Tuesday, July 16, 2019

McDonald’s Tests Robot Fryers and Voice-Activated Drive-Throughs: Burger giant wants to speed service as competition for fast-food diners mounts

By Heather Haddon of The WSJ.

In my macroeconomics class, we talk about the types of unemployment. Here is one of them:

Structural-unemployment caused by a mismatch between the skills of job seekers and the requirements of available jobs. One example of this is when you are replaced by a machine.

Unions say this will cut jobs. But that is not always the case. Some of my related posts talk about how robots and machines complement the workers. Also, some companies either need to cut costs or can't find enough workers. Here are excerpts from the article:
"McDonald’s Corp. MCD -0.22% is designing voice-activated drive-throughs and robotic deep-fryers as the burger giant works to streamline its menu and operations to speed up service.

The company is testing voice-recognition software at a drive-through in suburban Chicago. Inside the restaurant, a robot also tosses chicken, fish and fries into vats of oil. Both technologies are meant to shorten customer wait times that executives acknowledge have grown in recent years. McDonald’s also has stopped serving some burgers and given franchisees more control over their menus recently to simplify operations.

McDonald’s is working to speed up service as it faces tough competition from smaller burger chains and declining fast-food traffic in the U.S. overall. Visits to U.S. fast-food burger restaurants fell 1% during the first three months of this year, according to research firm NPD Group Inc. McDonald’s said in April that its global same-store sales rose 5.4% in the first quarter."

"Other fast-food chains are also exploring automation to quicken operations and cut costs in an expensive labor market."

"Union organizers who have tried to organize McDonald’s employees in recent years have said automation would eliminate jobs. They have organized walkouts this year over working conditions and pay at the biggest U.S. fast-food chain."

"Domino’s Pizza Inc. last year began testing voice recognition to take orders over the phone. Other chains are testing self-operating ovens and dishwashers, along with robots that flip burgers and perform other rote tasks.
Related posts:

Is Walmart adding robots to replace workers or because it is hard to find workers?

Robot Journalists-A Case Of Structural Unemployment?

Structural Unemployment In The News-Computers Can Now Tell Jokes 

WHAT do you get when you cross a fragrance with an actor?

Answer: a smell Gibson.

Robot jockeys in camel races

Are Computer Programs Replacing Journalists?

Automation Can Actually Create More Jobs 

The Robots Are Coming And It Might Not Be A Case of Structural Unemployment 

Broncos to debut beer-pouring robot at upcoming game

Robots Are Ready to Shake (and Stir) Up Bars 

Monday, July 15, 2019

Does Democracy Cause Only A Slight Gain In Economic Growth?

See Is Democracy Doomed? by Alex Tabarrok. Excerpt:
"Indeed, using a multitude of sophisticated econometric strategies, Acemoglu et al. conclude “Democracy Does Cause Growth.” In their sample of 175 countries from 1960 to 2010, Acemoglu et al. find that democracies have a GDP per-capita about four times higher than nondemocracies ($2074 v. $8149). (This is uncorrected for time or other factors.) But how much of this difference is explained by democracy? Hardly any. Acemoglu et al. write:
Our estimates imply that a country that transitions from nondemocracy to democracy achieves about 20 percent higher GDP per capita in the next 25 years than a country that remains a nondemocracy.
In other words, if the average nondemocracy in their sample had transitioned to a democracy its GDP per capita would have increased from $2074 to $2489 in 25 years (i.e. this is the causal effect of democracy, ignoring other factors changing over time). Twenty percent is better than nothing and better than dictatorship but it’s weak tea."
Maybe it is not that weak if we look at a longer time period. But first, we need to know what the annual growth rate in GDP would have been with and without democracy in those 25 years.

If the country starts with a $1,000 per capita GDP and grows 2% annually for 25 years it will end up at $1,640.

What number is 20% higher than $1,640? $1,968. To get there after 25 years, the annual growth rate would have to be 2.746%.  It might not seem like much, just an extra 0.746% per year. But what is the difference after 100 years instead of just 25?

Without democracy, the per capita GDP would be $7,244. With democracy, it would be $15,013. That is a very large difference.

This reminds me of the Rule of 72. If you want to know how long it will take a number to double, divide 72 by its annual growth rate.

For 2% it would be 36 years. But for 2.746% it will take about 26 years. The democracy will be 10 years ahead of the non-democracy.

Saturday, July 13, 2019

The Fed chairman says the relationship between inflation and unemployment is gone

By Yuni Li of CNBC.
"Federal Reserve Chairman Jerome Powell said the relationship between unemployment and inflation has collapsed.

“The relationship between the slack in the economy or unemployment and inflation was a strong one 50 years ago ... and has gone away,” Powell said Thursday during his testimony before the Senate Banking Committee. He added the strong tie between unemployment and inflation was broken at least 20 years ago and the relationship “has become weaker and weaker and weaker.”

“In additional to that, we are learning that the neutral interest rate is lower than we had thought and ... the natural rate of unemployment rate is lower than we thought. So monetary policy hasn’t been as accommodative as we had thought,” Powell said.

Under the Fed’s dual mandate of full employment and price stability, the jobless rate has been historically low, inching up to 3.7% in June from 3.6% in May, which was the lowest since 1969. Inflation, however, has been tame in recent years and consistently below the Fed’s 2% target.

The so-called Phillips curve, which the Fed relies on in guiding its policy direction, argues that as unemployment declines, inflation should rise, a phenomenon that has not occurred during this economic expansion.

“At the end of the day, there has to be a connection because low employment will drive wages up and ultimately higher wages will drive inflation, but we haven’t reached that point. In many cases, that connection between the two is quite small these days,” the Fed chief said."
This graph might help

The more money in the economy, or the lower the interest rate, the more demand for all goods and services, holding all other factors constant (this total demand is called aggregate demand or AD). The price level in the economy and the total output or quantity produced in the economy is determined by the interaction of AD and aggregate supply (in this case I am interested in something called short-run AS or SRAS-so yes there is a long-run AS but that is not the important issue here although in the long run we will come back to QF with even more inflation if we go past it in the short run). 

The full-employment GDP (QF in the graph below) is the level of GDP that gives us the natural rate of unemployment. If we move from AD1 to AD2, we will still have very small price increases while having a big increase in GDP which will help lower the unemployment rate. But if we go past AD2 (if interest rates get too low), then we get much bigger price increases than for AD increases to the left of QF. So we want the Fed to set interest rates so that we are at AD2. But no one knows for sure if we are at AD2 or not.



Related posts:

Unemployment Isn’t What It Used to Be: The low rate doesn’t take account of low labor-force participation. Wages are a better indication of slack
 
The Phillips curve is alive and well (unless it's dead)

 
Fed officials disagree on how much inflation the current low unemployment rate might cause 

Fed Looks for Goldilocks Path as Jobless Rate Drops  

Friday, July 12, 2019

Is The Long Economic Expansion Showing That Cyclical Unemployment Has Been A Bigger Problem In Recent Years Than Structural Unemployment?

Here are the definitions of two types or causes of unemployment:

Structural-unemployment caused by a mismatch between the skills of job seekers and the requirements of available jobs.

One example of this is when you are replaced by a machine. Another example is when there is a fall in demand for your product, so you get laid off, like with typewriters since people now use computers. A third example is geographical, when the jobs are not in your region of the country.

Cyclical-unemployment caused by a fall in GDP. This comes from the idea of the business cycle. We assume that when GDP falls, the unemployment rate goes up (companies need fewer workers since their sales have fallen). And that when the GDP rises, the unemployment rate goes down. 

See A Record Expansion’s Surprise Winners: The Low-Skilled-As unemployment remains near generation lows, the fortunes of low-wage workers have improved markedly by Greg Ip of The WSJ. Excerpts:
"For years, falling wages and high unemployment seemed proof that low-wage workers needed an entirely new set of skills to succeed in an economy shaped by technological change and globalization.

It turns out what they needed most was time. As the economic expansion reaches a record age and unemployment remains near generation lows, the fortunes of low-skilled workers have turned up markedly. What looked like a permanent setback may be mostly cyclical.

Much of the debate over helping these workers revolves around the minimum wage, training and higher education. Low unemployment may deliver the most effective remedy of all."
"the share of people aged 25 to 54 years with at least a college degree who were employed dropped 2.5 percentage points between 2008 and 2010. It then began a steady recovery, and by last year was close to its prerecession peak. For workers with just a high-school diploma or less, the ratio plunged 6 percentage points and didn’t begin a sustained recovery until 2014."
"Adjusted for inflation, wages of workers with just high school or less initially fell much more sharply than for college-educated workers and then bounced back more strongly, and by last year had recovered all the lost ground."
"The traditional explanation for why some workers are fired first and hired last is that employers hoard their most valued and difficult-to-replace workers. New data offer a more nuanced explanation: employers and workers change their recruitment behavior over the course of the cycle.

In a 2016 study, Alicia Sasser Modestino of Northeastern University and two co-authors observed that as unemployment soared between 2007 and 2010, the percentage of job postings requiring a bachelor’s degree on Burning Glass, a website that aggregates job postings, rose more than 10 percentage points. That share then fell over the next four years. The same thing happened with postings requiring at least five years’ experience."

"This wasn’t because high-skilled occupations or industries had become more important; the authors found that even within the same company posting the same job, hiring criteria became tighter as unemployment rose and easier as it fell."

"This suggests that when unemployment is high and labor is plentiful, employers opportunistically “upskill”—they raise the requirements of jobs, for example demanding a bachelor’s degree when an associate’s degree or experience used to be sufficient.

"This reverses when the labor market tightens. This, the authors say, counters the theory that high vacancies coexist with high unemployment because unemployed workers had the wrong skills: “A significant portion of what is sometimes labeled as structural mismatch unemployment is actually cyclical.

A related cause: college graduates may take less-skilled jobs when unemployment is high, displacing less-educated workers."
(Hat tip: Chris Baecker)

Related posts:

Which Type Of Unemployment Is The Biggest Problem? (2012)

Structural Unemployment In The News (2017)

Structural Unemployment In The News (2009)

Untangling the Long-Term-Unemployment Crisis (2011)

Some Reasons Why Firms Are Not Hiring (2011)

Wednesday, July 10, 2019

Can Coffee Bean Growers Be Like OPEC?

See World’s Coffee Growers Seek to Set Minimum Price to Help Poor Farmers: Many growers are switching to other crops or abandoning plantations altogether amid lowest prices in over a decade by Jeffrey T. Lewis of The WSJ. Excerpts:
"Can you make an OPEC-style cartel for coffee?

Growers from Brazil, Colombia and more than two dozen other countries will meet in Brazil this week to talk about how to get more money to farmers suffering from the lowest prices on world markets in more than a decade."

"It takes the three biggest arabica-growing countries to reach a similar number [60% market share] for world production for that variety"

"there are about 20 more coffee-growing countries than cacao producers. Arabica beans, which are considered to have a milder flavor than the robusta variety of coffee, represent a bit more than 60% of world coffee exports.

A lack of discipline among arabica growers would spell doom for the effort, said Silas Brasileiro, president of Brazil’s National Coffee Council, which groups together many of the country’s growers.

“We know that the coffee-industry buyers will just seek out the best price. No one will be able to hold on to their coffee” to try to push prices higher, he said."

"Growers in many coffee-producing nations say it costs more to produce coffee than the price farmers are getting for their beans at the moment. As a result, many growers are switching to other crops or abandoning plantations altogether to migrate to cities in their countries, or in the case of Central America, to trek to the U.S. border."

"Last year, coffee-grower groups representing more than 30 countries sent a letter to more than 20 big coffee buyers, including companies like Nestlé SA and Starbucks Corp. to try to convince them to pay more, but they only got “condolence cards” in response, said Ms. Nogueira. “They said, ‘We’re sorry to hear about your difficulties,’ but that was it.”"
One problem is that the demand for coffee is inelastic ("The elasticity of coffee demand is only about 0.3; that is, a 10% rise in the price of coffee leads to a decline of about 3% in the quantity of coffee consumed." See Elasticity and Pricing from OpenStax).  So if supply increases or shifts to the right, the price decrease is large, as shown in the graph below.



Also, the article says that farmers are switching to other crops due to low prices. In the long-run, if profits fall below average, firms leave the industry.

It is hard to form a cartel. The book The Economics of Public Issues by Roger LeRoy Miller, Daniel K. Benjamin and Douglass C. North has a chapter on cartels that discuss OPEC and why it cannot always meet its objectives. They point out the conditions necessary for cartels to work. These are given below.


From the article excerpts above, it seems like there are many countries growing coffee, that they don't have much solidarity or stability (growers leave when prices fall) and there are substitutes like tea and diet soft drinks.




Tuesday, July 09, 2019

$15 Minimum Wage Would Bring Mixed Fortunes for U.S. Workers

By Eric Morath of The WSJ. The current federal minimum wage is $7.25. If it went to $15 right now, that would be a 106.7% increase. The CPI is 18.9% higher now than it was in July 2009, when the federal minimum wage went to $7.25. Excerpts:
"Increasing the national minimum wage to $15 an hour would deliver a raise for millions of U.S. workers but could also cost 1.3 million Americans their jobs, according to a government forecast"

If the federal minimum wage were raised to $15 an hour in 2025, as House Democrats have proposed, a significant number of Americans would likely lose their jobs, a study released Monday by the nonpartisan Congressional Budget Office found.

But the study also estimates that in an average week in 2025—the year after the House measure would take full effect—a $15-an-hour minimum wage would boost the pay of 17 million workers who would otherwise earn less than $15 per hour. It could also raise the pay of 10 million workers who otherwise would earn slightly more than $15 an hour. Raising the federal minimum to $15 would lift 1.3 million Americans out of poverty, the CBO said."

The study’s estimate of 1.3 million jobs lost is the median figure in a range from zero to 3.7 million eliminated jobs. That broad range reflects uncertainty about how wages could otherwise change over the next five years absent any policy shifts, and how employers might respond to the proposed federal increase.

“Many studies have found little or no effect of minimum wages on employment, but many others have found substantial reductions in employment,” the study said."

"Twenty-nine states and many cities have moved to raise their pay floors above the federal level. New York and California are among six states, along with the District of Columbia, that have passed legislation to set a $15 minimum wage in the coming years."

ALAN B. KRUEGER, who was once chair of the Council of Economic Advisors (CEA) under Obama, and was usually a supporter of the minimum wage, worried about $15 (at least back in 2015). See The Minimum Wage: How Much Is Too Much? Excerpts:
"Research suggests that a minimum wage set as high as $12 an hour will do more good than harm for low-wage workers, but a $15-an-hour national minimum wage would put us in uncharted waters, and risk undesirable and unintended consequences."

"But $15 an hour is beyond international experience, and could well be counterproductive. Although some high-wage cities and states could probably absorb a $15-an-hour minimum wage with little or no job loss, it is far from clear that the same could be said for every state, city and town in the United States."

"Although the plight of low-wage workers is a national tragedy, the push for a nationwide $15 minimum wage strikes me as a risk not worth taking, especially because other tools, such as the earned-income tax credit, can be used in combination with a higher minimum wage to improve the livelihoods of low-wage workers.
Economics is all about understanding trade-offs and risks. The trade-off is likely to become more severe, and the risk greater, if the minimum wage is set beyond the range studied in past research."
Alan Blinder is another economist who has advised Democrats. He served on President Bill Clinton's CEA. He is also skeptical of $15. See A Fairness Agenda for Winning Over Angry Voters. Excerpt (also from 2015):
"Raising the federal minimum wage would be an enormous help for wage earners at the bottom. (Many states and cities have done so already.) I’d favor going in stages to something like $10-$12 an hour, not to the $15 that is gaining traction on the left. Moving too high too quickly raises the specter of job losses."
Christina Romer, the first chair of the CEA under Obama, also expressed some skepticism about minimum wage laws. See The Business of the Minimum Wage. Excerpts (from 2013):
"One argument for a minimum wage is that there sometimes isn’t enough competition among employers. In our nation’s history, there have been company towns where one employer truly dominated the local economy. As a result, that employer could affect the going wage for the entire area. In such a situation, a minimum wage can not only make workers better off but can also lead to more efficient levels of production and employment. [when there is only one employer for certain occupations it is called a monopsony]
But I suspect that few people, including economists, find this argument compelling today. Company towns are largely a thing of the past in this country; even Wal-Mart Stores, the nation’s largest employer, faces substantial competition for workers in most places. And many employers paying the minimum wage are small businesses that clearly face strong competition for workers."
"Some evidence suggests that employment doesn’t fall much because the higher minimum wage lowers labor turnover, which raises productivity and labor demand. But it’s possible that productivity also rises because the higher minimum attracts more efficient workers to the labor pool. If these new workers are typically more affluent — perhaps middle-income spouses or retirees — and end up taking some jobs held by poorer workers, a higher minimum could harm the truly disadvantaged.
Another reason that employment may not fall is that businesses pass along some of the cost of a higher minimum wage to consumers through higher prices. Often, the customers paying those prices — including some of the diners at McDonald’s and the shoppers at Walmart — have very low family incomes. Thus this price effect may harm the very people whom a minimum wage is supposed to help."
"the current tax system already subsidizes work by the poor via an earned-income tax credit. A low-income family with earned income gets a payment from the government that supplements its wages. This approach is very well targeted — the subsidy goes only to poor families — and could easily be made more generous."
"The economics of the minimum wage are complicated, and it’s far from obvious what an increase would accomplish."
"But we could do so much better if we were willing to spend some money. A more generous earned-income tax credit would provide more support for the working poor and would be pro-business at the same time."
Related post

Has the Minimum Wage Kept Pace with Inflation?

Sunday, July 07, 2019

Barbed Wire, Texas and Property Rights

See Barbed wire and other revolutions. Michael Taylor of The San Antonio Express-News reviews a book about innovation. Well defined property rights are important for long run economic growth and this articles shows how something seemingly small and simple made a big difference. You might have to be a subscriber to read this. Excerpt:
"Modern Texas owes everything to the innovation and marketing genius of John Warne Gates. Don’t worry, I hadn’t heard of him either until last week.

In 1876, at Military Plaza — site of San Antonio’s future City Hall — he presented a technological marvel that would revolutionize the state.

Gates described his innovation as “lighter than air, stronger than whiskey, cheaper than dust.” A print advertisement from the year before had dubbed it “The Greatest Discovery of the Age.”

Gates’ marketing stunt: He bet all comers that their wildest longhorns, whipped into a frenzy by his sidekick with a burning brand, couldn’t break through a flimsy-looking little wire pen he’d built in Military Plaza.



His innovation: barbed wire. It worked.

The anecdote comes from some enjoyable summer reading, Tim Harford’s 2017 book: “Fifty Inventions That Shaped the Modern Economy.”

In a series of 50 essays of three to four pages each, Harford describes the surprising results of many seemingly humble innovations.

So what revolution did barbed wire launch? Before barbed wire, the vast prairie lands of Texas were too big to be divvied up effectively into private parcels. Native tribes and teams of cowboys heading up cattle drives thrived in this fenceless free range, which was like an untamable ocean.

Despite President Abraham Lincoln’s 1862 promise of 160 acres — through the Homestead Act — to anyone who could settle it and work it for five years, privately held land in the state just didn’t work economically. In vast swathes of Texas, it was nearly impossible to keep free-roaming cattle in — and out — of people’s property. Property lines, without an effective means of enforcement, weren’t respected.

But with barbed wire, cheap and easy enforcement changed everything. The native tribes were doomed. The cowboy-led cattle drive was doomed. Without unfenced prairie, “the open range,” their livelihoods were gone. “The devil’s rope” tamed wild Texas. Private property owners now had a cheap and effective means to invest in and develop their land."

Saturday, July 06, 2019

Adam Smith And Joseph Campbell On The Dangers Of "The Man Of System"

Here is a passage from The Theory of Moral Sentiments by Smith at the Library of Economics and Liberty. Smith emphasizes the arrogance and conceit of those who think they can arrange society any way they want. In a separate passage, Smith writes about how this can be dangerous (that follows this longer excerpt). First, Smith discusses the man of humanity and benevolence, then the man of system for contrast. Then I have some quotes that are similar from Campbell.

"The man whose public spirit is prompted altogether by humanity and benevolence, will respect the established powers and privileges even of individuals, and still more those of the great orders and societies, into which the state is divided. Though he should consider some of them as in some measure abusive, he will content himself with moderating, what he often cannot annihilate without great violence. When he cannot conquer the rooted prejudices of the people by reason and persuasion, he will not attempt to subdue them by force; but will religiously observe what, by Cicero, is justly called the divine maxim of Plato, never to use violence to his country no more than to his parents. He will accommodate, as well as he can, his public arrangements to the confirmed habits and prejudices of the people; and will remedy as well as he can, the inconveniencies which may flow from the want of those regulations which the people are averse to submit to. When he cannot establish the right, he will not disdain to ameliorate the wrong; but like Solon, when he cannot establish the best system of laws, he will endeavour to establish the best that the people can bear.
VI.II.42
The man of system, on the contrary, is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it. If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably, and the society must be at all times in the highest degree of disorder.
VI.II.43
Some general, and even systematical, idea of the perfection of policy and law, may no doubt be necessary for directing the views of the statesman. But to insist upon establishing, and upon establishing all at once, and in spite of all opposition, every thing which that idea may seem to require, must often be the highest degree of arrogance."
Adam Smith also says in his book The Theory of Moral Sentiments:
"The natural course of things cannot be entirely controlled by the impotent endeavours of man: the current is too rapid and too strong for him to stop it; and though the rules which direct it appear to have been established for the wisest and best purposes, they sometimes produce effects which shock all his natural sentiments."
The "effects which shock all his natural sentiments" are the unintended consequences of on man trying to impose his will on society. He can't know all the effects of all the changes he his bringing to a complex system.

Here is what Campbell has to say. This is from the book The Power of Myth (some parts might only be in the video version of the interview Campbell did with Bill Moyers upon which the book was base):

Campbell condemns "the man of system."  He states this clearly while speaking of the character Darth Vader from the Star Wars movie trilogy.  He is critical of him being an "executive of a system" who has no humanity. The man of system is a government planner, a bureaucrat who wishes to impose his own ideals on society.  Campbell mentions what he thinks is a good Oriental idea:  "You don't force your mission down people's throats." (recall that Smith says the man of benevolence respects individuals, and will not attempt to subdue them by force) Also, "Instead of clearing his own heart, the zealot tries to clear the world." (Smith refers to "furious zealots" who have contempt for open minded people)   Both Campbell and Smith fear the planner who will force his system on the rest of us.  Campbell's views on this are best expressed in his comments on Darth Vader, the evil dark lord of the Star Wars movie trilogy.

"Darth Vader has not developed his own humanity.  He's a robot.  He's a bureaucrat living not in terms of himself but in terms of an imposed system.  This is the threat that we all face today.  Is the system going to flatten you out and deny you your humanity, or are you going to be able to make use of the system so that you are not compulsively serving it?  It doesn't help to try to change it to accord with your system of thought.  The momentum of history behind it is too great for anything really significant to evolve from that kind of action" (this is like Smith saying the current is too strong to be stopped by the impotent endeavours of man)


This is all seen much more clearly in an exchange between Campbell and Moyers from the second televised segment of The Power of Myth called "The Message of the Myth": 
Moyers:  Do you see some of the new metaphors emerging in the modern medium for the old universal truths that you've talked about, the old story?
Campbell:  Well, I think that the Star Wars is a valid mythological perspective for the problem of is the machine-and the state is a machine (emphasis added)-is the machine going to crush humanity or serve humanity? 
And humanity comes not from the machine but from the heart. 
[As the unmasking of Darth Vader scene from the movie The Return of the Jedi  is shown, Campbell continues:]
Campbell:  The father (Darth Vader) had been playing one of these machine roles, a state role; he was the uniform, you know?  And the removal of that mask-there was an undeveloped man there.  He was kind of a worm by being the executive of a system.  One is not developing one's humanity.  I think George Lucas did a beautiful thing there.
Moyers:  The idea of machine is the idea that we want the world to be made in our image and what we think the world ought to be.
[Campbell seemed to agree or at least offered no dissent to this statement of Moyers-again, Smith says the man of system wants to impose his own plan on society, very similar to making the world in your own image]
Campbell put this in a slightly different way when he also discussed the movie Star Wars:
"Here the man (George Lucas) understands metaphor.  What I saw was things that had been in my books but rendered in terms of the modern problem, which is man and machine.  Is the machine going to be the servant of human life?  Or is it going to be master and dictate?  And the machine includes the totalitarian state, whether it is Fascist or Communist it's still the same state. And it includes things happening in this country too; the bureaucrat, the machine-man. "What a wonderful power the machine gives you-but is it going to dominate you?  That's the problem of Goethe's Faust.  It's in the last two acts of Faust, Part Two.  His pact is with Mephistopheles, the man who can furnish you the means to do anything you want.  He's the machine manufacturer.  He can manufacture the bombs, but can he give you what the human spirit wants and needs?  He can't.

This statement of what the need and want is must come from you, not from the machine, and not from the government that is teaching you (emphasis added) or not even from the clergy. It has to come from one's own inside, and the minute you let that drop and take what the dictation of the time is instead of your own eternity (recall Smith says "every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it"), you have capitulated to the devil.  And you're in hell.
That's what I think George Lucas brought forward.  I admire what he's done immensely, immensely.  That young man opened a vista and knew how to follow it and it was totally fresh.  It seems to me that he carried that thing through very, very well" (From The Hero's Journey: Joseph Campbell on His Life and Work by Phil Cousineau).
Here is the passage from Adam Smith where he talks about "furious zealots" (also from The Theory of Moral Sentiments):

"The animosity of hostile factions, whether civil or ecclesiastical, is often still more furious than that of hostile nations; and their conduct towards one another is often still more atrocious. What may be called the laws of faction have often been laid down by grave authors with still less regard to the rules of justice than what are called the laws of nations. The most ferocious patriot never stated it as a serious question, Whether faith ought to be kept with public enemies?—Whether faith ought to be kept with rebels? Whether faith ought to be kept with heretics? are questions which have been often furiously agitated by celebrated doctors both civil and ecclesiastical. It is needless to observe, I presume, that both rebels and heretics are those unlucky persons, who, when things have come to a certain degree of violence, have the misfortune to be of the weaker party. In a nation distracted by faction, there are, no doubt, always a few, though commonly but a very few, who preserve their judgment untainted by the general contagion. They seldom amount to more than, here and there, a solitary individual, without any influence, excluded, by his own candour, from the confidence of either party, and who, though he may be one of the wisest, is necessarily, upon that very account, one of the most insignificant men in the society. All such people are held in contempt and derision, frequently in detestation, by the furious zealots of both parties. A true party-man hates and despises candour; and, in reality, there is no vice which could so effectually disqualify him for the trade of a party-man as that single virtue. The real, revered, and impartial spectator, therefore, is, upon no occasion, at a greater distance than amidst the violence and rage of contending parties. To them, it may be said, that such a spectator scarce exists any where in the universe. Even to the great Judge of the universe, they impute all their own prejudices, and often view that Divine Being as animated by all their own vindictive and implacable passions. Of all the corrupters of moral sentiments, therefore, faction and fanaticism have always been by far the greatest."