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Brynjolfsson and McAfee’s newest book follows in the footsteps of their last – explaining how advances in computers and robots are putting an increasing strain our society and challenging conventional economics about work and economics. They (correctly) overturn Tyler Cowen’s ridiculous One of the best points in the book was something that I hadn’t really thought of before: “In addition to powerful and useful AI, the other recent development that promises to further accelerate the second machine age is the digital interconnection of the planet’s people. There is no better resource for improving the world and bettering the state of humanity than the world’s humans—all 7.1 billion of us.” I had gotten too hung up on the technical angle. It’s exciting (and depressing) to think of how many “Einsteins” humanity has lost out on because they were in some rural village disconnected from the rest of the world… but we can change that now.But the same dynamics that help “lost Einsteins” reach their potential also widen the gap between them and everyone else – thanks in part to the “winner take all” dynamics of global markets. As the authors point out, “Today’s information technologies favor more-skilled over less-skilled workers, increase the returns to capital owners over labor, and increase the advantages that superstars have over everybody else.”Brynjolfsson emphasizes the Importance of education for helping future workers adapt – but he also recognizes that there will likely come a point when technology changes so fast that most people can’t keep up. He’s also concerned about a massive future disruption for developing nations dependent on labor. He tries to assuage some of these concerns by pointing out that human labor will be in great surplus and that supply/demand dynamics will allocate that labor to new and efficient uses… but I’m skeptical. The final part of his book is the most interesting but least satisfying. He tries to answer the question… what will humans do if they don’t have to work? What would that system look like? He touches on ideas like a guaranteed basic income and raises the right question – how will people find meaning in their lives if they don’t have to work? (Although this may be a more typically American problem, as we live with the legacy of the famous Protestant ethic). Brynjolfsson and McAfee could have gone farther, but perhaps the politics become a bit too fiery and radical for their taste.Also… all of these guys (Brynjolfsson & McAfee, Tyler Cowen, etc.) are getting all jazzed up about “Freestyle Chess” (where you can use computers to help you win). They are trying to say that the future is about “racing with the machine” rather than “racing against the machine” – but I’m not sure the metaphor holds. The best freestyle chess players have a tremendously deep understanding of how the programs are working… and it seems highly unlikely that we’re going to be able to train the overwhelming majority of the human population to become PhD computer scientists. I don’t buy it.Some of the best quotes below:###And we can be even more precise about which technology was most important. It was the steam engine or, to be more precise, one developed and improved by James Watt and his colleagues in the second half of the eighteenth century.Now comes the second machine age. Computers and other digital advances are doing for mental power—the ability to use our brains to understand and shape our environments—what the steam engine and its descendants did for muscle power.Among economic historians there’s wide agreement that, as Martin Weitzman puts it, “the long-term growth of an advanced economy is dominated by the behavior of technical progress.”As the roboticist Hans Moravec has observed, “It is comparatively easy to make computers exhibit adult-level performance on intelligence tests or playing checkers, and difficult or impossible to give them the skills of a one-year-old when it comes to perception and mobility.” This situation has come to be known as Moravec’s paradox.As the cognitive scientist Steven Pinker puts it, “The main lesson of thirty-five years of AI research is that the hard problems are easy and the easy problems are hard.. .. As the new generation of intelligent devices appears, it will be the stock analysts and petrochemical engineers and parole board members who are in danger of being replaced by machines. The gardeners, receptionists, and cooks are secure in their jobs for decades to come.”One of the main reasons we cite digitization as a main force shaping the second machine age is that digitization increases understanding. It does this by making huge amounts of data readily accessible, and data are the lifeblood of science.Paul Krugman speaks for many, if not most, economists when he says, “Productivity isn’t everything, but in the long run it is almost everything.” Why? Because, he explains, “A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker”—in other words, the number of hours of labor it takes to produce everything, from automobiles to zippers, that we produce… the only viable way for societies to become wealthier—to improve the standard of living available to its people—is for their companies and workers to keep getting more output from the same number of inputs, in other words more goods and services from the same number of people.Most in the profession would agree with Joseph Schumpeter, the topic’s great scholar, who wrote that, “Innovation is the outstanding fact in the economic history of capitalist society. .. and also it is largely responsible for most of what we would at first sight attribute to other factors.”But if there’s a big gap between major innovations, economic growth will eventually peter out. We’ll call this the ‘innovation-as-fruit’ view of things, in honor of Tyler Cowen’s imagery of all the low-hanging fruit being picked. In this perspective, coming up with an innovation is like growing fruit, and exploiting an innovation is like eating the fruit over time. Another school of thought, though, holds that the true work of innovation is not coming up with something big and new, but instead recombining things that already exist. And the more closely we look at how major steps forward in our knowledge and ability to accomplish things have actually occurred, the more this recombinant view makes sense….and Cowen are world-class economists, but they’re not giving digital technologies their due. The next great meta-idea, invoked by Romer, has already been found: it can be seen in the new communities of minds and machines made possible by networked digital devices running an astonishing variety of software. If this recombinant view of innovation is correct, then a problem looms: as the number of building blocks explodes, the main difficulty is knowing which combinations of them will be valuable… This model has a fascinating result: because combinatorial possibilities explode so quickly there is soon a virtually infinite number of potentially valuable recombinations of the existing knowledge pieces. The constraint on the economy’s growth then becomes its ability to go through all these potential recombinations to find the truly valuable onesBecause the exponential, digital, and recombinant powers of the second machine age have made it possible for humanity to create two of the most important one-time events in our history: the emergence of real, useful artificial intelligence (AI) and the connection of most of the people on the planet via a common digital network. Either of these advances alone would fundamentally change our growth prospects. When combined, they’re more important than anything since the Industrial Revolution, which forever transformed how physical work was done.“Most economic fallacies derive from the tendency to assume that there is a fixed pie, that one party can gain only at the expense of another.” —Milton FriedmanHowever, unlike the steam engine or electricity, second machine age technologies continue to improve at a remarkably rapid exponential pace, replicating their power with digital perfection and creating even more opportunities for combinatorial innovation.When a business traveler calls home to talk to her children via Skype, that may add zero to GDP, but it’s hardly worthless. Even the wealthiest robber baron would have been unable to buy this service. How do we measure the benefits of free goods or services that were unavailable at any price in previous eras? …Despite all the attention it gets from economists, pundits, journalist, and politicians, GDP, even if it were perfectly measured, does not quantify our welfare.“An imbalance between rich and poor is the oldest and most fatal ailment of all republics.” —PlutarchRapid advances in our digital tools are creating unprecedented wealth, but there is no economic law that says all workers, or even a majority of workers, will benefit from these advances. For almost two hundred years, wages did increase alongside productivity. This created a sense of inevitability that technology helped (almost) everyone. But more recently, median wages have stopped tracking productivity, underscoring the fact that such a decoupling is not only a theoretical possibility but also an empirical fact in our current economy.IN SHORT, median income has increased very little since 1979, and it has actually fallen since 1999. But that’s not because growth of overall income or productivity in America has stagnated; as we saw in chapter 7, GDP and productivity have been on impressive trajectories. Instead, the trend reflects a significant reallocation of who is capturing the benefits of this growth, and who isn’t.To capture these distinctions, work by our MIT colleagues Daron Acemoglu and David Autor suggests that work can be divided into a two-by-two matrix: cognitive versus manual and routine versus nonroutine. They found that the demand for work has been falling most dramatically for routine tasks, regardless of whether they are cognitive or manual. This leads to job polarization: a collapse in demand for middle-income jobs, while nonroutine cognitive jobs (such as financial analysis) and nonroutine manual jobs (like hairdressing) have held up relatively well.one CEO, and he explained that he knew for over a decade that advances in information technology had rendered many routine information-processing jobs superfluous. At the same time, when profits and revenues are on the rise, it can be hard to eliminate jobs. When the recession came, business as usual obviously was not sustainable, which made it easier to implement a round of painful streamlining and layoffs. As the recession ended and profits and demand returned, the jobs doing routine work were not restored. Like so many other companies in recent years, his organization found it could use technology to scale up without these workers.“One machine can do the work of fifty ordinary men. No machine can do the work of one extraordinary man.” —Elbert HubbardWhy are winner-take-all markets more common now? Shifts in the technology for production and distribution, particularly these three changes: a) the digitization of more and more information, goods, and services, b) the vast improvements in telecommunications and, to a lesser extent, transportation, and c) the increased importance of networks and standards.Even as the technology destroys geography—a barrier that used to protect authors from worldwide competition—it opens up specialization as a source of differentiation. Instead of being the thousandth-best children’s book author in the world, it may be more profitable to be the number-one author in Science-Based Advice for Ecological Entrepreneurs, or Football Clock Management.Using one-generation measures of social mobility—how much a father’s relative income influences that of his adult son—America does half as well as Nordic countries, and about the same as Britain and Italy, Europe’s least-mobile places.” So the spread is not only large, but also self-perpetuating. Too often, people at the bottom and middle stay where they are over their careers, and families stay locked in across generations. This is not healthy for an economy or society.First, the theory. There are three economic mechanisms that are candidates for explaining technological unemployment: inelastic demand, rapid change, and severe inequality.KEYNES DISAGREED. He thought that in the long run, demand would not be perfectly inelastic. That is, ever lower (quality-adjusted) prices would not necessarily mean we would consume ever more goods and services. Instead, we would become satiated and choose to consume less. He predicted that this would lead to a dramatic reduction in working hours to as few as fifteen per week as less and less labor was needed to produce all the goods and services that people demanded.As Arthur C. Clarke is purported to have put it, “The goal of the future is full unemployment, so we can play.”Keynes was more concerned with short-term “maladjustments,” which brings us to the second, more serious argument for technological unemployment: the inability of our skills, organizations, and institutions to keep pace with technical change. When technology eliminates one type of job, or even the need for a whole category of skills, those workers will have to develop new skills and find new jobs. Of course, that can take time, and in the meantime they may be unemployed. The optimistic argument maintains that this is temporary. Eventually, the economy will find a new equilibrium and full employment will be restored as entrepreneurs invent new businesses and the workforce adapts its human capital. But what if this process takes a decade? And what if, by then, technology has changed again? This is the possibility that Wassily Leontief had in mind his 1983 article when he speculated that many workers could end up permanently unemployed, like horses unable to adjust to the invention of the tractors.When engineers work to amplify these differences, building on the areas where machines are strong and humans are weak, then the machines are more likely to complement humans rather than substitute for them. Effective production is more likely to require both human and machine inputs, and the value of the human inputs will grow, not shrink, as the power of machines increases. A second lesson of economics and business strategy is that it’s great to be a complement to something that’s increasingly plentiful.Thus in a very real sense, as long as there are unmet needs and wants in the world, unemployment is a loud warning that we simply aren’t thinking hard enough about what needs doing. We aren’t being creative enough about solving the problems we have using the freed-up time and energy of the people whose old jobs were automated away.In the long run, the biggest effect of automation is likely to be on workers not in America and other developed nations, but rather in developing nations that currently rely on low-cost labor for their competitive advantage. If you take most of the costs of labor out of the equation by installing robots and other types of automation, then the competitive advantage of low wages largely disappears. This is already beginning to happen. Terry Guo of Foxconn has been aggressively installing hundreds of thousands of robots to replace an equivalent number of human workers…. In other words, offshoring is often only a way station on the road to automation.an excellent education is the best way to not be left behind as technology races ahead. The discouraging news is that today many students seem to be squandering at least some of their educational opportunities. The good news, though, is that technology is now providing more of these opportunities than ever before.The United States was the clear leader in primary education in the first half of the twentieth century, having realized that inequality was a “race between education and technology,” to use a phrase coined by Jan Tinbergen (winner of the first Nobel Prize in Economic Sciences) and used by the economists Claudia Goldin and Lawrence Katz as the title of their influential 2010 book. When technology advances too quickly for education to keep up, inequality generally rises.It seems sensible, then, for educational reforms in the United States to include renewed efforts to attract and retain well-qualified people in the teaching profession, and to remove or retrain consistent low performers. Part of the bargain should also be longer school hours, longer school years, more after-school activities and more opportunities for preschool education.Basic income is not part of mainstream policy discussions today, but it has a surprisingly long history and came remarkably close to reality in twentieth-century America. One of its early proponents was the English-American political activist Thomas Paine, who advocated in his 1797 pamphlet Agrarian Justice that everyone should be given a lump sum of money upon reaching adulthood to compensate for the unjust fact that some people were born into landowning families while others were not. Later advocates included philosopher Bertrand Russell and civil rights leader Martin Luther King, Jr.And just about all the research and evidence we’ve looked at has convinced us that Voltaire was right. It’s tremendously important for people to work not just because that’s how they get their money, but also because it’s one of the principal ways they get many other important things: self-worth, community, engagement, healthy values, structure, and dignity, to name just a few.In his book Drive, Daniel Pink summarizes the three key motivations from the research literature: mastery, autonomy, and purpose.But in the long run, the real questions will go beyond economic growth. As more and more work is done by machines, people can spend more time on other activities. Not just leisure and amusements, but also the deeper satisfactions that come from invention and exploration, from creativity and building, and from love, friendship, and community. We don’t have a lot of formal metrics for those kinds of value, and perhaps we never will, but they will nonetheless grow in importance as we satisfy our more basic economic needs. If the first machine age helped unlock the forces of energy trapped in chemical bonds to reshape the physical world, the real promise of the second machine age is to help unleash the power of human ingenuity.

If you want to understand what the economics of the future will look like, read this book. The authors did a great job in the exposition, but it does n’t have all the answers. The author of Average Is Over : Powering America Beyond the Age of the Great Stagnation is the same as the author of Average Is Over : Powering America Beyond the Age of the Great Stagnation. Their last book explained how advances in computers androbots are putting an increasing strain on our society and challenging conventional economics about work and economics. The Great Stagnation : How America Ate All The Low-Hanging Fruit of Modern History, Got Sick, and Will ( Eventually ) Feel Better argument was overturned by them. In addition to powerful and useful artificial intelligence, the other recent development that promises to further accelerate the second machine age is the digital interconnection of the planet ‘s people. Humans are the best resource for improving the world and the state of humanity. 1 billion of us. I had gotten too focused on the technical angle. We can change how many Einsteins we lose out on because they were in a rural village disconnected from the rest of the world. The same dynamics that help lost Einsteins reach their potential widen the gap between them and everyone else, thanks in part to the “ winner take all ” dynamics of global markets. According to the authors, today ‘s information technologies favor more skilled over less skilled workers, increase the returns to capital owners over labor, and increase the advantages that superstars have over everybody else. rynjolfsson emphasizes the importance of education for helping future workers adapt – but he also recognizes that there will likely come a point when technology changes so fast that most people ca n’t keep up. A massive future disruption for developing nations dependent on labor is something he is concerned about. He tries to alleviate some of the concerns by pointing out that human labor will be in great surplus and that supply/demand dynamics will allocate that labor to new and efficient uses. The final part of his book is not very satisfying. He touches on ideas like a guaranteed basic income and raises the right question – how will people find meaning in their lives if they do n’t have to work ? Maybe the politics become too fiery and radical for their taste. Also… all of these guys. You can use computers to help you win in style chess. They are trying to say that the future is about racing with the machine, rather than racing against the machine. It seems highly unlikely that we will be able to train the majority of the human population to become PhD computer scientists because the best freestyle chess players have a deep understanding of how the programs are working. I do n’t buy it. We can be even more precise about which technology was most important. The steam engine was developed and improved by James Watt and his colleagues in the second half of the 18th century. The second machine age is coming. The steam engine and its descendants did for muscle power what computers and other digital advances are doing for mental power. According to Martin Weitzman, the long-term growth of an advanced economy is dominated by the behavior of technical progress. It is easy to make computers perform well on intelligence tests, but difficult to give them the skills of a one-year-old when it comes to perception and mobility. This situation has become known as Moravec ‘s paradox. The main lesson of thirty-five years of artificial intelligence research is that the hard problems are easy and the easy problems are hard. The stock analysts, petrochemical engineers, and parole board members are at risk of being replaced by machines as the new generation of intelligent devices appears. Gardeners, receptionists, and cooks are secure in their jobs for decades to come. One of the main reasons we cite for the shaping of the second machine age is that digitization increases understanding. Huge amounts of data are readily accessible, and data are the heart of science. “ Productivity is n’t everything, but in the long run it is almost everything. ” He explains that a country ‘s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker. The only viable way for societies to become wealthier is for their companies and workers to keep getting more output from the same number of inputs, in other words more goods and services from the same number of people. Joseph Schumpeter, the topic ‘s great scholar, wrote that “ Innovation is the outstanding fact in the economic history of capitalist society. ” It is mostly responsible for what we would attribute to other factors. Economic growth will eventually stop if there is a big gap between major innovations. We will call it the innovation-as-fruit view of things, in honor of the imagery of all the low-hanging fruit being picked. Exploiting an innovation is like eating fruit for the rest of your life. The true work of innovation is not coming up with something big and new, but recompiling things that already exist, according to another school of thought. The more we look at how major steps forward in our knowledge and ability to accomplish things have actually occurred, the more this view makes sense. They are n’t giving digital technologies their due, but they are world-class economists. The next great meta-idea, invoked by Romer, has already been found and can be seen in the new communities of minds and machines. As the number of building blocks explodes, the main difficulty is knowing which combinations of them will be valuable. The exponential, digital, and recombinant powers of the second machine age have made it possible for humanity to create two of the most important one-time events in our history. Our growth prospects would be fundamentally changed by either of these advances. Since the Industrial Revolution, they are more important than anything else. There is a tendency to assume that there is a fixed pie, that one party can gain only at the expense of another. Second machine age technologies continue to improve at a rapid pace, replicating their power with digital perfection and creating even more opportunities for innovation. When a business traveler calls home to talk to her children, that may add zero to GDP, but it is hardly worthless. The wealthiest baron would n’t be able to buy this service. We do n’t know how to measure the benefits of free goods or services that were unavailable in the past. Despite all the attention it gets from economists, pundits, journalist, and politicians, GDP, even if it were perfectly measured, does not quantify our welfare. The oldest and most fatal ailment of all republics is an imbalance between rich and poor. Rapid advances in our digital tools are creating unprecedented wealth, but there is no economic law that says all workers will benefit from these advances. Wages increased alongside productivity for almost two hundred years. A sense of inevitability was created by this. More recently, median wages have stopped tracking productivity, which is an empirical fact in our current economy. Since 1979 the median income has increased, but it has fallen since 1999. In chapter 7, we saw that GDP and productivity have been on an impressive trajectory. The trend shows who is capturing the benefits of growth and who is n’t. The work by our MIT colleagues suggests that work can be divided into two parts : cognitive and manual. They found that the demand for work has fallen the most for routine tasks. There is a collapse in demand for middle-income jobs, while nonroutine cognitive jobs and nonroutine manual jobs have held up relatively well. Many routine information-processing jobs have been rendered redundant because of advances in information technology. It can be difficult to eliminate jobs when profits and revenues are high. It was easier to implement a round of painful streamlining and layoffs when business was not sustainable. The jobs doing routine work were not restored after the recession ended. He found that technology could be used to scale up without these workers. One machine can do the work of fifty men. There is no machine that can do the work of a man. Why are winner-take-all markets more common now ? Shifts in the technology for production and distribution, particularly these three changes : a ) the digitization of more and more information, goods, and services, b ) the vast improvements in telecommunications Even though geography has been destroyed by technology, it opens up specialization as a source of differentiation. It may be more profitable to be the number-one author in Science-Based Advice for Ecological Entrepreneurs, or Football Clock Management, instead of being the thousandth-best children ‘s book author in the world. America does half as well as Nordic countries and about the same as Britain and Italy when it comes to social mobility. The spread is large and self-perpetuating. Families stay locked in across generations when people at the bottom and middle stay where they are over their careers. This is not good for the economy or society. The theory first. Inelastic demand, rapid change, and severe inequality are three economic mechanisms that can explain technological unemployment. Keynes did not like it. Demand would not be inelastic in the long run, that ‘s what he thought. Lower prices would n’t necessarily mean we would consume more goods and services. We would choose to consume less. He predicted that this would lead to a dramatic reduction in working hours as less and less labor was needed to produce all the goods and services that people wanted. As Arthur C. The goal of the future is full unemployment so we can play. The second argument for technological unemployment is the inability of our skills, organizations, and institutions to keep pace with technical change. When technology eliminates one type of job, or even the need for a whole category of skills, those workers will have to develop new skills and find new jobs. They may be unemployed while that takes time. This is temporary according to the optimistic argument. Entrepreneurs will invent new businesses and the workforce will adapt as the economy finds a new equilibrium. This is the possibility that Wassily Leontief had in mind when he speculated that many workers could end up permanently unemployed, like horses unable to adjust to the invention of the invention. The machines are more likely to complement humans rather than replace them when engineers amplify the differences. The value of the human inputs will grow as the power of machines increases, as production is more likely to require both human and machine inputs. It is great to be a complement to something that is plentiful. As long as there are unmet needs and wants in the world, unemployment is a loud warning that we simply are n’t thinking hard enough about what needs doing. We do n’t use the freed-up time and energy of the people whose old jobs were automated away to solve the problems we have. In the long run, the biggest effect of automation is likely to be on workers not in America and other developed nations, but in developing nations that currently rely on low-cost labor for their competitive advantage. If most of the costs of labor are taken out of the equation, the competitive advantage of low wages is gone. This is already happening. An equivalent number of human workers has been replaced by hundreds of thousands ofrobots. Offshoring is a way station on the road to automation. Excellent education is the best way to stay ahead of technology. Many students seem to be wasting at least some of their educational opportunities. More of these opportunities are being provided by technology than ever before. The United States was the leader in primary education in the first half of the twentieth century, having realized that inequality was a race between education and technology. Technology advances too quickly for education to keep up. It makes sense for educational reforms in the United States to include efforts to attract and retain well-qualified people in the teaching profession and to remove or retrain low performers. Longer school hours, longer school years, more after-school activities and more opportunities for preschool education should be part of the bargain. Basic income came very close to reality in the 20th century and is not part of mainstream policy discussions today. One of its early proponents was the English-American political activist Thomas Paine, who advocated in his 1797 pamphlet Agrarian Justice that everyone should be given a lump sum of money upon reaching adulthood to compensate for the unjust fact that some people were born into landowning families while others were not. Philosopher and civil rights leader Martin Luther King, Jr were later advocates. We have looked at a lot of research and evidence and it has convinced us that Voltaire was correct. It is important for people to work because it is one of the main ways they get many other important things : self-worth, community, engagement, healthy values, structure, and dignity, to name a few. In his book Drive, Daniel Pink describes the three main motivation from the research literature : mastery, autonomy, and purpose. The real questions will go beyond economic growth. People can spend more time on other activities as more and more work is done by machines. Not just leisure and amusements, but also the deeper satisfactions that come from invention and exploration, from creativity and building, and from love, friendship, and community. We do n’t have a lot of formal metrics for those kinds of value, but they will grow in importance as we satisfy our more basic economic needs. The real promise of the second machine age is to help unleash the power of human ingenuity, if the first machine age unlocked the forces of energy trapped in chemical bonds.

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Category: Machine