Race against the machine

I mentioned Erik Brynjolfson and Andrew McAfee's book Race Against The Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy here, in the context of an NYT article.

I ordered and read the e-book, and it is a brilliant little gem which more than repays the few dollars it costs on Kindle. I thoroughly recommend that everyone who reads this should shell out the $2.99 it costs to read their intelligent, well-cratfed and insightful little e-book.

I want to take some of its ideas sequentially. The first is a review of the literature (more or less) on what is going wrong with the labor market. They identify three main explanations:

1. the cyclical explanation typfied by Paul Krugman. The main problem we have is an absence of demand.
2. the stagnation explanation, typfied by Tyler Cowen. We've picked all the "low-hanging fruit" and technological innovation has slowed down.
3. the "end of work" explanation , typified by Jeremy Rifkin's book of the same name The End of Work (which I have not covered or read, but will get to soon) which argues there is a much more deep-seated problem.

The authors come down on the side of the third explanation.

The root of our problems is not that we’re in a Great Recession, or a Great Stagnation, but rather that we are in the early throes of a Great Restructuring.

Technology may have outrun the ability of the economy and society to adjust. This is not a new observation.

The end-of-work argument has been made by, among many others, economist John Maynard Keynes, management theorist Peter Drucker, and Nobel Prize winner Wassily Leontief, who stated in 1983 that “the role of humans as the most important factor of production is bound to diminish in the same way that the role of horses in agricultural production was first diminished and then eliminated by the introduction of tractors.” In his 2009 book The Lights in the Tunnel, software executive Martin Ford agreed, stating that “at some point in the future—it might be many years or decades from now—machines will be able to do the jobs of a large percentage of the ‘average’ people in our population, and these people will not be able to find new jobs.” Brian Arthur argues that a vast, but largely invisible “second economy” already exists in the form of digital automation. The end-of-work argument is an intuitively appealing one; every time we get cash from an ATM instead of a teller or use an automated kiosk to check in at an airport for a flight, we see evidence that technology displaces human labor. ....

But low unemployment levels in the United States throughout the 1980s, ’90s, and first seven years of the new millennium did much to discredit fears of displacement, and it has not been featured in the mainstream discussion of today’s jobless recovery.

(I mentioned Brian Arthur's explanation here, and will cover Martin Ford soon.)

The economics profession pays little attention to third explanation - and in the past, they have been abundantly justified in doing so.

For over 200 years, the economists were right. ....However, this empirical fact conceals a dirty secret. There is no economic law that says that everyone, or even most people, automatically benefit from technological progress.

And that is the predicament in which we find ourselves today. It is not that all human workers are obsolete - as the drayhorses of the nineteenth century became - but may skills are becoming less valuable.

So we agree with the end-of-work crowd that computerization is bringing deep changes, but we’re not as pessimistic as they are. We don’t believe in the coming obsolescence of all human workers. In fact, some human skills are more valuable than ever, even in an age of incredibly powerful and capable digital technologies. But other skills have become worthless, and people who hold the wrong ones now find that they have little to offer employers. They’re losing the race against the machine, a fact reflected in today’s employment statistics.

I'll discuss these issues morei in the next post.