Is Technology Increasing or Decreasing Inequality?

In the case of wealth, as measured by money, the answer appears to be increasing. In the case of capabilities, as measured by utility, the story is more complicated. A big CEO may have orders of magnitude more wealth than I do, but he does not necessarily have comparably better access to information, communication, and entertainment. For example, we both probably have similar cell phones. This partly has to do with the diminishing marginal utility of money. But technological acceleration is also playing a role.

The usual trend with a new technology seems to be that at first it is very expensive, and then as time passes the price drops dramatically. Thus over the long haul, access tends to equalize, but there is a critical delay that occurs during which some people have a technology and some people don’t. These delays can be very significant. To cite a classic example, imagine it’s the fifteenth century and your civilization has access to firearms while your enemies do not.

With technological acceleration the delay times are shortening (a good thing for equality), but the comparative advantage of having a technology first is potentially increasing (a bad thing for equality). These two countervailing forces make assessing the overall effect rather complicated. My guess is we will see increasing democratization up until the point that the first mover advantage becomes insurmountable. Having a smart phone a month before your neighbor is not such a big deal, but having brain-enhancing implants first is another thing altogether.

Andrew McAfee on Why We Should Care About Inequality

Andrew McAfee has written a typically insightful blog post on the dangers of inequality.

“Some very important things are still expensive, and getting more so over time. Here’s a graph produced by economist Jared Bernstein (full presentation here) showing that housing, education, and health care — three biggies — have increased in price far more than middle class family income over the past 20+ years.” (read more)

This to me is the core of threat we face from technological unemployment. Eventually technology will lower the cost of education, health care, and even housing (in that order) but will this happen soon enough to ease the suffering of the newly unemployed?

Paul Krugman Acknowledges That Technology Causing Income Inequality is a Story That’s “Starting to Have Some Plausibility”

I take Krugman’s recent interest in this topic as a positive sign. The economic impact of rapid technological change on our economy may be beginning to bubble up to the point of mainstream awareness.

“It’s not the case that eras of technological progress are always periods when workers are doing better. The industrial revolution was not…

Technology has shifted in a way that really favors capital over labor. That makes it possible to replace people with machines.” —Krugman

Link to: Huffington Post Video Interview.

The considerably more radical Martin Ford has been critical of Krugman’s positions, saying:

“Does Paul Krugman really believe that it is possible to have a “society that grows ever richer” while a tiny number of robot owners hoover up more and more of total income and the jobless masses consume the output by running up their credit cards or cashing in their 401(k)s?”

The point is that the robot revolution is not just about income inequality. It will ultimately impact the sustainability of economic growth.” —Ford

Link to: Ford’s full blog post

The Growing Gap Between Creative Jobs and Routine Jobs

Roger Martin at Wired writes:

“However, the real challenge for the U.S. economy is what to do with routine-oriented jobs in dispersed industries. That category makes up almost half of the jobs in America and the average employment income for these jobs is under $25,000. That is a big chunk of America that is just scraping by economically…

“The current challenges with income inequality are in large part a function of the emergence of these two extremes — the creativity-oriented workers in clustered industries (a little more than 10 percent of jobs) and routine-service workers in dispersed industries (about a third of all jobs). The former are doing great — they aren’t being outsourced or downsized or laid off. The latter are being squeezed in every way.”

It’s certainly a clear statement of the problem (complete with some nice graphs). However I am a bit skeptical of the proposed response:

“[My] view (and Richard’s) is that we have to rethink how we utilize workers in our advanced economy. We fear that job structuring and classification becomes entirely self-sealing for many American workers. Once a job is defined as routine, it becomes routine and the individual in it doesn’t exercise judgment or decision-making. That employee then becomes by definition low-productivity and both can’t be paid much and is easier to think of as a candidate for off-shoring.

“If instead, the employee was asked to exercise judgment and decision-making in order to innovate and enhance the productivity of the operation, then the possibility for higher productivity, higher firm performance and higher wages exists.”

I think contained within this statement is good advice for employees, who should make it their business to avoid being pigeon-holed into routine tasks and narrow job descriptions whenever possible. However its not clear why this would necessarily be a compelling case for employers, who often benefit from a supply of low cost, interchangeable workers. In other words, if we want to empower more workers to make creative decisions, how are we going to sell the bosses on that concept?

Read the full article.

Abundance of Links — Democratized Brain Enhancement, Labor Polarization, Decline of Conspicuous Consumption

1. Will Brain Stimulation Technology Become Widely Adopted as a Learning Aid?

Dr. Roi Cohen Kadosh, who has carried out brain stimulation studies at the Department of Experimental Psychology, very definitely has a vision for how TDCS could be used in the future: “I can see a time when people plug a simple device into an iPad so that their brain is stimulated when they are doing their homework, learning French or taking up the piano,” he says.

“This technology overcomes some standard objections to enhancement: It is not a set of cheat notes,” says Julian. “You require effort and hard work to learn. It is just that you get more out of your effort. And because it is cheap, low tech, easily affordable, it could be widely available.”

 2. What If Middle-Class Jobs Disappear?

There are two challenges. One is the sheer speed of adjustment. In a hyper-Schumpeterian economy, the main work consists of destroying someone else’s job…

The second challenge is the nature of the emerging skills mismatch. People who are self-directed and cognitively capable can keep adding to their advantages. People who lack those traits cannot simply be exhorted into obtaining them.

3. The Twilight of the Leisure Class

An end to conspicuous consumption means an end to a consumption arms race where demand can never be sated. There really is only so much you can eat, wear and drive, or click and stream, so if we take the “conspicuous” out of the equation we have a society going down a much different economic path…

The wealthiest of the one-tenth of the one percent are holding the same iPhone and using the same applications as my babysitter. As I write this I am sitting in the walkout basement of my son’s house, using a computer that is identical to that of one of my former billionaire bosses.