Were the Luddites Right?

In 1948 Norbert Wiener, the father of cybernetics, wrote an

urgent letter to Walter Reuther, the president of the Union of
Automobile Workers. Wiener warned Reuther that technologies that
combined computing machines with production machinery would soon
yield an “apparatus [that] is extremely flexible, and susceptible
to mass production, and will undoubtedly lead to the factory
without employees; as for example, the automatic automobile
assembly line.” Wiener ominously concluded, “In the hands of the
present industrial set-up, the unemployment produced by such plants
can only be disastrous.”The mass unemployment that Wiener predicted did not occur. As
technology advanced, the number of employed workers in the United
States increased from 59 million in 1950 to a peak of 146 million
in 2007, and GDP grew from $2 trillion to $13.6 trillion (in 2005
dollars) between 1950 and 2012.Now, two centuries after Luddites
smashed then-newfangled weaving frames in northern England,
predictions of permanent technological unemployment are being
revived. In a December working paper for the National Bureau of
Economic Research, called “Smart Machines and
Long-Term Misery,” the Columbia economist Jeffrey Sachs and the
Boston University economist Laurence Kotlikoff pose the question,
“What if machines are getting so smart, thanks to their
microprocessor brains, that they no longer need unskilled labor to
operate?” After all, they point out, “Smart machines now collect
our highway tolls, check us out at stores, take our blood pressure,
massage our backs, give us directions, answer our phones, print our
documents, transmit our messages, rock our babies, read our books,
turn on our lights, shine our shoes, guard our homes, fly our
planes, write our wills, teach our children, kill our enemies, and
the list goes on.”Sachs and Kotlikoff are not alone in worrying how technological
progress will affect employment. Last year, Erik Brynjolfsson and
Andrew McAfee of MIT’s Center for Digital Business published a
small book,
Race Against the Machine, that looks at trends in U.S.
employment and wages. It concludes that the pace of progress “has
sped up so much that it’s left a lot of people behind. Many
workers, in short, are losing the race against the machine.” And in
a 2011 article
for the McKinsey Quarterly, the Santa Fe Institute
economist Brian Arthur describes automation as “a second economy
that’s vast, automatic, and invisible.” In Arthur’s view, “The
primary cause of all of the downsizing we’ve had since the
mid-1990s is that a lot of human jobs are disappearing into the
second economy. Not to reappear.”As evidence that American workers are losing to the machines,
Brynjolfsson and McAfee point to falling real wages for unskilled
workers in the United States. The Employment Policy Institute’s
12th State of Working America report reveals that in
constant 2011 dollars, the
hourly wage for men with less than a high school education fell
from $17.50 per hour in 1973 to $12.70 in 2011; wages for men with
a high school diploma fell from $20.70 to $17.50 per hour; and even
hourly pay for those with some college dropped from $20.20 to
$19.50. In the same period, real wages for college-educated men
rose from $28.50 to $31.80. Men with graduate degrees saw a gain
from $31.70 to $41.30. In addition, Americans are leaving the labor
force. Adult
workforce participation peaked at 67.3 percent in 2000 and has
now fallen to 63.6 percent. This suggests that had the labor force
participation rate remained the same as it was in 2000 that the
current unemployment rate would be around 13 percent instead of 7.9
percent.Other researchers are less worried, pointing out that many of
the
alleged labor force dropouts are actually taking time out to
upgrade their skills in school. And when you’re comparing how
workers fared in 1973 and 2011, you should bear in mind that the
percentage of male workers without a high school degree dropped
from 30 to 10 percent in the same period, while those with four
years or more of college rose from 16 percent to 31 percent.According to a recent
study by the Cleveland Federal Reserve Bank, labor’s share of
our gross national income has fallen from 65 percent in the 1980s
to 58 percent now, with the result that a larger percentage of
national income is going to the owners of capital, e.g., the owners
of machines. The increasing rewards to capital particularly bother
Sachs and Kotlikoff. “Machines, after all, are a form of capital,
and the higher income they earn based on better machine brains may
show up as a return to capital, not labor income,” they worry.
Sachs and Kotlikoff devise an admittedly simple economic model in
which the current generation of skilled owners of smart machines
reaps most of the benefits of increased productivity and economic
growth. This competition with the smart machines depresses the
wages of young unskilled workers that, in turn, limits their
ability to save and invest in skill acquisition and smart machines.
Thus arises a vicious circle in which each subsequent generation of
young unskilled workers faces an economy in which ever less human
and physical capital is available to them, which further hammers
down their wages and so forth.If it really is different this time, what should be done? To
prevent “immiserizing” young unskilled workers, Sachs and Kotlikoff
argue that the government should tax away some of the “windfall”
that the owners of capital gain. The government would transfer some
of the taxes to the younger generation, presumably so that they
could invest in skills acquisition and smart machines. In addition,
the government would itself invest a portion of the taxes in smart
machines and then transfer the income from the government machines
to the younger generations. “With the right choice of
tax-and-transfer policies,” declare Sachs and Kotlikoff, “all
generations can benefit from the advance of technology, while under
laissez faire, only today’s older generation benefits, and
at the expense of all other generations.” That’s the theory,
anyway.Brynjolfsson and McAfee make more concrete recommendations.
First, they suggest more investment in education. That is a bit
puzzling, since earlier in their book they note that the education
sector “lags as an adopter of information technologies.” Even more
oddly they don’t wonder why that might be. (Two words: government
monopoly.) They do, however, recognize that the rise of online
schooling could have a big beneficial impact on upgrading labor
force skills. They also advocate reforms such as aggressively
lowering the barriers to business creation, resisting efforts to
regulate hiring and firing, decreasing payroll taxes, decoupling
benefits from jobs, not rushing to regulate new network businesses,
streamlining the patent system, and shortening copyright terms.
Such sensible reforms should be adopted whether or not
technological unemployment is a problem.Brian Arthur looks at the longer-term implications of the second
economy. Smart machines will boost economic and prosperity
indefinitely, but such an economy may not provide jobs. Until now,
compensation for labor is how people gained access to the growing
prosperity that increasing productivity made possible. “The second
economy will produce wealth no matter what we do; distributing that
wealth has become the main problem,” argues Arthur. Perhaps we will
work less. After all, in 1900 Americans worked an average of 2,300
hours per year; now it’s 1,800.Or, as has happened so far, entirely new economic sectors could
come into existence, providing work for future generations. In
1985, there were just 340,000 mobile phone subscribers in the
United States; today there are more than 321 million. More broadly,
increasing productivity lowers the prices of goods and services,
leaving consumers more disposable income that they can instead
spend on other goods and services. In 1950, American families spent
18 percent of their food budgets dining out. Today they spend 40
percent. In 1972, the U.S. had one restaurant for every 430
Americans. It’s 1 for every 320 today.Brynjolfsson and McAfee argue that instead of racing
against the machines, we should race with them.
Of course, as rising productivity shows, that’s exactly what we
have been doing. In the industrial era, machines largely
complemented and substituted for human brawn; now they are
complementing and substituting for human brains. To better race
with increasingly smart machines, we will become more intimate with
them by incorporating them into our bodies and brains.Already polls suggest that a majority of us suffer from
nomophobia, fear of being without our mobile phones. Babak
Parviz, head of the Google Glass project, suggests in
Wired that digital displays will some day be incorporated
in contact lenses. Such lenses would provide the wearer access to
augmented reality in which information is overlaid on whatever she
is looking at while also eliminating the need for displays on
phones, computers, and televisions. Even stuttering first steps
toward
brain/computer interfaces are being taken today.Our ever more productive machines will continue to reduce
scarcities, thus lowering the relative prices of goods and
services. If governments take the good advice offered by
Brynjolfsson and McAfee, we can have a future in which tens of
millions of micro-entrepreneurs provide ever more specialized goods
and services to ever more discerning consumers. The resulting
prosperity could well free people to employ themselves in tackling
scarcities in other facets of life, such as liberty, love, and
time. I wouldn’t want to break the machines that would make that
possible.

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Were the Luddites Right?


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