"Race Against The Machine" vs. "The Great Stagnation"

Race Against The Machine is a 67 page count-argument to Tyler Cowen's excellent (128 page) The Great Stagnation.

January 5, 2012

Race Against The Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy by Erik Brynjolfsson and Andrew McAfee

Race Against The Machine is a 67 page count-argument to Tyler Cowen's excellent (128 page) The Great Stagnation.  

In Stagnation, Cowen argues that the U.S. economy is experiencing structural levels of low income growth and high unemployment as a result of technological slowdown. Past growth was based on leapfrog technologies that altered the economic order and allowed for huge jumps in productivity. These 20th century technologies included the automobile, mass transit, interstate highways, jet airplanes, containerized shipping, antibiotics and modern medicine, reliable fuel and electrical power, and the development of communications networks.   

The big 21st century technologies, as viewed by Cowen, increase our quality of life but are incapable of driving dramatic increases in productivity. Netflix, Hulu, the iPad, the Kindle and the Xbox might be fun for the consumer, but they create relatively few new jobs and do nothing to make in-person services like health care and education better and cheaper. Cowen believes that the "low-hanging fruit" for productivity gains have largely been picked, and that the rich world will need to re-adjust its expectations, and stop borrowing from emerging economies (like China) to support unrealistic levels of consumption.

The authors of Race Against the Machine think that Cowen has the story exactly backwards. Rather than stagnating, 21st century technologies are poised for exponential leaps in power and utility. The combination of industrial era technologies, such as airplanes and automobiles and power plants and electrical grids, merged with 21st century digital technologies will result in productivity gains that will outstrip anything seen in the previous century.  

Combine advanced imaging, engineering and geospatial processing power with oil exploration, and you get access to huge deposits of oil and natural gas in previously inaccessible deep water. Match distributed computer power to the energy grid, and you get big advances in efficiency and transmission. Improvements in batteries and control systems will make hybrid autos more energy efficient, reliable and eventually less expensive. Jet airplanes were a big advance, but when combined with computer controls and monitoring, new composites, and GPS enabled navigation, tomorrow's jet airplanes (like the Boeing 787 Dreamliner) will offer spectacular leaps in fuel efficiency, range and comfort. Technology driven improvements in industries from renewable energy to agriculture to automobiles to aviation are just getting going, and it is these technological innovations (not stagnation) that pose the real challenge in the years ahead.

While Brynjolfsson and McAfee disagree with Cowen's on the causes of world economic difficulties, they agree that we face a range of economic problems. These problems take two main forms, inequality and employment volatility. Of these two problems, the authors of Race Against the Machine stress the jobs problem (from unemployment to wage stagnation to income insecurity) as the most pressing. They argue that it is the acceleration of technology that is causing a structural decline in the demand for labor. 

A technologically driven economy is a capital intensive economy. Labor intensive industries, such as personal services (from restaurants to tourism to personal care) tend to be low-wage industries. Cloud computing might offer great productivity advantages, but data centers can be run by only a few workers. While millions of people may buy iPads, only a few (highly paid) people will design the hardware and the software in which new devices depend.  The manufacturing of the iPads can be done in low labor cost areas (China), and even these factories are shedding people as robotics and CAM (computer aided manufacturing) become increasingly common.

Race Against the Machine argues that the realignment of high wage industries towards a capital intensive orientation is permanent, and will only accelerate with gains in technology. What is needed are new types of educational investments that can give more people the necessary skills to compete in a creative economy and to generate new forms of wealth and value. The high wage jobs of the future will be around exportable services, and these jobs require high levels of analytical and creative skills.

Who is correct? Is wage stagnation, employment insecurity and inequality better explained by Cowen's model of exhausted innovation, or by Brynjolfsson and McAfee's thesis that technology is overrunning the ability of our educational systems (as well as our government and employer structures) to adapt? Thoughts?

What are you reading?


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