The age of innovation and technological advancement is not over. That’s the reassuring news from The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies by MIT’s Erik Brynjolfsson and Andrew McAfee. Economic growth is not over, despite the slow recovery after the Great Recession. Not by a long shot....MUCH MORE
But accelerating automation will cause huge, disruptive changes for the US labor market — in fact, we’re already seeing them — as workers “race against the machine.” The ability to work successfully with technology will become ever more valued, just as failure will be increasingly penalized. America will need to upgrade the education and skill of its labor force and help entrepreneurs create new business models that incorporate the unique capabilities of man and machine.
I recently chatted with Brynjolfsson and McAfee for my Ricochet Money & Politics Podcast on what the rise of the machines means for economic growth, job creation, and public policy such as immigration. Here is an edited transcript of our conversation:
In the book, you guys write that “we’re living in a time of astonishing progress with digital technologies, those that have computer hardware, software, and networks at their core.” That probably seems intuitively right to many people. But do we see that in the data?
Brynjolfsson: Well, I think there are some big problems with the way we measure our productivity, as you know. We are missing more and more of the digital revolution. All the free goods, by definition, don’t show up in GDP. And so that’s a big chunk of it. And new goods are badly mismeasured as well, especially when they are introduced and then a decline in price. So I think we have some serious problem with the economic statistics.
McAfee: Your question is a really good one. One of the problems is that we don’t have a universally agreed upon measure for rates of innovation, for whether that is speeding up or slowing down. So we fall back on related measures, like productivity growth and GDP growth, but those aren’t perfect proxies in any case. And like Erik says, there’s reason to believe they’re getting less good over time.
So the reason we wrote sentences like that in the book and talked about this age of astonishing technological progress is that just in the past few years, we have seen some of the really long held goals or holy grails of computer science and AI and robotics being realized, and not just in the lab, but out there in the real world. So we’ve got autonomous cars that drive themselves in traffic, on American roads without mishaps. We’ve got a computer that is the world’s Jeopardy champion, doing really tough unstructured search in natural language processing. We’ve got things on our phones now that are pretty close to the “Star Trek” computer that understands what we want and can give it back to us. And you can just keep going down the list. Humanoid robots are real things now out there in the world, instead of just being stapled with science fiction.
So over and over again Erik and I saw these examples of real, just long held goals of the disciplines and science fiction technologies becoming reality. It’s very hard for us to look at that as a period of slow or uninspiring innovation.
I’ve also interviewed Tyler Cowen, who wrote “Average is Over” and “The Great Stagnation,” and he said that while he disagrees with you about the past, he agrees about the future. And we just had a podcast with former Fed economist over here at AEI, Steve Oliner, who’s also fairly optimistic about where innovation in going. But then there’s Robert Gordon, economist at Northwestern, who’s probably the biggest opponent publicly of the idea that we are seeing innovation accelerate. He just doesn’t see it in the numbers.
Brynjolfsson: I think that we’d agree that what matters is the value that we’re creating, not whether a particular metric moves – especially a metric like GDP, which often literally goes in the opposite direction of welfare. When things become free, that can often lead to a decrease in measured GDP, even though it leads to a big increase in welfare. Wikipedia is a perfect example of that. Or take the fact that most people now have, you know, a device that gives them turn-by-turn driving directions. It’s pretty much free with most smart phones. But a few years ago, people were paying hundreds of dollars for a GPS machine. So I think we have to be careful about overreliance on a metric that was never understood to be or shouldn’t be understood to be a welfare metric.
And let me just pick up on this question about, you know, economic growth more broadly. I mean, people do talk about, you know, secular stagnation and all. And I think it’s worth pointing out that that term was coined back around 1939 by Alvin Hansen, as we were in a really bad depression, coming out of a slump even worse than the second worst one, which is the one we’re just coming out of now. And it’s not surprising that people sort of get pessimistic about that future, when you’re in that. But careful research has suggested that the 1930s were actually among the most innovative decades ever, a whole host of technological marvels, and the next two or three decades, the ’40s, ’50s, and ’60s, were among the highest productivity growth decades ever.
So I think it’s probably not a good idea to extrapolate from productivity numbers in the middle of a recession that we know are flawed to what’s going to be happening in the future. I think a better approach is what Andy laid out is looking at the actual technologies, the actual changes that we’re seeing and understanding what the implications are of them....
HT: Abnormal Returns
