I have a Spanish father-in-law.
His name is Fermin. Fermin has hands each as big as a Spanish ham and a stomach to match.
Fermin’s the traditional sort.
Each day he likes to go for an early drink at the local bar with his mates. Hunger usually calls him away after a while.
Fermin goes home for a big traditional lunch that his wife has prepared. Then he lights up a big cigar while she does the dishes.
But there’s been a major change in their household. After 40 years of marriage, Fermin has begun doing the vacuuming.
Miguelito! The name means ‘little Miguel’. Yes — there’s a new presence in the house.
Miguelito is a small, circular robot that can vacuum and wash the floor. He can be controlled remotely.
Fermin can do the vacuuming from the couch. Now he’s happy to help! His wife certainly has less drudgery during her day.
I just ordered one.
This is the way the world is going. Robots are going to invade into all areas of life.
That certainly includes the investment markets.
The Sydney Morning Herald ran a story over the weekend how automation is driving BHP and Rio Tinto’s costs lower and taking their productivity higher1.
The numbers are huge. BHP’s iron ore division has lowered its costs by 50% over the last five years.
BHP’s unit costs are below $12.86 per tonne of iron ore. The selling price is currently US$88. That’s big margins.
Now BHP is going to roll out autonomous trucks at its Bowen Basin operations in Queensland.
Point being: Australian mining can keep stripping out costs for a long time to come.
Mass unemployment? I’m still waiting
But is automation something we should fear? In 2015 I interviewed Martin Ford. He wrote a book called The Rise of the Robots.
His position was, and I presume remains, that automation and robotics raised the very real spectre of mass unemployment.
It’s an easy dystopia to believe in.
My major problem with this line of thinking is that, at its core, he’s essentially saying ‘it’s different this time’.
People have feared automation since the beginning of the Industrial Revolution. Yet here we are today. We’re all still working, mostly.
Since the release of Rise of the Robots, unemployment has trended lower all over the world.
What to make of it all?
I have just finished a book called Narrative Economics by a man called Robert Shiller. He has some fame as an economist.
The book is about how economic narratives drive economic behavior and investment markets.
It’s also how the same key themes keep repeating in different forms.
One of those is the fear of labour saving inventions causing mass unemployment.
Shiller says the same fear goes all the way back to ancient Greece!
However, the defining event for this meme is the ‘Luddites’ in Britain in 1811.
We still use the word today for those that fear technological change or don’t understand it.
But it didn’t end there. US farm workers destroyed machines in the US depression of 1873 (which, incidentally, was caused by a massive land bust and nothing to do with machines).
The LA Times blamed the 1893 depression on the same thing.
A robot army with minds of their own? From 1922…
Perhaps the most interesting tidbit from this rich history is where the word ‘robot’ came from as we understand it today.
It appeared in the US in 1922. It’s the Czech word for worker.
A Czech playwright created a story of a robot army that develop minds of their own.
But the big wave of fear didn’t hit until the 1930s — amidst the Great Depression.
And then it went away again…then reappeared…then went away again…then reappeared. Get the picture?
We have no way of knowing if automation and artificial intelligence will cause mass unemployment.
Plenty of people are prepared to scare you and say they will. At least 250 years of economic history says it won’t, however.
Nonetheless, the narrative will not die, and will likely grow stronger as the tech advances get even more sweeping.
There are those investors that will cower in fear at the economic apocalypse to some.
They could be waiting a long time — centuries, in fact.
Aussie mining is shaping up to boom
In the meantime, we could do well on the demonstrable effect we can see.
Higher profits for the firms implementing this type of tech!
As the Fairfax story alludes to, a big space this is happening in Australia is in the mining sector.
There so many costs that can be cut here.
And if commodity prices stay high, it could potentially drive their earnings up in a big way. Like the sound of that?