less reason to locate there.

Instead, Man Who Fell to Earth (MWFE) needs to think about shipping costs and energy input costs, because robots run on electricity. As it turns out, the United States has some of the cheapest electricity rates in the OECD. Average U.S. rates are just below 10 cents per KWh, and are stable as well. Even better, industrial and commercial rates are even lower. From the most recent data, via EIA Washington:

Robots need no healthcare and incur no payroll taxes. Indeed, as machines, they would be conveniently depreciated like other capital equipment.

Owing to U.S. hydropower and our cheap natural gas-fired powergrid, it's no longer clear that a factory making stoves, refrigerators, and cooking equipment with robots would be any cheaper in Asia. Indeed, current data suggests the price of electricity in China is roughly around 7.5 cents (or higher) per KWh.

So, where might be a good locale for MWFE and its factory?

The Columbia River: The Dalles

Within the U.S., the cheapest electricity rates are in the Pacific Northwest. For the very same reasons that Amazon and Google have chosen The Dalles to site data centers, our Man Who Fell to Earth, Inc would find access to rail and river routes would set up the operation well, not only to receive raw materials but to ship to both North American and Pacific Markets.

The Pacific Northwest is also the site of the largest smartgrid demonstration project in the U.S., operated by Battelle Labs and the Department of Energy. Microsoft and Yahoo have also chosen the Columbia River region to build enormous electricity-gulping data centers. Here is a photo of Google's complex in the Dalles:

A Clutch of Humans

As towns along the Columbia River and elsewhere in the Pacific Northwest have discovered, electricity-seeking data centers employ very few people. Google's data center cost over a half billion dollars to build, but employs at best 200 people. Facebook's data center in Prineville, OR employs only 55.

Once the construction phase is over, Man Who Fell to Earth, Inc (MWFE) becomes an operation also employing few human workers.

Mostly, MWFE would engage in consumer marketing and would concern itself with the futures market for finished steel, copper, and other commodities. MWFE strikes long-term shipping agreements with railroad companies and it monitors quality control mostly through remote instrumentation. Its only need for humans is to manage relationships with raw material providers and to liaise with the robot manufacturers for maintenance and upgrades. It’s probably the case that MWFE is robot-staffed by an array of 3-D printers and various free-ranging robots. It’s probably also the case that the initial up-front investment is enormous, but while there are still the usual uncertainties about the economics of the operation itself, the company has taken the volatility of ongoing labor costs down to very low levels.

More and US manufacturers are already making the choice to invest in 'intelligent machines' to guide robot production lines. Adam Davidson's excellent piece on this subject on last year's Atlantic, Making It in America, charts the course of automation as the U.S. competes against cheap developing-world labor through the use of advanced machines. Of course, this means that the U.S. economy holds some moderate ground in terms of output.

But it also means that demand for human labor collapses further:

Yet the success of American manufacturers has come at a cost. Factories have replaced millions of workers with machines. Even if you know the rough outline of this story, looking at the Bureau of Labor Statistics data is still shocking. A historical chart of U.S. manufacturing employment shows steady growth from the end of the Depression until the early 1980s, when the number of jobs drops a little. Then things stay largely flat until about 1999. After that, the numbers simply collapse. In the 10 years ending in 2009, factories shed workers so fast that they erased almost all the gains of the previous 70 years; roughly one out of every three manufacturing jobs – about 6 million in total – disappeared.


There is nothing our robot manufacturing company can do to lower the price of steel, copper, rubber, and chemicals. Likewise, it’s beholden as well to the robot and 3-D machine manufacturers. It still has to negotiate with transport companies, who themselves, in the case of the railroads, enjoy monopoly pricing. But MWFE has escaped the high cost of maintaining a human workforce and is passing on those savings to consumers.

But what happens to the economy should this trend broaden?

During the past 30 years, Americans have been treated to a flood of cheap goods and outright deflation in most foreign manufactured items. Did this make us wealthier? Because that is the standard position of many economists.

The developed world has learned over the past decade that a steady supply of cheaper, foreign-made goods does not guarantee prosperity. What impact will (perhaps only moderately) cheaper goods have if coupled with reduced employment as human labor is displaced by machines? If we are unable to find a higher use for the displaced human labor, we are actually worse off.

In Part II: Why the Robot Age May Create a Massive Deflationary Bust, we take a look at why the end of cheap energy will drive the economics of machine intelligence, as global capitalism desperately seeks its next revolution.

The efficiencies promised by robots and other intelligent machines are real and will play a critical role in our industrial future. But their hidden risks to society are high and must be addressed early on in order to enter into the 'robot age' without triggering radical levels of inequality.

For if we don't, we may well find the solution is worse than the problem we've designed it for.

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A Lunatic's picture

Now all we need is a population of robot consumers to buy all of the shit they produce.........

true brain's picture

First they provide cheap labor. then they take over.


wait, it's the chinese, not the robots.

THX 1178's picture

Upon closer inspection, they appear to be the same thing.

true brain's picture

LOL; you got me.

As they both try to gain self awareness.

DoChenRollingBearing's picture

Hmm.  Robots vs. Chinese labor...  Who will win that one?  Nice dialogue!

seek's picture

John Henry... errr... John Hwangry -- holds the answer to that question.

Tsukato's picture

The author left out a rather big monkey wrench, about to destroy this robot revolution...AFRICA! Like the Matrix series, the brown and black people are gonna save humanity, and throw a little boogie and soul into the mix. thank god there's someone to always clean up whiteys messes. Surely black labor will put Chinese and/or robot labour to shame... And do it all with class

derek_vineyard's picture

soon the robots will be pulling the plug on anyone with costly medical problems

otto skorzeny's picture

neither one can drive a car worth a shit

true brain's picture

Google car way better than any human. Robot beats human when driving and/or playing chess and/or Jeopardy.

steve from virginia's picture



Human way better at killing other humans also way better at killing robots.


Die, robot, die!


(sound of cord being unplugged ...)

otto skorzeny's picture

so -let me get this straight-robots will be moving shit around in warehouses and build shit in factories  that nobody can afford to buy because the robots took jobs from humans- is this the part where the govt simply pays people to not work-but simply gives them $ to buy the shit the robots build and move? now I get it.

HD's picture

Where do I sign up for that? Can apply using my Obama phone?

NumberNone's picture

How many government workers can a robot support?  

Here's a list of states in a death spiral where there are more people on the government dole versus people in the private sector.  What's amazing is that these are all blue states...  


Lordflin's picture

The Luddites get the last laugh.

otto skorzeny's picture

I remember when SNL used to be funny-before it turned into an east coast elitist shitfest

Dr. Engali's picture

You must be an old fart then, because its been a while. Letterman was funny once too, until he fell victim of the same disease.

rhinoblitzing's picture

Must be all the Prozac in the water... Combined with low level radio frequencies...

Causing Mass Psychosis... aided with the media's high tech hypnosis.

SNL.... Belushi.... Chase, Akroid, Rozanne Rozannadanna.... even Jane Curtin and Garrett Morris...


otto skorzeny's picture

Letterman in the 80s was great-Larry Bud Melman, the velcro suit and good musical guests like Warren Zevon

Fredo Corleone's picture

I will agree with Colonel Skorzeny -- SNL ceased being worth watching around the turn of the decade ( '80 or '81 ). Letterman also was much more entertaining in the early days...Tom Snyder, his lit Chesterfield and smoldering ashtray was, as well, a personality from which seems now, a bygone era.

Stuck on Zero's picture

After the Bassomatic it was all downhill.


Dr. Engali's picture

I for one welcome our new robot overlords.

Bluntly Put's picture

Maybe robots can buy our debt.

NoDebt's picture

Maybe we can issue them union cards and add them to the the SEIU rolls.  You'll never see another private company buy a robot again.  The government will still buy them, but they'll never figure out how to use them for anything useful because the government doesn't DO anything useful.

Problem solved.  No more robots competing for productive jobs PLUS we finally get EFFICIENT government (though still useless, sadly).


DoChenRollingBearing's picture

I wonder how the automated bearing factories I saw in S Korea will wind up vs. bearing plants in China.  China could use robots too...  China would (at least for now) NOT be able to SUPPLY the robots.

Although it looks like we have "pretty good" energy assets (hydro and NatGas), I would like to know how transport costs from Asia measure up against the automation & energy trends we are seeing here in the USA.  I just do not have a feel for this.

So many variables in manufacturing...  If I had to do it all over again, maybe I would have studied industrial engineering.


I do not see the USA becoming a world power in the bearing business, Timken just does not seem to have the interest or gumption to compete in the world markets.  (Iljin makes some of their pieces as does Koyo...)

bank guy in Brussels's picture

Timken ... a great name in railroads

Apparently Timken was a key factor in what is said to be the greatest steam locomotive of all time

In the USA, the Norfolk & Western railway which operated in the Virginia and neighbouring state coal regions, made its own locomotives ... the ultimate of these was the 'Class A'

Was an 'articulated' locomotive, i.e., with two sets of big driving wheels instead of one, 2-6-6-4 wheel arrangement ... and the last 5 had Timken roller bearing rods:

« Nos. 1200 and 1201 were out-shopped in 1936 and were quickly followed by eight sisters.  Wartime brought 25 more and then, in 1949–50, after all three major commercial builders had permanently abandoned steam locomotive production, the N&W built a final eight.  The last five of these, Nos. 1238–1242, were equipped with Timken lightweight roller-bearing drive rods, the only articulated locomotives ever built with this feature.»

A picture of one of those great locomotives, with the Timken extra-wide roller-bearing rods visible, at the bottom of the page with the above quote:

None of the Timken versions survived, but one of the other Class A steamers is on display in a museum in Roanoke, Virginia, USA, and has even been run occasionally

And then the American Lionel toy railroad company made some nice Timken railway boxcars, ones from the 1960s sell for quite high prices on eBay:

DoChenRollingBearing's picture

Nice post bank guy, + 1

Yes, Timken WAS a great name...  Rail is big in Europe (more so than here).  bank guy, next time you are down at one of the train stations, see how many of their railcar bearings are Timken.  NONE are in Italy.

Nowadays Timken is not interested in the mass-produced bearings, only the highly engineered ones (for BIG machines, etc.).  Or else they complain to their buds at the Department of Commerce, all those big bad foreigners dumping their bearings into the USA...

JuliaS's picture

I'm sensing a lot of optimism coming from the automation enthusiasts, regarding jobs being sucked back into the US by robots capable of doing tasks for less than cheap Asian workers. Well, if it comes to that, like you say, nothing will be preventing Asia from using robots in manufacturing either.

What's the lowest common denominator then? Who gets to run the cheapest robot? The country that has:

A) Cheapest energy - which could be Asia, if we're talking electricity, coal, gas.

B) Biggest disregard for the environment allowing the use of broader range of fuels - Asia, bar none.

C) Ability to apply technology without investing heavitly into initial RND - once again Asia.

So, to me it looks like if the battle came down US robots competing with Asian robots, their stolen-design, smoke-chugging, coal-burning machines would still win. Even if they're cents cheaper to operate, few cents is all it will take to drive us out of business.

DoChenRollingBearing's picture

Manufacturing (especially big things like cars) is complicated.  Lots of variables.  It may come down to energy use, cheaper to make things there (esp. with stolen capital and environmental degradation over there) vs. energy cost to transport to the USA.

A conundrum!  (BTW, I heard that word means something like a multi-faceted dilemma, lean something every day)

css1971's picture

No, when everything is automated, differences in commodity prices and in distance to the customer will be the economically deciding factors.

i.e. American factories will mostly serve Americans, Chinese goods will be more expensive because of transport/energy costs so they'll serve Chinese consumers.

Gotta say though.

  1. You can only sell what people can afford to buy. No income means no consumer means no robots and no factory.
  2. People can only live in an environment which is conducive. Acid rain & smog which fries your lungs are not it. Look for environmental law making in China real soon.
  3. Technology is "fragile". Take a factory robot out of it's natural habitat and it doesn't work. It needs a huge highly specific infrastructure underneath it which allows it to work at all. Break anything in that chain and the robot stops.
  4. Why develop robot technology when you can just buy it from someone who already has.


So ...

  • Energy. Where do you get it cheap? Nuclear.
  • Transport. How do you move shit loads of goods without using much Energy? Cargo Airship drones.

Course then there's the 3D printing revolution. Why move the goods at all when you can just email the designs. Moving goods becomes large quantities of printable plastics and speciality reels of printable wire, plus a few key components which can't be printed.

Quinvarius's picture

Balmer sleeps...

bobthehorse's picture

It's scary stuff.

We'll all be replaced by technology.

I feel like John Henry.

DoChenRollingBearing's picture

I was very impressed by what I saw in Korea.  Especially the bearing plant in Jecheun.  WOMEN on the factory floor, they need brains to run the equipment there, not brawn to push pallets around (like in older plants).

Totentänzerlied's picture

No, they need people who can afford to take the lower wages.

besnook's picture

we are coming closer to the economic realization that the aboriginal indians of the world had the most effective allocation of resourcs model while modern man has the easter island model.


there is a mathematical model for the post labor economy. supply money at the bottom 3/4 of unemployed people while increasing compensation to the different levels of expertise needed to monitor and maintain the robots and the buildings and/or grounds they work in or on. continue money flows to the .1% who over see all of it while providing a mechanism that continually shreds excess money flows to keep a stable society of orderly(or die) citizens marginally employed based upon a meritocracy based labor system that culls the brightest for perpetuation of the created utopia exclusively for the benefit of the .1%ers.

guinea's picture

You can be the aboriginal then, while I fuck your women and offer you small pox blankets, casinos, meth, diabetes and treaties not worth the paper they're printed on.

See, the East Asians were smart enough to figure that out and not go all ethnic and indigenous.

besnook's picture

the aesthetic asian model has been trumped by shear numbers of people infecting each other with culling diseases wrought from squalor experienced by most living at bare subsistence levels aided only by their lack of need for much. it is still the easter island model, but in slow motion. in the end the aboriginal will survive and thrive. isn't that all that matters?

Tom_333's picture

Papua - New Guinea....Interesting model from an anthropological perspective.Eat the long-belly white pork (which of course is the occasional caucasian missionary or other  stranded white folks).Or kill and eat members of other tribes.And also snack on the brains of your own deceased.

NoWayJose's picture

What has really happened is that the human population has now risen to the point where there is neither enough work for them to do, nor enough affordable resources to provide everyone with the lower cost goods provided by robots.  It's an argument for deflation, but the Central Banks are trying to prevent it from happening.

rbg81's picture

During the past 30 years, Americans have been treated to a flood of cheap goods and outright deflation in most foreign manufactured items. Did this make us wealthier?

Uh...fuck no it didn't.  We now have to borrow or print the $$ to buy those "cheap" foreign goods.  In short, we're broke but don't know it because we're too busy living off the credit our current Empire entitles us to.  In the end, it will be lots of people getting free crap but leading rather useless, unfulfilling lives.  Perpetual clients of the state.

Tsukato's picture

In the end, it will be lots of people getting free crap but leading rather useless, unfulfilling lives. Perpetual clients of the state.

In the end!? Don't you mean "already"? I for one think this robot thing is good. Put the poor into camps with Hongkong public housing style apartments, a free flat screen 32 inch Skyworth TV, a PS3, canteen style, basic nourishment, free sugar-fizzy drinks, free alcohol, smokes, and marijuana, and a modest allowance. In return, they must spend a couple hours a day keeping their communities clean, serving food, etc., and agree to be neutered.

jumbo maverick's picture

"Robots need no healthcare and incur no payroll taxes" but do they pay the death tax?

My son and I watched a show the other day about high tech robots and artificial intelligence. It was fascinating yet extremely uncomfortable.

We concluded that robots were in fact more scary than clowns. While watching this show I found myself figuring out how to destroy the various robots they were showing I shit you not.

So fuck robots.

Cthonic's picture

Your intuition serves you well, human.  That or you're familiar w/ Westworld.

jplotinus's picture

"The quest for cheap energy and cheap labor is a conquering human urge..."

I call BS. Wtf is that phrase supposed to mean? Conquer what? Conquer by whom?

Lately the propaganda overlay, as an overall excuse for the failure of capitalism, has been coming at us thick and fast.

Cut the crap, bitchez.

Totentänzerlied's picture

Sorry, the "excuses for the failure of communism" department is all out of ideas.

Solarman's picture

Very interesting article, and I agree with most of it.  Two points where I disagree.  Cheap energy is here to stay; I am in this industry and technology is advancing so rapidly that any resource shortage will be met with engineering advances. Point two, Accretive manufacturing technology will reduce the cost of materials, and materials engineering will reduce the weight of same.  Autos will be half the weight in 10 years.


The employment transistion is a problem unless the power brokers allow debt to be extingueshed at the same rate of deflation.

espirit's picture

While I don't doubt that autos will be half the weight in the near future as they are today, hopefully protective force shields will be developed to protect from increasingly bad drivers.

I will keep my 6000# Expedition, thank you.

Engineering principle #1 - Mass Rules!

PeakOil's picture

Hmm am doubtful about "cheap energy". EROEI has been steadily declining for decades now. Exactly how will technology turn this around?

Bob's picture

I look forward to my house and car made of corrugated buckypaper: