Don’t fall for the lump of labor fallacy

The lump of labor fallacy is the incorrect assumption that there is a finite amount of work to be done. This misconception is responsible for much of the fear of innovation and automation that humanity has displayed throughout history, most recently in the case of generative AIs.

From the lump of labor viewpoint, the more tasks and jobs we automate, the less there is left for humans to do, resulting in previously skilled workers becoming irrelevant in the economy and unable to provide for their families.

Luckily, there are infinite problems to solve that will keep spawning new jobs for us to do. History shows that every time labor is automated or made more efficient, people always find ways to use the newly freed-up time and resources.

Here’s how MIT professor of economics David Autor explains the lump of labor fallacy in a Planet Money episode:

Consider that a hundred years ago, Americans used to spend 70% of every dollar on the absolute basics of life, food, clothing, housing.
But then thanks to machines or poor labor or immigrants, all of our things became cheaper.
As a result, yes, some jobs were lost, but consumers suddenly had a lot more money to spend because now thanks to all these cheap goods, only 40% of every dollar was going to the basics of life.
So what did people do with the rest of that money?
Well, they didn’t just put it in a savings account.
They started to spend it on restaurants and entertainment and adventures, therefore fueling new jobs in new industries.

Once you are aware of the fallacy, much of the AI doom prophecies go from terrifying to laughable. But there is a caveat.

While it’s true that humanity as a whole is better off every time labor is automated, the consequences for the individuals whose jobs become redundant can be severe. This is why, now more than ever, one should never be satisfied with one’s existing skill set and skill level but commit to a lifelong learning journey. As former Intel CEO put it, only the paranoid survive.

Understanding the lump of labor fallacy removes the fear of looming economic irrelevance and shows a path to thrive in the upcoming marketplace. We need to build the mental flexibility and resilience to adapt to innovations and industry changes. Stay sharp, develop range, and don’t settle.