Bill, this is a very important question that Jeremy Rifkin dealt with in broader context in his book The End of Work: Technology, Jobs and Your Future. Technology is an unstoppable force and in industry after industry machines replace humans. Rifkin pointed out the final dilemma - when a machine has replaced the last man working, who will buy the goods produced by machines? Why this continuous striving for better machines? 'Creative Destruction' or 'Schumpeter's Gale' describes the continuous search to 'improve my technology in order to compete more effectively' (also referred to as 'the learning curve') - so it is market-driven. Does this mean that everything that man does, could be replaced by machines? The answer is no - there are areas in which human talent provides opportunities that machines cannot provide, e.g. who would watch a Superbowl played by machines? So the answer to your question does not have a clear yes or no answer. Some will think the economic benefits outweigh the social costs and others will think the opposite. Your question, therefore, is the start of an important discussion with ramifications far beyond just agriculture.

The social cost of displaced labor can be measured by the cost of welfare be it unemployment benefits, government transfer payments, or subsidies for retraining. If technology replaces labor a tax should be imposed.

Recently read The Coming of the Second Machine Age by Brynjolfsson and MacAfee. A brilliant but disconcerting book when you consider the implications of the Second Machine Age for the developing world. They promote the idea of working with machines rather than against machines. But will this be feasible for the large slice of relatively poorly educated humanity?

Dear Daan,

Thank you for an incisive reply to my question about robots. You are right on target with comments about social costs. I deliberately choose the extreme proposition that robots might take over production of goods in society thereby hoping for answers like yours.

Let me be more precise with this hypothesis: In a market economy, a tax on technology will be the best way to account for the externalities created by technology.

In the past 100 years the speed of technological change has been so swift that, in general, we are blinded by it. A part of the blindness has been general acceptance that an increase in technological efficiency is equal to increase in economic efficiency. This is not true. Every policy maker should read a brilliant, but elegantly simple, article by M.J. Farrell in Journal of Royal Statistical Society, (early fifties, sorry I don’t recall the date) . There you find the simple logic that economic efficiency is equal to price efficiency times technical efficiency.

This means that a market economy must get the prices right at the same time that new technology emerges. This might not be possible and relevant taxes are a public policy alternative. A tax on technology will not be popular and many will argue, rightly so, that a tax on technology will slow down technological change. But, in the long-run, I believe that economic efficiency will serve us better than adoption of technology that leads to a bankrupt society.

I am a great believer in market economy and the role of price in organizing the processes of production and marketing. However, I think that most economists will agree that determining the extent and costs of externalities caused by technological change is not part of supply-demand theory.

Certainly, externalities associated with technology will be hard to measure. However, I hope some serious research will begin on the subject because serious public policy issues are emerging. We are now, in U.S.cities of St. Louis, Detroit, Chicago and others, reaping a harvest of externalities caused by technological displacement of labor.

How to do it: The vast amount of data required to study externalities suggests to me that econometric models will be needed to sift through the data and at least quantify the extent of the problem. If the size and sources of the externality problem can be measured perhaps some innovative tax solutions may be found. Models of the type used by Shideed, White and Miller might be useful.

Shideed, Kamil H., Fred White and Bill R. Miller, 1989, Measuring Inter-Industry Impacts of Producing and Processing Agricultural Products, Agribusiness an International Journal, vol5, n6, November, 1989, pp. 281-292.

Features a multi-equation econometric model emphasizing macroeconomic effects of agriculture on the economy.

Dear Bill

Thanks for your answer.  I agree that technology is an externality that needs consideration. However, I am hesitant about the tax idea, and for at least three reasons.

The first is that it would not reflect an understanding of how competitive advantages are created. Michael Porter has a long time ago identified the basis of sustainable competitiveness: for commodities you have to be the cost leader (or at least have cost parity), and for differentiated products you have to have uniqueness. Since most agricultural products are commodities, it means that price is a very important issue in most of commercial agriculture. Levying an additional tax on agriculture would place most countries' farmers in a disadvantage in a global world. In fact, many developed countries subsidize their farmers in order to keep them on their farms. From this perspective an additional tax would not fly.

The second reason is historical. At the start of the Industrial Revolution some 80% of the people countries such as the USA were involved with agriculture.  Now less than 3% of Americans produce enough food to feed ta much larger nation and also to export a lot. So for centuries better technology has continuously pushed up agricultural productivity. Would a tax stop this process?  I don't think so.  

Thirdly, Acemoglu and Robinson in their book about the reasons why nations are poor or rich, show how in many countries extractive politics and institutions have been used to enrich small elites at the expense of the poor.  In this process the politicians of many countries (e.g. some in West Africa) have interfered in markets and taxed their farmers excessively. This has enhanced poverty. The book of Acemoglu and Robinson raises many questions about the factors contributing to poverty, and is well worth reading. 

A last idea - could redistribution in the form of taxing the rich more heavily and governments providing more aid to the poor (promoted by Brynjolfsson and Macafee) perhaps provide part of the answer?