The new Amazon.com, Inc. (NASDAQ:AMZN) retail equivalent of the driverless car is opening for business today, January 22, in Seattle. The store, Amazon Go, automatically detects what you take off the shelf, and put back on, and then bills your credit card automatically as you leave the store.
Like all advances in capital equipment that increase productivity, Amazon Go will not destroy jobs. Many are strangely claiming that it will because cashiers will no longer be necessary. Here are three reasons why that thinking is completely wrongheaded.
Destroying Jobs vs. Freeing Up Labor
In a manner of speaking, some jobs will be “destroyed” just like many low-skilled job are no longer necessary when that job is replaced by capital equipment. That capital can be as simple as a fruit picker, which makes the average harvester more productive because it enables him to reach higher. Orchard owners then have to hire fewer orange pickers, “destroying” some jobs inevitably.
But in the end, more oranges are brought to market than otherwise and the economy grows. The capital can also be as complicated as a store full of sensors that does the job of a cashier. There is no qualitative difference, economically speaking, between a stick with a claw at the end of it to pick fruit, and the technology behind Amazon Go.
Critics mistake employment for productivity when they say Amazon Go will “destroy jobs”. There is a big difference between destroying jobs thereby hindering productivity and freeing up labor due to capital advances that enhances productivity. Jobs are destroyed in the negative sense only when a previously productive and profitable job is now impossible for external reasons. This could be because of government intervention (minimum wage, taxes, regulations etc.), natural disasters, or physical impairment of an irreplaceable worker. Previously, the job was productive, and now it no longer exists, so that production is lost. The economy then has fewer goods and services than before.
But if a job becomes unnecessary because of capital advances then the job is not “destroyed”. It has simply been rendered unproductive and unnecessary, and the worker must go and find another job that is productive. Keeping a worker in a job that is no longer productive is the very definition of forced economic stagnation.
Since we’re in Super Bowl season let’s use the example of football. The National Football League employs about 120,000 people directly or indirectly. This is labor directed at nothing but entertainment. To employ that many people for the purposes of entertainment wouldn’t be possible at all if that labor was needed to produce food, clothing, or shelter, as those needs are far more basic than entertainment. Since those industries have enough capital to meet demand without those 120,000 workers the NFL employs though, they are now free to work in the NFL, only thanks to the “job destruction” inherent in every factory and farm in the world.
The Amazon Go Employees
Inventing a system like Amazon Go requires many jobs. Very high skilled jobs in fact. If, for example, Congress passed a law mandating that cashiers must be in all supermarkets in a sort of “Job Preservation Act of 2018” or what have you, there would be no need for an Amazon Go system, it would have been an investment for nothing, and all those jobs would be actually destroyed. Those high skilled workers would probably be directed towards other projects improving capital, which inevitably would displace other workers in some other way.
Driverless cars will displace taxi drivers. But many people are employed in the development of driverless cars. Those jobs would be actually destroyed in the negative sense if self-driving cars are illegal. That would be an example of government intervention destroying a productive job.
Consumers, Their Savings, and Where Their Savings Go
Consumers who shop at Amazon Go, or at any other retailer that will eventually adopt a similar system, will pay lower prices than otherwise. This is how Amazon competes. Those savings will be employed in other ways, whether it is buying more stuff with those savings, which employs other workers that produce the stuff, or even if their savings go nowhere, it still lowers the amount of money in circulation and lowers prices for everyone else, which creates more savings.
Arithmetically speaking, more goods and services are created in the economy than otherwise by innovations like these. They raise the standard of living for the majority of people involved. That’s why Amazon Go will not destroy any jobs overall, but rather create them across the economy through productivity and savings.
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