Let them eat smartphones

“We are being afflicted,” wrote John Maynard Keynes in 1930, “with a new disease of which some readers may not yet have heard the name, but of which they will hear a great deal in the years to come — namely, technological unemployment.” He elaborated:

This means unemployment due to our discovery of means of economising the use of labour outrunning the pace at which we can find new uses for labour. But this is only a temporary phase of maladjustment. All this means in the long run is that mankind is solving its economic problem. I would predict that the standard of life in progressive countries one hundred years hence will be between four and eight times as high as it is to-day. There would be nothing surprising in this even in the light of our present knowledge. It would not be foolish to contemplate the possibility of a far greater progress still.

Indeed, Keynes thought it entirely possible that, by 2030, scientific and technological progress would have freed humankind from “the struggle for subsistence” and propelled us to “our destination of economic bliss.” Technology would be doing our jobs for us, and the economy would have spread material wealth to everyone. Our only problem at that point would be to figure out how to use our endless hours of leisure — to teach ourselves “to enjoy” rather than “to strive.”

We’re now within spitting distance of 2030, so a progress update on the Keynesian utopia would seem to be in order. A good place to start might be this chart from MIT’s Andrew McAfee:

For more than 30 years after World War II, McAfee observes, GDP, productivity, employment, and income all rose together in seeming lockstep. But in the early 80s, we began to see a “great decoupling,” with growth in employment and household income faltering even as output and productivity continued to shoot upward.

By the end of 2011, things had become much worse in two ways. First, median household income was actually lower than it was a decade earlier. In fact, it was lower than at any point since 1996. And second, the American job creation engine was sputtering badly. Between 1981 and 2001 the economy generated plenty of low-paying jobs. After 2001, though, it wasn’t even generating enough of these, and employment growth started to lag badly behind GDP and productivity growth.

What happened? It’s not entirely clear. Surely there are many forces at work. But McAfee argues that one of the reasons for the decoupling is that technological progress, particularly in the form of computerization, is pushing the economy’s bounties away from labor and toward capital:

Digital technologies have been able to do routine work for a while now. This allows them to substitute for less-skilled and -educated workers, and puts a lot of downward pressure on the median wage. As computers and robots get more and more powerful while simultaneously getting cheaper and more widespread this phenomenon spreads, to the point where economically rational employers prefer buying more technology over hiring more workers. In other words, they prefer capital over labor. This preference affects both wages and job volumes. And the situation will only accelerate as robots and computers learn to do more and more, and to take over jobs that we currently think of not as “routine,” but as requiring a lot of skill and/or education.

McAfee has been writing astutely on the economic consequences of computerization for some time, and I think it’s fair to say that, like Keynes before him, he’s an optimist when it comes to technology. He believes, or at least wants to believe, that we’re in another “temporary phase of maladjustment” and that we’ll be able to innovate our way out of it and recouple what’s been decoupled. But just how we get off the path we’re on, he admits, is far from clear: “it’s not going to be reversed by a couple quick policy fixes or even, I believe, by deeper changes to our educational and entrepreneurial systems.” We’ve entered a new “technological era,” and the old assumptions and solutions may not hold anymore.

It’s always been pretty clear that technological progress has an economic bias — that it tends to reward some folks more than others. Many economists have argued (and many politicians have assumed) that the bias is fundamentally “skill-based.” Progress rewards the skilled and punishes the unskilled. That’s a tough problem, but at least you know how to solve it: you broaden the reach and quality of education in order to shift more people into the skilled camp. But, as Paul Krugman recently suggested, what we might be seeing today is capital-biased technological change, which “tends to shift the distribution of income away from workers to the owners of capital.” That’s a harder nut to crack:

If this is the wave of the future, it makes nonsense of just about all the conventional wisdom on reducing inequality. Better education won’t do much to reduce inequality if the big rewards simply go to those with the most assets. Creating an “opportunity society” … won’t do much if the most important asset you can have in life is, well, lots of assets inherited from your parents.

The implications, writes Krugman, are “really uncomfortable.”

So maybe Keynes will be proved half-right. By 2030, technological progress will have freed the masses from their jobs, but it won’t have freed them from the struggle for subsistence.

16 thoughts on “Let them eat smartphones

  1. scottbloggs

    Keynes might have been correct. But his date seems rather optimistic.

    Even on our accelerated trajectories, there is little reason to believe that the economic trends won’t continue for some time. The ’80s concerned itself that robots would put us out of work. It didn’t happen. So it seems sensible to expect higher levels of living generally but with an even greater concentration of wealth. If not, what is the qualitative change driving this?

    The fundamental realignment will only occur once the problem of resource scarcity – and therefore allocation – is solved.

    Whilst I’ll bet my house that it won’t be sorted by 2030, it’d be a brave futurologist to put a realistic date on that event.

  2. Smokey

    What McAfee calls “great decoupling” , I’ve always called bifurcation. Same thing really but bifurcation refers to a single dynamic system breaks apart into separate dynamic systems when the single system can no longer apply commonly to all the elements in the system. Think cigarette smoke rising from an ash tray in a still room. It begins as a single column but after about 2 inches, and then as temperature, particle size,intertia and other variabilities intervene on the initial state (the cigarette ‘furnace’) the single column divides into multiple columns each operating on it’s own dynamic system. The end result in an enthropic smoke-filled room.

  3. RRH

    I too read Krugmans blog AND I found and reposted that same quote by Keynes to his blog…this is something that troubles me terribly. I think of how when I was a kid and everyone said “computers” would take peoples jobs and now this is really happening. I know some call me a Luddite, but I figure it in the “Buy Local” train of thought. Not ONLY do I Buy Local, but I DON’T use the self check out, still pay my bills w/ checks and mail them (I find it a hoot how big business tout the “be green” and receive your statement and pay your bills online, but they STILL send out paper adds etc). I weigh the overall cost of my use of paper and I tie it to, how will my action either employee or unemployee a person? I know my little part won’t make a HUGE difference, but I feel we need to be thoughtful of what is “easier” (and quite honestly, I feel that ALL this technology that is supposed to make our lives easier has just created ANOTHER layer of stress and complication to our lives) and what will maintain employment. Everyone touts that we are in a knowledge based economy, but I fail to see how EVERYONE is going to thrive as well as eventually there will be a tipping point where who is going to be able to buy the products the robots make (as all the people will be unemployed) .

  4. Don Marti

    One interesting counterexample is open source software.

    Software is really two complementary goods: the codebase, which can be treated as capital, and the maintenance programming, which is skilled labor. By reducing the sale/investment value of the codebase, open source seems to be redirecting more of the money spent on software to the labor side.

    Open source codebases aren’t totally worthless as capital investments because of brand names and network effects, but pretty close. (When the labor leaves and continues the codebase under a new name, the old version rapidly loses value.)

  5. Kirk House

    “By 2030, technological progress will have freed the masses from their jobs, but it won’t have freed them from the struggle for subsistence.”

    In a Democracy wouldn’t you expect to see wealth redistribution ramp up in response to capital bias? If true, doesn’t this basically guarantee Democrats will continue to win elections as Trickle Down would seem to contradict the concept of growing capital bias?

  6. Daniel Cole

    At Nick’s recommendation I read Martin Ford’s Lights in the Tunnel, and then another book on automation called Race against the Machine. Ford’s book offers several options for addressing technological unemployment that mainly stress the need for government intervention to ease us into the transition of an economy no longer based on human labor. The latter book suggested that we look toward a market based solution where more and more people become innovators creating things like Kickstarter, apps for phones or other glorified bake sales. The idea was essentially that the overall economy will come to consist of human entrepreneurs with machines doing the work.

    I have to say, I find the first idea a lot more viable than the second. There’s just no way we’re going to get through the coming periods of massive unemployment without government intervention. The idea that we’ll all just innovate our way out is absurd. If I’m going to be left to my wits to provide for myself and my family coming up with some new frivolity and hoping it catches on does not sound like a solution to me, and even if it were possible to make that float it wouldn’t be the kind of society that I would want to live in.

    One major element of the coming difficulties will be whether people who are so in love with the idea of a utopian free market system can accept that it has no way to appropriately cope with a situation in which human labor is superfluous.

  7. Machin Shinn

    I would argue that we are already at the point Keynes envisioned.

    Obesity is a far larger problem than starvation in the developed world. Actually, starvation is simply nonexistent in the developed world.

    No one in America goes without food or shelter voluntarily. The long-term homeless we do have suffer from mental conditions, not lack of economic goods.

    Remember, absolute poverty (subsistence) is defined by various UN/World organizations a $2/day in purchasing power parity. I’d argue no one in America, at least in sub-urban/urban regions is below that mark.

    This might sound crazy to some, only because we’ve raised the bar so high in terms of what we consider ‘poverty.’ I know people who consider themselves poor who pay $40/month for a cell phone plan. That $40/month alone almost disqualifies them from the label.

  8. yt75

    Do you people know that the “Arab embargo” was an almost complete non event ?
    That the US went through its oil production peak in 1970 at 10,5 millions barels day, now around 6,5 (C+C)
    That this was the prime reason for the first oil shock ?
    That today’s crisis is primarily an oil shock :
    That this oil shock is also the global peak so only beginning ?
    The mountains of debts ?
    Yes not only an oil shock but also the mountains of debt on top of it, mountains which by the way started right after US peak and dropping of Bretton Woods in 1971 (transition to fiat petro dollar), and have been pumped ever since.
    This “technological vision” of the economy remains a joke in the overall picture, there is no “post industrial” economies, only hyper industrial, and the energy crunch is happening now.

  9. Cindy Wolff

    Starvation does exist in the developed world and obesity doesn’t always have to do with having too much to eat. It also doesn’t have to do with lack of activity because people choose to sit on the couch all day rather than work. It’s also about eating the stuff that’s bad for you because it’s cheap. Usually, cheaper food is over-processed, and higher in sugar, fat and sodium. It’s also about being under employed. Just because one doesn’t fall into the category of the UN standard of subsistence, doesn’t mean someone can pay the rent, feed their family and afford medical care with ease.
    A phone is a necessity. That $40/month for phone service allows employers to contact you in case you are selected for employment.
    Machin Shinn was either joking or really saying “Let them eat smartphones”.
    With regard to skills, I don’t buy industry’s lament that there are not enough skilled people. They are unwilling to train people with transferrable skills and then blame their reluctance to hire on a perceived inferiority of education. No one springs from the head of Zeus perfect for any job and there is always a learning curve of some kind. The lack of innovation that is decried is a lack of innovation to make labor continuously obsolete. The skills that are sought after by these industries are only for a fixed period in time but curricula are being driven by this notion of a lack of a skilled work force.

  10. Sag Alles Ab

    About the same time Keynes made that statement, Bertrand Russell wrote “In Praise of Idleness” (http://www.zpub.com/notes/idle.html).

    As early as 1883, Paul Lafargue had written “The Right To Be Lazy” (http://www.marxists.org/archive/lafargue/1883/lazy/index.htm).

    Nowadays, Italian sociologist Domenico de Masi defends a simple solution: each individual must work less and engage in what he calls “creative leisure”. The notion that formal employment is the measure of the progress of a country is a sad legacy from 20th-century industrial societies; in today’s world, where the production of ideas has taken center stage, it doesn’t make much sense anymore.

    If wealth, time and work were more evenly distributed (and if birth control were not sabotaged by churches and governments), the entire world population would live in great comfort TODAY.

  11. Tom Shillock

    Economists use years of education as a proxy for skill level because it is difficult to provide an objective or easy metric of skill.

    Yet it seems to me that skill has little to do with years for formal education or pay and more to do in with experience, practice. Pay is a function of several factors only one of which can be skill. Being in the right industry affects one’s income for a given level of skill, as Jamie Galbraith pointed out in Created Unequal (1997).

    Technology does not necessarily automate “low skilled” jobs and leave “high skilled” jobs untouched. Also repetition (or routine) has nothing to do with skill: more skilled jobs are not necessarily less repetitive.

    MDs that specialize in reading scans (MRI, CAT, etc.) are paid hundreds of thousands of dollars per year to perform a highly repetitive and highly skilled job. Its repetitiveness causes errors, which is why “double reads” is used in ambiguous and important cases. It will not be long before computerized neural nets replace them at lower cost and lower error rate.

  12. Robert Young

    My website has the following subtitle: “It’s the Distribution, Stupid”. And that’s the underlying issue. After WWII, with the collective-ist (“we’re all in this together against the Axis”) meme that persisted, we had a blue collar middle class. National income was available to most folk, who bought their production. With the shift to non-productive “service” domestic employment (simply, overhead), we get this mismatch. It will not end well.

  13. John

    Big Corporations like to state they’re the ones creating new technologies and new jobs (they do spend a lot of money on advertising trying to convince us), but in reality they tend to only commodify ones from pre-existing industries. The vast majority of new jobs and new (previously non-existing) opportunities come from small independent companies. If our economic ecosystem does not foster the continued development and speciation of small companies then our economy and the government which lives off it will continue to starve.

    In order to make our country healthier and more durable we need to detach ourselves from inherently fragile large corporations that are overly optimized for short term profits. These large corporations are too dependent on the government wielding it’s regulatory power in order to create an artificially-stable and a less free socioeconomic system to protect them. We need the proliferation of more small and medium sized companies that have built-in redundancies with integrated dual functionality that allow them to evolve easier and better endure the shocks and randomness of freedom.

    It’s not hard to see that in many ways the American middle class is worse off than it was 30 years ago, even though we have adopted a vast amount of technological advancements in that period. The problem I believe is centered around that types of tools that have advanced in those three decades contrary to types of tools that have not. This is caused by the size of institutions who had access to the required capital and resources to do the advancing. Large institutions make tools and technologies that empower their large size by giving them greater control over large amounts of people in order for them to create their own isolated economic environment. Smaller companies tend to create tools and technologies that maximize their limited resources and empowering small groups to be nimble and quicker to adapt to the ever changing economic landscape. If our economy seems stagnant and slow to adapt, it’s the result of us wrongly empowering too many large corporations which through mergers and acquisitions eventually bestowed too much power to a stagnant few.

    Big bloated government creates big fragile corporations. Large institutions tend to innovate less on their own and rely on consuming/buying smaller creative companies as a strategic method to progress. This plan stops working when big government and big corps have colluded for decades until it reached a point where they stifled and killed the innovative engine of the independent small company. These large institutions have created tools and technologies that have mostly benefited themselves while at the same time they unintentionally eroded the middle class and the small and medium size companies that create it.

    Real progress empowers the individual by elevating a person’s uniqueness and their special role within their community. Much of what gets advertised as technological progress today actually does the opposite and reduces elements of human labor and intelligence into a numerical value to be bought and sold like a commodity. Large and inherently fragile institutions (regardless if they’re corporate or governmental) rarely expand individual freedom and create new innovations and genuine opportunities for the development of the middle class. More often than not, large institutions seem systemically biased to only create more effective chains.

  14. Mark

    We may have reached Keynes future but population growth increased. Why because instead of being old and near the end of life at 72 that date is now in the late 80s and 90s. The best thing that could happen is for the birth rate around the world to drop below replacement.
    The other thing to keep in mind is the Service Economy can not last. The only industries that produce real wealth is the extraction of natural resources, farming, and manufacturing. While the service sector makes life easier and the economy more efficient it is mainly moving wealth from one pocket to another. Think of it this way if you are not making more pies as you add more people then you have to cut more slices. Some people will get bigger slices and some get only crumbs.

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