However, I think there's a real possibility that, in the near future, automation will lead to a permanent increase in unemployment. Even if general AI proves to be a long way away (which I think it is), a lot of service jobs are algorithmic enough that they could became automated in the next few decades. If true, you end up with a small elite business/management class which finds themselves far wealthier than before; a few people who managed to hold onto their old jobs (domestic cleaners, plumbers, etc) or find new 'creative' jobs; and a vast unemployed underclass.

In theory with all our new machine-created wealth the entire underclass could live very comfortably on welfare. However, the way most societies are set up, that's unlikely to happen. The economic pie gets bigger but the people at the top suddenly find themselves with even more power and get an even bigger slice, and the people at the bottom get screwed.

I think this guy makes a fairly convincing argument: http://www.marshallbrain.com/robotic-nation.htm

If you have the time, his scifi novella about the social impacts of mass job loss due to automation is also OK (like a lot of amateur scifi, some of the writing and characterisation is pretty bad, but the ideas are interesting). Worth a read if you have the time. http://marshallbrain.com/manna1.htm

Season 2 of the Wire also touches on similar themes. (It's obviously not sci-fi, but it made me rethink my belief that "automation is fine, people just need to not be so picky about finding new jobs").

So far, the exact opposite of this has occurred. The economic pie has gotten vastly bigger, inequality has increased significantly, and welfare has done nothing but grow.

I have read Manna (http://marshallbrain.com/manna1.htm) and strongly recommend it in the context of this post.

This reoccurring pattern of a labor market becoming liquid and transitioning has happened before. Hong Kong skyrocketed in unemployment when trade opened in China and most "algorithmic" jobs migrated across the border literally overnight. Education became a central part of the economy and the country moved forward.

One popular idea of dealing with this uncomfortable idea is Singularity, where all those now-useless people will vanish from eyes in a giant brain-hug. So unsurprisingly this 1-2-3-?-profit kind of recipe became popular with techno-futurists. But IMO a Great Unrest or a new Great War due to social tensions, followed by surviving clique of humanity drowning in machine-supported hedonism is more realistic.

Which was why I was surprised to see a recent article about how IT was near the top of the best paying jobs list. I think though that list must have only been taking into account salaried employees.

To be fair though as a programmer, unlike say a carpenter, if one of the logs overflows the risk of being crushed to death by it is considerably less.

But each time, it seems, takes less and less time (we were farmers for thousands of years, hunter gatherers for hundreds of thousands of years but the industrial revolution is only a couple hundred years old).

And when we can no longer use humans? I don't know, but it seems that the only way we can ever end up in that situation is if we have achieved general ai, which is to say that we will be at the cusp of the singularity.

The industrial revolution may have made the work horse obsolete, but it had only one use. Humans have many.

Capitalism is just a mechanism for allocating resources, it's not any kind of moral judgment on anything.