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The Law of Unintended Consequences

November 29, 2017

Perplexed?
There’s no need right now to dive into the details of the disastrous impact of the Republican tax bill on the well-being of the 99 percent. That should be apparent. What may not be apparent is how the corporate tax cut is likely to play out if, as the Republicans claim, the tax windfall will motivate companies to invest in their organic businesses, rather than stock buy-backs or M& A, and thus “trickle-down” the benefits to their workers.

As House Speaker Paul Ryan is quoted as saying, “fixing the business side of our code is really all about helping families and workers…cutting the corporate tax rate means more jobs here in the United States. It will foster increased competition, which will directly drive up wages for our workers.” But that rosy projection was left open to question at a recent Wall Street Journal conference when Gary Cohn, the administration’s top economic advisor, asked his audience of CEOs how many would invest more if the tax cut were passed. When only a few hands were raised, he lamely asked, “Why aren’t the other hands up?”

The unenthusiastic response was not lost on organized labor. The Communications Workers of America has asked companies to pledge to give workers a pay increase if the tax bill is passed. Good luck with that.

What Cohn and his fellow proponents of the legislation fail to recognize, but that the CEOs in the room might very well have been thinking about, is the law of unintended consequences. If slashing corporate taxes results in more money in corporate coffers than can rationally be spent on buybacks or M&A, they will invest organically in their businesses. In fact, this may be the opportunity corporations have been waiting for—to increase efficiency and reduce costs by going all-in on robotics.

Think that’s far-fetched? As early as 2015, the prestigious management-consulting firm McKinsey & Co. issued a report stating that with then-current technology, 45 percent of all activities people were paid to perform could be automated. (For fast food jobs, it’s north of 70%.) And that was before Google’s AI robot beat the best in Go, a game infinitely more complex than chess, and BostonDynamics Atlas robot finished its gymnastics routine by sticking the backflip dismount. Why wouldn’t strategic businessmen take advantage of this rapidly improving technology?

Needless to say, the new robot on the block is not going to help grow the number of American workers or their compensation. So, among other disastrous consequences, the tax bill is likely to exacerbate the problem it purports to solve. But what else is new in the fantasyland called Washington, DC?

The subject of this blog was suggested to me by my good friend Peter Flatow, a colleague in a former life and one of my go-to gurus when I need an intervention or a reality check. Thank you, Peter!

For a more entertaining and engaging, if less thoughtful take on the impact of robotics in everyday life, I highly recommend The Piketty Problem or The Robots Are Coming, The Robots Are Coming, available on that AI-inspired-and-operated retailer, Amazon.