Dr. Pero Mićić
If AI and intelligent robots take over the majority of human work tasks, including yours, how will you earn your income?
The biggest and fastest transformation of our working world and economy lies ahead of us. And therefore also our society. How people will earn an income in a highly automated working world with AI and robotics is nothing less than the all-important question of our time. Unfortunately, this has not yet reached politicians and businesses.
This is the second part of a series of articles. In the first part, I presented three scenarios for an AI and robotics society.
In this second part, I develop a master plan with which we can make the transformation people-friendly and massively increase the quality of life and prosperity for all.
Come with us on an exciting journey of discovery.
What could our future be like?
Artificial intelligence is already rapidly conquering the virtual spheres of work. With humanoid robots, it will soon be entering our physical world too. AI and robots will be able to do most jobs better, faster and cheaper. First in production and logistics, then in service and finally in your home. Thanks to AI and robots, labor will no longer be in short supply and will therefore become cheaper and cheaper.
If we can make AI and robots work for us, it could actually be a comfortable life. If there wasn’t a serious problem: Who will pay you an income and for what? If we don’t find a solution to this problem, we will experience a horror scenario and the total collapse of our economy and therefore society. Companies’ sales will collapse and many will go bankrupt. The national budget is collapsing because hardly anyone is still paying taxes. Society becomes aggressive and votes radically. Totalitarian regimes with supposedly strong leaders seize power and nationalize everything. Freedom dies. We will experience this horror scenario if we do nothing or do the wrong thing. Then total economic collapse is as good as certain.
We end up in a crisis scenario if we do too little too late. It’s bad enough because it also means a drastic decline. For the sake of brevity, I’ll leave it at that and concentrate on the two extreme scenarios.
In the abundance scenario, our future will be great. With AI and intelligent humanoid robots, we have a great opportunity to make a huge leap forward in development. The highest quality of life and health, without work stress and with much more time for family, friends and hobbies. Yes, it is possible and feasible. If we do the right thing in time.
But what is the right thing to do?
The fatal flaw in our economic system
We must and should rethink work and income. Because we have a fatal flaw in today’s economic system.
In the course of industrialization, we have built the entire economy on the fact that entrepreneurs create jobs and over 90% of people are dependent on these jobs as employees. They perform work on behalf of the entrepreneurs and receive a salary in return, which they use to make a living. This system has worked reasonably well so far. It has given almost everyone a better quality of life. But this system cannot survive the very rapid automation of much of the work by AI and robotics. Because most people would then no longer earn an income from traditional work and would no longer be able to buy anything. Our current economic system would collapse.
In short: AI and robotics are not the problem. It is the economic and state system based on human labor.
How can we realize the abundance scenario?
The new economic system must provide people with new types of income. And we need to find solutions to finance this. Let’s take another look at the types of income. A little simplified here.
Work, self-employment and entrepreneurship
Reduction in working hours
The first idea is, of course, to reduce people’s working hours while maintaining full pay. Employees who can routinely use AI and robotics are significantly more productive. This creates more income and or lower costs, from which the salary can be paid despite fewer working hours. This is how John Maynard Keynes described it back in the 1930s. Technology frees people from the need to work most of their lives. Keynes wrote that you will only work 15 hours a week. This is the direction in which things have developed over the last two hundred years. Employees have never officially spent as little time working as they do today. And this will continue in the future.
Many jobs will gradually require less time. But many jobs will disappear altogether. A team of programmers can get by without simply qualified coders because AI writes, tests and improves the code. But the best developers will remain on the team as software strategists and architects, producing much more useful code than before.
If we finally stopped paying employees according to time, but according to their impact, it would be much easier to reduce working hours.
Reducing working hours with a full salary cannot be the solution with today’s productivity. We would weaken or even destroy our companies in global competition, especially with the Asians. Firstly, the additional productivity must actually and directly take place. The current calls for a four-day week largely ignore the need for demonstrably higher productivity. It is mostly simply about more free time. Often at the expense of companies, which already have to pay for all sorts of things. And companies must remain free to decide how many people they employ. Otherwise we will end up in socialism. Reducing working hours will certainly be a partial solution. Therefore shown in medium green.
Income for socially useful work
Employees, the self-employed and entrepreneurs, always meant as female, male and diverse, can generate additional income through socially useful work for which there is currently no market. For example, in the care of children, people with disabilities or the elderly, or in environmental care and environmental protection. This option is light green because it requires this market to be artificially expanded.
More entrepreneurs
A very good strategy would be more self-employed people and more entrepreneurs. Why? Because they can tap into new sources of income more flexibly and innovatively than employees can, because they can only do so as part of their employment contract or by changing employer. And above all because companies are the only ones who can really create jobs. Entrepreneurs are the engines and generators of prosperity. Without people acting as entrepreneurs, there are no companies and therefore no jobs. And no taxes on profits and salaries. And therefore no public service and no civil servants. It is incomprehensible to me how often this connection is ignored. We need many more self-employed people and entrepreneurs!
I should actually make it dark green, but it wouldn’t be realistic. Because the majority of people clearly don’t want to be independent. For whatever reason.
Pensions
Let’s skip the ownership of assets for now. I’ll come to that later.
A pay-as-you-go, very early pension will certainly be proposed by politicians as an option. However, I am painting it dark red because it is simply not affordable. The pension systems in most countries are already heading for disaster. The pay-as-you-go pension was a short-sighted mistake of the century. People will always have children, as Adenauer proclaimed. With drastically fewer contributions and tax revenues, the pension system will collapse with absolute certainty. If you think through the consequences of an AI and robotics world and the solutions for it to the end, you could actually abolish pension insurance completely. We will see later why this is not a completely crazy proposal.
Transfer payments and benefits
Unconditional basic income
An unconditional basic income is the most frequently cited solution for an automated working world. In principle, an unconditional basic income could be the solution. However, it has several shortcomings. Firstly, by definition it would be paid to everyone, even those who don’t need it. In addition, I think it is ethically and philosophically wrong for people to receive something from society without giving anything back to society. That’s not how sustainable systems work.
For this reason, I only show the unconditional basic income in very light green.
Until now, a basic income in sufficient amounts was simply not financially feasible. Because today’s productivity and tax revenues would simply never be enough. But with AI and robotics, we can increase productivity enormously.
Basic income as negative income tax
A basic income as a negative tax would make much more sense than an unconditional basic income. A basic income would have to be paid equally for everyone. A negative tax, however, would automatically adapt to the course of automation and the increasing loss of paid working hours. It would only be paid to those who really need it. And only in the necessary amount.
How is this supposed to work in organizational terms? By definition, the tax office knows exactly who earns how much down to the last cent. When filing a tax return, it can automatically determine who earns too little without any administrative effort. If it is less than a generously calculated minimum income, the tax office pays out a top-up amount that you can live well on. Once again, this can all be fully automated. That already applies today. From a logical point of view, the entire social administration is completely superfluous. It already is.
The level of the basic income could be based on a generous basket of goods. How high it should be will certainly be the subject of heated debate.
Even a negative tax should not be completely unconditional. At least not completely. Because a principle of social reciprocity should apply. A basic part could be unconditional. But additional amounts should be conditional. What conditions could there be? Anyone who is not confirmed to be unable to work should demonstrate socially useful work or social commitment, for example in the care of children, the elderly or the needy. Or in nature conservation. You should have lived in the respective country for a while. The level of income could also depend on age or the number of children. What is really important is that the fulfillment of conditions can be determined very easily. Under no circumstances should it lead to a new administrative monster.
No income tax on work
If citizens are to be provided with income by the state, it makes no sense to take a large proportion away from them beforehand. The tax on income from work could be abolished completely or up to the level of a good salary. We will look at financing in the next article.
No VAT on living expenses
For the same reason , VAT could be abolished on everyday products and services. Luxury goods, however you define them, could remain subject to a progressive VAT rate. But if we can and must rethink everything, the best thing to do is to seize the opportunity for radical simplification and abolish VAT. VAT law is unbelievably and insanely complex. Taxes should simply generate revenue for the state. There are simpler and more sensible ways to do this, as we will see in the next part.
Conditional investment grant
A conditional investment grant could help people to invest in self-employment and entrepreneurship. A 100% grant should be the exception for truly destitute people. It is better if the recipients also risk their own money, if they have any.
Basic assets at birth
The massive transformation brought about by AI and robotics should encourage us to consider even very bold ideas. A basic fortune at birth sounds crazy, but at second glance it is a promising measure. For example, every newborn receives 100,000 euros. The assets must be invested in a broadly diversified equity fund and would be inaccessible before the age of 60. However, it can be deposited as security for loans, supported by the state. I will come back to such investments later. Unfortunately, this solution would only work in the very long term. That’s why it’s only light green.
Free training and further education
Not income directly, but a prerequisite for income would be the expansion of free training and further education. The need for professional and personal training will become enormous as a result of AI and robotics. Whereby AI will make the majority of purely technical education almost free of charge. This is all good in principle, but only to a certain extent. If opportunities for human labor become scarce, the state should refrain from offering its own products and services wherever possible. It is enough if people receive the income to choose and pay for educational services themselves. Hence only light green.
Price effect
Deflation
Prices for most products and services will fall massively due to economic deflation and technical deflation. If the personnel costs included in all products and services are largely factored out, prices can fall to a fraction. Higher productivity through innovation and scaling effects will further reduce production costs. This will make it much easier for people to make a living. It is easy to underestimate this effect. As a result, you will be able to afford much more with much less income in euros than you can with your current income.
Competition must be kept strong; monopolies or oligopolies with only a few providers must not be allowed to emerge. If there is a lot of competition, prices will also fall. That’s what I show in dark green.
Shared resources
If we share resources to a greater extent through intelligent organization, we can use them far more cheaply. For example, AI-controlled robotaxis will make individual mobility significantly cheaper because, firstly, the vehicles will not need a driver and, secondly, a car will not just drive for one hour, but for 15 or more hours a day. Sharing resources reduces costs and protects the environment. If you can have a vehicle available in three minutes via an app, car sharing becomes really convenient.
Ownership of assets
Now to the area that, in my view, promises the ideal long-term solution. Promoting the accumulation of assets that you can live off even without traditional work.
Ownership of unproductive assets: financial assets
In principle, this is the second fatal flaw in our economic system. That saving money is presented as sensible. Money as such is not productive. The interest you earn on deposits and loans is only a small part of what others earn if they actually invest the money. They earn an average nominal 8% on the stock market, for example, and often many times more. Your interest on saved money is usually eaten away by inflation. Even worse, of course, is cash on which you receive no interest at all and which therefore continues to shrink in value.
It is tragic. Many countries have practically forced entire generations of workers to save in money, i.e. in life insurance policies, pension contracts, savings contracts and building society savings contracts. After inflation, the real return is often even negative. This is no way to build up wealth. It was certainly not intentional, but by saving in money, most people have remained without any significant wealth for decades. They were and remained dependent on their earned income. This is now backfiring on us.
Ownership of unproductive assets: commodities and crypto tokens
Promoting the ownership of unproductive tangible assets is also not a solution. Assets are unproductive if they do not directly generate income. Gold and commodities do not generate income. As a rule, neither do cryptocurrencies. These are tangible assets that are intended to secure value and can at best rise in price. But they can also fall, as we have often seen. This is unsuitable for sustainable wealth accumulation for the masses. Yes, I have also invested in cryptocurrencies. It may be that Bitcoin is growing very strongly in value due to the limit of 21 million.
But it is still highly speculative. I don’t believe that we can and should build an economic system on it now.
Ownership of productive assets: real estate
Real estate is a productive asset. They generate an income when they are rented out. That’s okay in principle, but the returns and therefore the resulting income are relatively low compared to shares. Especially as it is highly unlikely that there will be any significant real increases in value in the future with a shrinking population almost everywhere, apart from Africa. Real estate will hardly benefit from AI and robotics. Quite the opposite. And real estate is immobile. It always represents a cluster risk, even if you invest in real estate funds.
Ownership of productive assets: companies
Who is the only group of people not afraid of the impact of AI and robotics on the economy? The owners of companies that would benefit from AI and robotics through enormously higher productivity. Provided, of course, that customers have the money to buy their products and services.
By far the most effective measure is to make as many people as possible owners of companies or company shares.
Investments in AI and robotics companies
Direct investments in companies that sell AI and robotics services to other companies would be ideal. Like personnel leasing companies. If someone loses their job in production, logistics or service, we should help them to invest in just such robots. If the truck driver loses his job to an autonomous truck, we should help him to acquire ownership of such a truck. This could be arranged via specially founded companies that buy AI systems and, above all, robots and rent them out to companies. As many employees as possible should be able to participate in such companies as shareholders. They would then benefit directly from AI and robotics. This is also possible via funds that invest in several such companies in order to spread the risk.
Such companies would very likely have a significantly higher return than normal equity funds. This is because the growth in productivity and thus the income from AI and robotics will have enormous growth rates.
What would be particularly good about this solution is that large returns would be generated right from the start, from which the new company owners could already live, at least in part.
Investments in broadly diversified equity funds
Investing in broadly diversified equity funds is safer, but therefore also less profitable. It would also only work in the longer term because dividends are usually not sufficient and value growth is only significant in the long term.
It has been clearly demonstrated historically that investments in broadly diversified equity funds generate significantly higher returns and value growth than investments in real estate or other assets. The only requirement is buy and hold. In other words, long-term investment without constantly buying and selling shares.
The return triangle clearly demonstrates this with an average nominal return of over 8% from a broadly diversified global fund with several thousand companies. There are very few years in which it was simply not possible to sell shares in order to avoid a loss. Even in a crash, you don’t lose anything if you wait two or three years.
In the long term and in the big picture, you can’t make a loss. This is sustainable because your assets continue to grow in the long term. The long holding period protects you from crashes and the broad diversification across several thousand companies also protects you from major bankruptcies of individual companies or even entire sectors.
A one-off investment of EUR 100,000, for example in the form of basic assets at birth, with a cautiously assumed 7% instead of 8% average nominal annual return, 2% inflation and therefore 5% real return, will still generate almost EUR 1.9 million in purchasing power in today’s value in 60 years. From this point onwards, you can withdraw up to EUR 7,700 per month before tax at a 5% real return without your assets shrinking.
Many people will also be able to continue to invest monthly in addition to their starting capital in the future. After 40 years, 500 euros per month equates to another 744,000 euros in real purchasing power. From the age of 60, the sustainable monthly withdrawal even rises to EUR 10,800 before tax.
Yes, unfortunately this only works in the very long term. Nevertheless, it is a powerful strategy. Even if we have to pay people a basic income in the meantime.
Wealthy independent citizens and a financially sound state
If virtually everyone had ownership of companies, there would be more equality of opportunity than with countless and enormously complicated and expensive social systems. In the long term, it would create a society of citizens who are wealthy, freer in their decisions and less dependent on the state. Citizens would pay taxes, but would not need or demand anything from the state or society. They would no longer be dependent on state benefits. In other words, they would not be on the backs of their fellow citizens.
And last but not least, the wealth could be passed on to the next generation, allowing them to live even better. Each new generation would be better off than the previous one. Unfortunately, the opposite is happening right now.
Yes, of course, we can continue to pay people social benefits. We can support them. But that is not sustainable, as the deficits in almost all countries’ finances show. And it is also fundamentally unworthy of human beings. The saying “Give a man a fish and you feed him for a day” comes from China. Teach a man to fish and you feed him for a lifetime.” We must help people to provide for and feed themselves. That is sustainable. That is humane. Then people are truly free.
The false fear of risk
Most politicians, especially in Germany, consider investments in companies to be too risky. The term “gambler’s pension” for the equity pension is indicative of this. Anyone who says this does not understand how the economy works. It practically prevents the general population from building up assets. Instead, the incredibly stupid pension system has been implemented, which is supposed to achieve a safe 1 to 2 percent real return on financial assets. If at all. Real losses are not uncommon due to inflation.
The only certainty is that the saver’s assets remain minimal. The pay-as-you-go pension was also a fatal and incredibly short-sighted mistake by Adenauer. It was already demonstrably known in the 1930s that fewer and fewer working people in Germany would have to finance more and more pensioners.
Equities at 5% in real terms are too risky for these politicians, but they are forcing the public to forego most of the returns with one hundred percent probability and leave the real windfall to the investment professionals. This has fatally discouraged the general public from building up truly sustainable wealth. The problem with automation would not have arisen in the first place. It is unbelievable.
A nation of business owners, as Ludwig Erhard wanted to create, would be the long-term solution that would help people achieve sustainable prosperity and freedom. Unfortunately, this solution will not work in the short term. It will take time for most people to build up enough productive wealth to be able to live off it. Transfer payments and benefits will therefore be necessary for the time being.
I show this option in dark green because it is the best long-term solution.
Summary
As you can see, there is a wide range of instruments. There is a suitcase full of tools to make it easy for people to make a good living without traditional work. The future intelligence of politicians is the decisive factor. Every state will do it differently. Some will be more intelligent, others less intelligent.
We can and, in the long term, we will all live in good health and great prosperity. All of us. But to do so, we need to change our economic system. Dependent employment is not a model for the future for most people.
It is also necessary for you, your family and your friends to consistently implement the best measure today. Namely, to build up ownership of productive companies that will benefit from the AI and robotics economy as quickly as possible. And you don’t have to wait for the crisis and the government for some of the other measures either.
But the big question now is: how do we finance all this? We will answer this question in the next article. You will find the link here as soon as it is published.
Have a bright future!
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Here you can find the other articles on AI and robotics:
– Humanoid robots: the solution to the labor shortage? (Part 1)
– Humanoide Roboter: How intelligent will they be? (Part 2)
– Humanoid robots: how will they learn? (Part 3)
– Humanoide Roboter: Wie viel werden sie kosten? (Teil 4)
– AI kills all jobs – and then what?
Three scenarios (Part 1)
