Rise of the Machines

I have discovered a secret plot twist in the science fiction classic, Terminator (1984). As you remember (or maybe you really don't want to), in a post-apocalyptic 2029, artificially intelligent machines seek to exterminate what is left of the human race. Body builder/actor/governor Arnold Schwarzenegger plays one such machine that travels back to 1984. How the machines came about was rather unclear - - something to do with a system called Skynet that grows out of control.

I just don't buy the Skynet story - - it must have been deeper and more complex. The New York Times yesterday, in an article entitled As Recovery Slows, Outlook on Jobs Seems Dimmer, sheds some light on what actually might have happened. As stated in the article:

"There are limits on the degree to which you can substitute capital for labor," Mr. Ryding {John Ryding chief economist at RDQ Economics} said. "But you can understand that businesses don't have to pay health care on equipment and software, and these get better tax treatment than you get for hiring people."

There you have it - - Arnold is fundamentally a product of our inability to control accelerating health care costs and our tax code. It looks to me like that in around 2015, organizations glanced into a world where health care costs were 50% of labor costs and increasing at 8% per year and said, "Arnold has zero health care costs, plus we can actually depreciate Arnold over a five year period." So in 2020, Arnold shows up in a police car patrolling your neighborhood - - no health care costs, no retirement benefits, no pesky police union. Arnold then starts showing up in the cockpit - - no really pesky pilot's union and Arnold depreciates faster than the airplane. At some point (and this is pure speculation), all the Arnolds get together - - to form a really, really pesky union. So all of the 2029 destruction is a function of a desire for the Arnolds to unionize - - ultimately caused by out desire to control health care expenditures combined with our tax code.

Keep an eye on two variables - - the cost of labor, including the health care component and the cost of technology. Arnold is a product of these two variables. And the evil ones in the Terminator series are not the engineers and scientist that created the Arnolds - - they are the economists and tax barristers that figured out a way to break the limits defining the substitution of capital for labor.