Comparing current automation to the Industrial Revolution isn’t actually so comforting

by on February 16, 2017 at 8:16 am in Current Affairs, Economics, History, Web/Tech | Permalink

That is the theme of my latest Bloomberg column, here is the opening bit:

“Why should it be different this time?” That’s the most common response I hear when I raise concerns about automation and the future of jobs, and it’s a pretty simple rejoinder. The Western world managed the shift out of agricultural jobs into industry, and continued to see economic growth. So will not the jobs being displaced now by automation and artificial intelligence lead to new jobs elsewhere in a broadly similar and beneficial manner?

And:

Consider, for instance, the history of wages during the Industrial Revolution. Estimates vary, but it is common to treat the Industrial Revolution as starting around 1760, at least in Britain. If we consider estimates for private per capita consumption, from 1760 to 1831, that variable rose only by about 22 percent. That’s not much for a 71-year period. A lot of new wealth was being created, but economic turmoil and adjustment costs and war kept down the returns to labor. (If you’re wondering, “Don’t fight a major war” is the big policy lesson from this period, but also note that the setting for labor market adjustments is never ideal.)

By the estimates of Gregory Clark, economic historian at the University of California at Davis, English real wages may have fallen about 10 percent from 1770 to 1810, a 40-year period. Clark also estimates that it took 60 to 70 years of transition, after the onset of industrialization, for English workers to see sustained real wage gains at all.

From that turmoil, we also received Marxism and agricultural subsidies for generations!  Do read the whole thing

1 Keith February 16, 2017 at 8:29 am

Very clear and informative! I learned that Ag subsidies are just UBI for farmers (and politicians).

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2 Arjun February 16, 2017 at 11:26 am

This actually isn’t a bad way to think about this. One would assume that if there was a UBI, there would be many people who would stick to doing what they are used to doing, and what sustains the communities that they are a part of–just like how agricultural subsides play a role in sustaining farming communities across the US. Of course, in a UBI situation we probably wouldn’t want to subsidize massive mega-corporations.

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3 PD Shaw February 16, 2017 at 11:33 am

From the source on subsidies in the link: “Economist Vincent Smith found that the largest 15 percent of farm businesses receive more than 85 percent of all farm subsidies.”

This is less like UBI than typical government approaches: we help people with healthcare by giving money to doctors, with the idea that the benefits will trickle down to the consumer.

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4 Bill February 16, 2017 at 8:48 am

We still have agricultural subsidies put in place in the 1930s to raise and stabilize prices. Funny thing is though that Republican Senators, like Thune and others, are the ones who dress and pretty the pig by calling it insurance, with the government paying most of the premium.

Conservatives do not wish to upset the base by taking away or limiting the subsidies to their rural constituents.

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5 derek February 16, 2017 at 10:02 am

Is this floating a campaign strategy for 2018?

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6 Daniel Weber February 16, 2017 at 10:27 am

The Congressional supporters of farm subsidies are those representing geographic areas that get farm subsidies? Wow!

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7 prior_test2 February 16, 2017 at 10:53 am

Well except for those congressmen that believe in draining the swamp, reducing government to the size where it can be drowned in a bathtub, and otherwise ensuring all American citizens live free of becoming dependent on government handouts being bigger hypocrites than most.

Of course, public choice economics has an explanation for why farm state Republican congressmen are such stunning hypocrites, but oddly, this web site run by two public choice economists prefers to generally focus on other things.

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8 Harun February 16, 2017 at 2:23 pm

Cruz came out against corn subsidies.

So, its not every conservative.

He still won Iowa, too.

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9 Bill February 16, 2017 at 3:49 pm

Actually, no. What you are talking about is ethanol requirements which hurt the oil industry. What I am talking about are price supports.

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10 Harun February 16, 2017 at 7:03 pm

Similar though…its a subsidy for a crop.

Also:
Cruz voted in favor of a bill which proposed limiting “the amount of premium subsidy provided by the Federal Crop Insurance Corporation on behalf of any person or legal entity with an average adjusted gross income in excess of $750,000.” It was approved by the U.S. Senate on May 23, 2013.[7]

Baby steps…

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11 Bill February 16, 2017 at 8:21 pm

What he voted for was previously proposed by Democrats re the AGI limitation.

12 Hazel Meade February 16, 2017 at 4:03 pm

Dressing up the pig as insurance is a first step towards slowly reducing how much of the premium the government pays.

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13 Marco February 16, 2017 at 8:49 am

Agricultural subsidies as evidence against the benefits of automation? It’s a long shot. Yes, they make 38% of the EU budget – but you forget to mention that the EU budget is less than 1% of EU GDP – a rounding error. You shouldn’t start revolutions over marginal issues.

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14 Cooper February 16, 2017 at 3:05 pm

If the EU spent its budget on better projects, there might be more political will to expand that budget.

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15 Peldrigal February 17, 2017 at 8:56 am

I thought that starting revolutions over marginal issues was the whole point!

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16 yo February 16, 2017 at 8:50 am

Isn’t that just what Kuznets found out in the 1960s-ish?

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17 Todd Kreider February 16, 2017 at 9:01 am

Thanks for linking to Gregory Clark’s article. Notice the phrase “purchasing power” that he uses. But there is this in the article:
“Figure 1 shows the estimated real purchasing power of the hourly wage of building workers from 1209 to 2004 by decade.”

I remember several years ago Clark said that Angus Maddison’s per capita GDP measurements prior to 1800 was worthless.

And I just found the quote in Clark’s review of Maddison’s 2007 book:
“There is, however, a problem at the core of the book, and indeed at the core at the whole Maddison project for at least the last ten years. All the numbers Maddison estimates for the years before 1820 are fictions, as real as the relics peddled around Europe in the Middle Ages. (2009)

http://faculty.econ.ucdavis.edu/faculty/gclark/Book_Reviews/Maddison.pdf

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18 dearieme February 16, 2017 at 10:24 am

“All the numbers Maddison estimates for the years before 1820 are fictions”: although I suspect that economic history is potentially an important discipline, I imagine that getting useful numbers is difficult-to-impossible for most of history. Presumably we don’t even have decent rough estimate for population for most of history.

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19 Joe In Morgantown February 16, 2017 at 2:33 pm

The review assumes that hunter gatherers are no richer (per capita) than farmers. Indeed, his main attack is based on it. However, this assumption is just not true— the first farmers were poorer (per capita) than the hunter gatherers they replaced. Farming societies do have higher densities, of course.

Sometimes the relevant measure of wealth is not the per capita one.

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20 CMc February 17, 2017 at 12:38 pm

Good point

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21 Axa February 16, 2017 at 9:02 am

Indeed, any coding bro that says automation is as good as the Industrial Revolution it’s just because we’re assessing the outcome 200 years later. However, while the Industrial Revolution was happening some things went wrong and people was desperate enough to read Marx in an uncritical way.

By 2117 I’m quite optimist, the effect of automation on life quality will be good, but getting there is going to be a bumpy ride. It’s going to hurt. Perhaps we need a great narrative that tells us that our lives will be hard but our children or grandchildren will profit from automation welfare. However, coding bros say welfare for everyone is already arriving to every human on Earth. Some economists say welfare improvement due to automation/internet already happened but this welfare increase is not measured in GDP.

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22 Ignacio February 16, 2017 at 10:43 am

But maybe we do not need to wait 200 years to see benefits. One thing that also needs to be considered is the huge increase in population during the period of the industrial revolution. It is true that the per capita income of workers may not have risen for many decades, but maybe it is because of the great supply of workers during such period, which could not be so easily used by the available capital.

We are not expecting a similar population increase during this century, so we may not have to wait so long for the return for labor to increase again.

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23 wiki February 16, 2017 at 11:15 am

But if the countries producing the innovation have low population growth but those with bad institutions and growth have increasing populations, then cheap migration and worldwide democratization can swamp the benefits of birth restraint and new technology. It could also destroy political support for restraint and new innovation.

This is not just true for N. America and the EU but for China as well. All the growth is driven by productivity in the small areas of the East and the coastal regions, but the bulk of the population in the West and Center of China is held back by the hukou system. But that is potentially a fragile bargain dependent on continuing to deliver wage gains and high gdp growth.

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24 The Engineer February 16, 2017 at 9:06 am

If we can’t adjust for inflation properly for the period 1999 to today, or 1969 to today, how on earth could we possibly do so for 1760 to 1831?

For the people that were actually alive in 1969, or even 1999… does it look like we are collectively poorer now than then?

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25 Callan February 16, 2017 at 9:32 am

yes, the great confidence these economists place in sketchy economic data from the 1700’s is unjustified

also, they are not at all addressing/comparing the actual issue of “automation” in any direct or practical sense

the supposed “Automation” issue here seems very shallow and contrived– akin to Fake-News

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26 P Burgos February 16, 2017 at 10:56 am

The fact that it is an open question of whether the industrial revolution raised living standards for the population for its first 100 or 150 years or so is itself a significant data point, even with all of the caveats about the uncertainties in trying to estimate living standards back then.

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27 P Burgos February 16, 2017 at 11:10 am

Also, the art and literature from the time seems to portray industrial cities as centers of poverty, full of “dark Satanic mills.” Just think of Charles Dickens, Stephen Crane, and Upton Sinclair. The world they portray is very different than authors like John Updike, Arthur Miller, or even Tennessee Williams.

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28 The Engineer February 16, 2017 at 11:20 am

Not necessarily. It could be that rising economic fortunes allowed people to become more literate and thus build a market for literature. And those authors filled that market.

29 Sam Haysom February 16, 2017 at 12:36 pm

In which case critics likely would have mentioned how excessively dark and pessimistic the novels were.

30 Thiago Ribeiro February 16, 2017 at 9:35 am

I was not alive in 1969 but I think the answer is yes for what used ro be called the Middle Class. Are dual income couples more than twice richer than the Middle Class families in 1969 where the men were the sole wage earners? OK, take in account that women for whatever reason, on average, make X cents for every dollar men earn – are dual income families today kore then 185% richer than yesterday’s mono-income families? By how much? There are more pwople making money, but it seems the average American worker is dramatically poorer than he was at the endo of America’s version of the Thirty Glorious years after WW II. Hence Trump. Can America’s economy be made great again? I doubt.

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31 The Engineer February 16, 2017 at 11:23 am

I don’t think that there is any question that the two earner couple is materially better off than the one bread winner in 1969.

How do you separate the socio from the economic in socioeconomic? Should I be concerned that someone who is not educated, or someone who is multiply divorced, or someone who is the product of single parenthood, is worse off than in 1969? Or someone who is not working, for whatever reason?

The fact is that folks who are even minimally educated, who get and stay married, and who work are better off now than they were in 1969.

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32 Thiago Ribeiro February 16, 2017 at 12:23 pm

Yeah, two people make more money than one person who is like the previous one. What I am asking is, are the family unity two times richer than it used to be? I think it is clear the typical Middle Class American worker (that is, an individual, woman or man, it doesn’t matter) gets much less than the typical Middle Class America worker (male because it was what typical meant back then) in 1969. By a long shot. It is doubtful a single White American (who is a more useful case because we don’t have to think about all distortions Segregation and all that created) single man can live today as well as his father did before marrying. Economically, I mean.

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33 kevin February 16, 2017 at 1:16 pm

Comparing single white men brings up all sorts of distortions due to segregation. In 1969, a whiteman would be hired for a job his black counterpart, even if he was better qualified, would not even be considered for. For some jobs, if the black man was hired he earned significantly less pay. You really need to look at the aggregate

34 Thiago Ribeiro February 16, 2017 at 2:12 pm

Fair enough. Is a single Middle Class worker (woman, man, Black, White) today im a better situation than a single Middle Class worker (typically, a White man, I guess) was in 1969? I doubt it.

35 Hazel Meade February 16, 2017 at 4:51 pm

It’s all about housing prices. Houses, and hence mortgages, were way cheaper in 1969. Leaving much more disposable income for entertainment, college savings, vacations, retirement, etc.

In inflation adjusted terms, housing prices are still significantly higher than historical norms and have been there since the late 90s. There was a moment in 2011-2012 when they almost got back to normal but then they started inching back up again.

http://www.jparsons.net/housingbubble/

36 Hazel Meade February 16, 2017 at 4:53 pm

It’s also worth noting how the inflation adjusted pre-bubble trend was also slowly rising.

37 Hazel Meade February 16, 2017 at 4:56 pm

The cost of paying for the kids college education is also astronomical, so the two-earner middle-class family has far more anxiety about how their children are going to do. I mean, there may be a lot of rage over the fact that their kids couldn’t afford college and now their kids are struggling. (I would be really pissed about that myself.)

38 wiki February 16, 2017 at 11:17 am

In many ways it’s easier to adjust for inflation in the earlier periods because a) most people lived at a near subsistence level, and b) there were fewer new goods and services available to the masses without the big swings in quality that we have seen in recent decades. The biggest problems for measuring inflation have come in the last century with its rapid growth and explosion of different products for wants and needs often unimagined in early centuries, except perhaps by a tiny subset of the aristocracy.

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39 Slocum February 16, 2017 at 9:13 am

So will not the jobs being displaced now by automation and artificial intelligence lead to new jobs elsewhere in a broadly similar and beneficial manner?

Before worrying about any of that, I think Tyler needs to start applying the ‘great stagnation’ hypothesis to automation and seriously consider the possibility that the low-hanging fruit of automation has already been picked and that remaining tasks — even the most minimally-skilled ones — are not going to be automated any time soon. This looks more like a parody to me than a product. This one is hilarious too. Three big single-purpose robots, plus a conveyor belt, just to automate the most trivial parts of assembling a pizza!? A major capital investment to save at most 15 seconds of low-paid labor per pie? Convert the video to black-and-white and it could almost be an outtake from ‘Modern Times’.

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40 Sir Barken Hyena February 16, 2017 at 9:37 am

Thank you for the fresh breath of skepticism, much needed around these parts

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41 Daniel Weber February 16, 2017 at 10:42 am

Take those pizza-making robots. You don’t even need to read the story: make up a number that they cost. Say it’s a million dollars.

That’s the upper limit. Even if the pizza-robot-makers slack off and do nothing to improve the robots, they will get cheaper each year as the supply chain increases efficiency. If they actually do work, the cost drops even more.

Maybe there is some fundamental limit that they’ll hit such that they’ll never get beneath $100,000, but we don’t know such a limit exists.

Skepticism is good, but it’s also something to worry about. What if they are right? How fast will people be displaced from their old jobs?

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42 anon February 16, 2017 at 10:46 am

As I say, I think Tyler’s essay is about the recent past as much as it is about the future. We don’t need to guess. Just look at the change from many trained machinists to fewer trained CNC masters.

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43 anon February 16, 2017 at 10:48 am

Heck, coal mining went through the same thing. There once were hundreds with picks and shovels. Ever since, machines got better and “miners” got fewer, until they became a very few machine operators.

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44 Slocum February 16, 2017 at 1:00 pm

Notice that the pizza robot doesn’t even attempt do any task that requires dexterity and flexibility (spreading the cheese and ingredients). It hardly matters how much the price dropped — I really can’t see a pizza shop owner accepting those systems for free. They require a lot of floor space and the labor they perform (spreading sauce and putting the pizza in the oven) is of very little value.

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45 The Original D February 17, 2017 at 1:44 am

They’re better off investing a robot to stand outside an act like a carnival barker.

46 anon February 16, 2017 at 10:13 am

We should always listen to the practitioners. For many years AI researchers were short term pessimistic. They may have had hopes for “in 20 years,” but their 1, 3, 5 year projections for deliverables were modest. Now, they themselves are blown away.

https://www.youtube.com/watch?v=21EiKfQYZXc

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47 Jeff R February 16, 2017 at 10:30 am

Yeah, that’s certainly possible. Megan McArdle had a good line about this a while back which many people probably have personal experience with:

Tech Evangelists: Machine Learning will change the world!

Amazon.com email: We see you bought a Alarm Clock. Would you like to buy this other Alarm Clock?

Me: Umm….

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48 kevin February 16, 2017 at 1:23 pm

Maybe you’re right, but one anecdotal subset of an industry hardly convinces me. I can give countless anecdotal industries where automation is displacing jobs. Immediately jumping to mind, the concept of rumba is being extended to lawnmowers and snowplowing driveways. One less minimum wage employment sector.

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49 Slocum February 16, 2017 at 4:44 pm

“I can give countless anecdotal industries where automation is displacing jobs.”

Can you? Countless examples where new categories of jobs have been displaced by new forms of automation in the last, say, 5 years? I’d settle for a good handful.

“Immediately jumping to mind, the concept of rumba is being extended to lawnmowers and snowplowing driveways.”

The Roomba has been around since 2002, has changed relatively little in a decade and a half, and still accounts for a tiny fraction of the vacuum market. The Roomba-style mowers and snowblowers appear to be even less practical and less likely to take their markets by storm than Roomba has.

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50 anon February 16, 2017 at 4:48 pm

Voice recognition, automated translation, automated content generation.

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51 Slocum February 16, 2017 at 5:56 pm

Good stuff, but not really new. Dragon Naturally Speaking, for example, has been around since 1997 and Altavista (the best pre-Google search engine) released an automated translation system called BabelFish also in 1997. I’m not arguing that robotics and smart technologies *haven’t* displaced jobs, rather that this process is plateauing rather than accelerating because the low-hanging fruit has been harvested. And a lot of the remaining jobs we think of as low skilled (hotel maids, gardeners, short-order cooks, roofers, drywall hangers) are, in fact, really complex and way, WAY beyond current AI/robotics capabilities. People make the mistake of assuming that if a task feels easy for them and if below average humans can do it, then of course robots will be able to do it soon, too. But I believe that’s as wrong as thinking it was feasible to assign the problem of machine vision as a summer project to some grad students in 1966:

https://dspace.mit.edu/handle/1721.1/6125

52 Itsallrigged February 17, 2017 at 2:03 am

Driverless cars is a significant capability. Would you consider that low hanging fruit?

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53 The Original D February 17, 2017 at 1:43 am

Yes, but think of all the new jobs for folding robot repairman.

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54 Steven Kopits February 16, 2017 at 9:16 am

England’s population more than doubled from 1760 to 1831. https://en.wikipedia.org/wiki/Demography_of_England

As I recall, Clark’s definition of an economy below subsistence levels is when deaths outnumber births. By this measure, England, and more broadly the UK (which did not exist in its current form at the time), was a roaring economic success during the industrial revolution, even if per capita wages appear to have fallen for a time.

By contrast, today, most of Europe and Japan have fallen below subsistence levels, with deaths outnumbering births.

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55 dearieme February 16, 2017 at 10:26 am

“England’s population more than doubled from 1760 to 1831”: how do you know?

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56 Steven Kopits February 16, 2017 at 11:19 am

Check the link, Dearieme. That’s why I provided it. You can interpolate the numbers from the table there.

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57 dearieme February 16, 2017 at 4:50 pm

You miss the point. There was no census in 1760. So I repeat: how do you know?

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58 dearieme February 16, 2017 at 4:51 pm

Jesus, you must be dim. Even WKPD got the point: “Due to the lack of authoritative contemporary sources, estimates of the population of England for dates prior to the first census in 1801 vary considerably.”

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59 Ignacio February 16, 2017 at 10:44 am

+ 1

I repeat my reply to Axa above:

One thing that also needs to be considered during this period is the huge increase in population during the same period of industrial revolution. It is true that the per capita income of workers may not have risen for many decades, but maybe it is because of the great supply of workers during such period, which could not be so easily used by the available capital.

We are not expecting a similar population increase during this century, so we may not have to wait so long for the return for labor to increase again.

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60 Steven Kopits February 16, 2017 at 11:20 am

So we’re really talking about population elasticity of income. Does increased productivity go into increased population, or increased wages? That’s actually a pretty interesting question, from the economics perspective.

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61 Marmalne February 16, 2017 at 11:35 am

“We are not experiencing a similar increase in population during this century. ”

Yes, we are. It’s just not natural growth, it’s Le Grande Replacement through immigration. But don’t hold your breath for Tyler, signaler extraordinaire, to bring up that.

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62 A Black Man February 16, 2017 at 12:41 pm

What do you mean by “We”? African population growth promises to add a billion people to Europe over the next 50 years. A good chunk of South America plans to relocate to the US over the next 50 years.

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63 ChrisA February 16, 2017 at 11:55 am

Yes I came to say the same thing. GDP did of course substantially increase in these years (that’s why its called the Industrial Revolution), the gains were just shared out among more people. The current IR gains will not be shared out by an increasing population.

It’s pretty clear that there are many innovations today that didn’t exist a few years ago that make life substantially better (like this website). There is definitely am issue that economics has with measuring this improvement, but it is a problem of measurement, not of real life.

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64 rayward February 16, 2017 at 9:19 am

It’s called the dismal science for a reason. The ideas of Marx didn’t create communism, just like the ideas of Hitler didn’t create fascism, wars and the death and destruction and destitution of wars and their aftermath did. Indeed, one could argue, and many do, that absent authoritarianism, the China miracle would never have happened. While that’s an unpleasant thought, a thought I fear has entered the brain of the ignoramus Trump, the flip side is that the China miracle would never have happened absent globalization and trade. And as the alternative to the economic China miracle (resulting from globalization and trade), we could be facing a military China miracle. The path to prosperity is paved with pain and suffering, including that inflicted by our own. It’s convenient to forget how America became the dominant global economic power: a combination of American colonialism and wars that destroyed the competition. American colonialism? That’s not taught in American schools, but it is as real as the nearly one million casualties suffered in the Philippine American War. Stephen Kinzer, The True Flag: Theodore Roosevelt, Mark Twain, and the Birth of American Empire. Trump and the like-minded believe that the path to making America great again is to repeat the well-worn path of the late 19th century and early 20th century. The alternative is a new period of prosperity, shared prosperity, built on technological advancements and globalization and trade. Trump is the pessimist, holder of the dark view, believing that prosperity is zero sum, that prosperity for America comes at the cost of someone else. I don’t share that dark view. I don’t want a repeat of the death and destruction of the 20th century. I look forward to a period of shared prosperity. Of course, for many the very idea of “shared prosperity” is anathema to their ideology. But the choice is to repeat the death and destruction of the 20th century or come up with some creative ideas to achieve shared prosperity. That’s a book worth writing.

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65 rayward February 16, 2017 at 10:56 am

For those whose ideology won’t allow them to consider ways to achieve shared prosperity (i.e., reduction in today’s high level of inequality), I will remind readers how the high level of inequality in the late 19th century and early 20th century was reduced: the destruction of capital, a combination of physical destruction of capital and market destruction of capital, the former via wars in Europe and the latter via financial crisis. The choice is to find creative ways to achieve voluntary shared prosperity or allow nature to provide involuntary shared prosperity. I’d prefer the former: less death and disruption.

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66 A Definite Beta Guy February 16, 2017 at 12:17 pm

Roflmao, yes, the Philippines made the US a juggernaut. That’s why it was so hard to take it from Spain. Spain has, of course, remained the world’s pre-eminent super-power, as it was the strongest colonial power of all time.

Only mighty Portugal ever rivaled Spain.

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67 rayward February 16, 2017 at 1:04 pm

Actually, defeating Spain (in the Spanish American War) was the easy part, defeating the Filipinos (in the Philippine American War that followed), who thought America had defeated Spain in order to liberate the Philippines, was the hard part.

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68 Cooper February 16, 2017 at 2:07 pm

American colonialism was trivial. The entire Philippines involvement was a clear, large net negative for the US economy.

The same is true of Puerto Rico, Guam, Haiti, those random far flung Pacific Islands, etc.

Europe’s rise can be traced in part to ROI+ colonialism but the same cannot be said of the United States.

Slavery was somewhat helpful for economic growth in the first half of the 19th Century but growth rates increased once we abolished it. The net effect of slavery over the last two centuries was clearly negative from an economic point of view. The Civil War’s destroyed most of the capital generated by slave profits and the backward South stayed much poorer than it should have for a century. The lost human capital of mistreating the African American population for so long is massive. Trillions of dollars in excess incarceration costs, welfare costs and lost output.

The real gains from evil came from conquering land held by the Native American population. The US gained tens of millions of acres of productive land at a modest expense. The real rate of return for the Louisiana purchase was over 7%/year and the intangible benefits of a greatly increased footprint on the continent add to the returns.

https://mises.org/library/what-rate-return-louisiana-purchase

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69 chuck martel February 16, 2017 at 8:10 pm

There are no more neolithic populations inhabiting productive lands in temperate latitudes so the New World experience was a unique one that won’t be duplicated. The great Euro-expansion was a one-time thing. Americans think that their advantageous situation is going to continue into the future but that’s probably not the case. Attempting to maintain high rates of growth while tangling society in a cat’s cradle of bureaucratic meddling is a fool’s errand.

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70 Roger Sweeny February 16, 2017 at 2:41 pm

American colonialism? That’s not taught in American schools …

You haven’t been in an American school recently, have you?

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71 Just Another MR Commentor February 16, 2017 at 9:41 am

I like this line
“I might have felt the same way and bit the same bullet, had I been alive in the late 18th century. ”

Yeah Tyler, you’re really making HUGE sacrafices here.

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72 anon February 16, 2017 at 10:19 am

That was the odd line out. The whole essay represents what I think is a new recognition that “immediately past” changes were not as painful as previously believed. There is a new, pessimistic consensus on outsourcing and automation, heavy emphasis on automation. Then, tacked on at the end “and sure, I’m for it.”

Maybe? But if we are for it, it should be paired with some remedy for short term human costs.

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73 anon February 16, 2017 at 10:20 am

Oops, “not as painless”. Sorry for the confusion.

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74 pyroseed13 February 16, 2017 at 9:42 am

I disagree with argument that the transition costs were just as high then than they are today. In fact, there’s a good reason to think they were lower. Transitioning from the farm to factory, both of which are considered forms of low-skilled employment, didn’t require workers to upgrade their skills or education. The problem today is that because of the widening returns between low-skilled and high-skilled jobs, workers who have been walloped by trade and automation will face difficulties finding new jobs for which they are qualified.

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75 dearieme February 16, 2017 at 10:32 am

“both of which are considered forms of low-skilled employment”: considered by whom? Perhaps the 19th century farm labourer was unskilful, but not the farmer. I can remember mixed farming in Britain in the early 1960s: “unskilful” is wide of the mark.

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76 CorvusB February 16, 2017 at 10:39 am

“I disagree with argument that the transition costs were just as high then than they are today. In fact, there’s a good reason to think they were lower. . . .”
What I read of history tells me that this viewpoint is well-founded. During the Industrial Revolution, the labor shift was from one primarily manual task to another. Even so, there were still wide swaths of the public who suffered income loss, rather than gains. Then, as now, there was a stratification of income benefit.

Today, if you have a truck driver who gets replaced, what will that driver do? They will almost certainly lose income, rather than make the labor shift to a replacement task. The drivers may well be intellectually capable of making a shift to a position such as a programmer or technical labor – but the personality that brought them to being a truck driver will prevent them from successfully transitioning.

Easy prediction? Wide swaths of labor disruption and wage loss, even while overall income is rising. [Well, duh, now that was hard, wasn’t it. It’s happening today. If you think it isn’t, you need to get out more. ]

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77 JC February 16, 2017 at 9:42 am

Developing technology requires highly trained personnel but using technology is usually less skills demanding because smart tech developers strive for creating easy to use technology either if it’s a smartphone or a car-painting robot.

Being said that, rich countries are not actually the ones most threaten by the shock of automation because industrial and agricultural workers are relatively few and will not be more tomorrow. Maybe broad adoption of services like Amazon Go will disrupt some communities or group of workers in the short term but nothing compared to potential massive lay-offs in places like China and India where automation will be adopted too either by using Made In West technology or their own.

Plus, among poor countries, there where present industrial production is still meager, many companies might well skip outdated technology and jump to easy to use and less labor demanding automated factories when they have the chance and jobs expected to be created through industrialization (preached by local governments and international organizations like World Bank) probably will never be created and because their local people are not properly trained to make top notch technology their dependency of Made In West technology will last for some generations to come unless a revolution happens, not an industrial revolution but an Education revolution. Institutions and human skills made the difference yesterday and will make the difference down the road.

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78 Lee A. Arnold February 16, 2017 at 9:51 am

Tyler, consider that we may need to get rid of employment and incomes. Here comes the satiety, to replace the economy. There are two new things happening now, to make it likely:

A. It isn’t just robots, it’s also mass number-crunching, and it’s AI. Robots obviate mass manual labor. Mass number-crunching leads to more complete solutions & cost-reductions in previously intractable areas such as biomedicine/pharmaceuticals and meta-materials. And AI isn’t perfected yet, but it’s a substitute for inductive reasoning and some kinds of learning, and this will subsume a lot of white collar jobs.

All of (A) adds up to: less jobs & less entrepreneurial opportunities in the production of necessities.

B. At the same time, the economy is ending scarcities in necessities; in everything but a very still-necessary items. We can produce almost everything to effective satiation. So we are moving from “the economy” into “the satiety”. One of the few things that is still “scarce” is desirable real estate (e.g. at the beach, on a mountain, in center-city).

So (B) begs the growing question, What are we working FOR?

Add #1 and #2 together, and we are coming to the end of the need for necessary work. That poses a number of psychological questions, such as whether people can live without the need to define their worth vis-a-vis others, without the need for the accumulation of material status objects, money, or position in a hierarchy.

We don’t trust people who don’t work for a living. We hardly know how to define ourselves otherwise. Yet, observe that this is a fairly new thing in history, it isn’t “human nature”. Before the medieval rise of the bourgeoisie, the need-to-work was mostly seen as a signifier of the lowest classes.

Getting rid of the need-to-work may cause the psychological flowering of wanting-to-work, of personal creative work in the sciences and arts that accelerates human development even further. We are being forced into this direction anyhow; might as well see if we can think about it, ahead of time.

Note that “economics” the discipline may have reached its endpoint. Combining the overviews of Schumpeter & Heilbroner, we could periodize economic theory:

1. Smithian/Ricardian land-labor-capital. 2. Millian methodological stagnation. 3. Marginal analysis & general equilibrium. 3. Keynesian aggregation of demand & investment. 4. Samuelson’s division into micro & macro. 5. Current period of analytical abstraction, policy divisiveness among economists, and unawareness & lack of modeling of the predominance of finance.

That was all based on scarcity, not satiety.

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79 Roger Sweeny February 16, 2017 at 7:13 pm

Lee, if you were given a $10,000 raise, would you spend any of it?

Looks like we’re not at satiety.

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80 Lee A. Arnold February 16, 2017 at 7:59 pm

Do not misunderstand the argument. To put it another way: It is materially and energetically possible to meet everyone’s necessities. (Their needs, not their wants.) The fact that people don’t have all their needs met now is because the scarcity of money (effective demand) makes for a false scarcity of supply. However, technological unemployment in the midst of obvious productive ability, coupled with the propping-up of consumer demand by a growing financial sector using debt, credit, mortgage, etc., may make the contradiction evident to increasing numbers of people, to the point where the psychology of wants is divorced from the psychology of needs.

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81 Jeremy February 16, 2017 at 9:52 am

Let’s suppose Tyler is right. Suppose the new revolution will take 60 years from when it started (so from the 70s?) before giving the average Joe a massive boost of income. I’d call it a win.

And if we create something like UBI due to the politics? Well, that’s a mixed bag. I could argue that it’s good or bad. It could slow economic growth.

But so what? Massive increase in automation + UBI is still far superior than the world we live in today. My vote is for optimism.

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82 joe February 16, 2017 at 9:55 am

How can anyone be for low skill immigration in the face of increasing automation? I wonder if countries like Japan are in a better position of take advantage of automation? Countries like the United States with its booming population due primarily to loose immigration policies will fail to adopt automation as aggressively because may still be cheaper (up to a point) to just use a mass of low-cost, low-skill immigrant labor.

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83 Steve J February 16, 2017 at 5:18 pm

Are you saying it is good to have artificially high wages for low skill labor so that we can more quickly automate those jobs away?

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84 Doug February 16, 2017 at 10:06 am

Could this be due to the uneven pace of industrialization across Europe? Britain industrialized much earlier than the continent. That meant competition for cheap labor from neighboring countries.

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85 Tom Warner February 16, 2017 at 10:21 am

The problem with this piece is it follows the misleading idea of there having been “the” industrial revolution and that there will be “the” new automation revolution. In reality, the development of automation has been continuous since it was introduced, and there are no good reasons to think that 1760 to 1831 or the coming decades were or will be relatively especially disruptive compared to any other periods since 1831. It probably isn’t possible t sensibly quantify and compare across time-periods the pace of automation development, but if I were to choose the peak it would be the era of introducing mass electrification through production-line manufacturing, that is, the late 19th and early 20th centuries. And I doubt very much the US, Japan and Western Europe are reading into a period of accelerated elimination of traditional jobs, as they’ve just spent the past three to four decades offshoring labor on top of continued progression of automation, and offshoring is now decelerating.

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86 dearieme February 16, 2017 at 10:35 am

“mass electrification through production-line manufacturing, that is, the late 19th and early 20th centuries”

Electrification was novel; production lines weren’t, though the scale of their adoption was. I wonder whether that distinction matters: presumably not.

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87 Ray Lopez February 16, 2017 at 10:58 am

Good TC article for those who don’t know these stats, but otherwise “old news”. Innovation is an S-shaped curve (logistic function) meaning it’s a slow takeoff (like TC says about the Industrial Revolution) then a rapid rise, then a leveling off. Right now (Great Stagnation) we have a leveling off of mature tech and like TC says the initial ‘ramp up’ to new tech will be slow.

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88 Thiago Ribeiro February 16, 2017 at 11:12 am

Off-topic: I hate bragging, but the Brazilian real was declared the currency that aprexiated the most in the last year. It is a clear market reaction to the bold reforms President Temer has implemented. The markets have spoken, causa finita. Brazil has risen again.

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89 Ray Lopez February 16, 2017 at 1:52 pm

Off-topic, which of these currency mutual funds do you recommend, if any? http://www.howtotradestocks.org/currency-mutual-funds.html

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90 Thiago Ribeiro February 16, 2017 at 2:25 pm

On the long run, I would bet in the Yen collapsinf, but Japanese lenders can be irrational for more time than mostmpeople can remain solvent. https://en.m.wikipedia.org/wiki/Hiroo_Onoda This people is crazy.

I also think the Real may appreciate a little more. And all things point to the BOVESPA exchange being up to historical gains. Billions will be made. I, however admit, that I prefer ficpxed income. Brazilian top banks and Brazilian government’ s bonds seem to be the best optioms around. Banks pay 6 percent a year for money and impose interest rates up to 300 percent (on credit card debts). They can not lose. Brazil’s bamk system is the world’s best since the 1990’s banking reforms.

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91 Ryan Turner February 16, 2017 at 11:34 am

A staggering number of white-collar jobs are almost entirely menial data-entry and paper-shuffling, and can be completely replaced by a few well placed excel macros and process changes. There is a lot of inertia keeping them around, but after retirement they do not get replaced.

I am concerned that technology allows high-skill work to scale too effectively. These days software and entertainment have no limits to scale so one or two “winners” can acquire everything at the expense of everyone else. Facebook and Google are obvious examples, but I think even something like writing is showing more concentration due to network effects and efficient marketing.

We are already in the process of discovering that:
a) A surprising number of people are not capable of high-skill work
b) High-skill work is on average not very productive, unless you happen to hit a 1/10000000 idea that immediately develops an unassailable monopoly.

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92 Doug February 16, 2017 at 11:52 am

> A staggering number of white-collar jobs are almost entirely menial data-entry and paper-shuffling, and can be completely replaced by a few well placed excel macros and process changes. There is a lot of inertia keeping them around, but after retirement they do not get replaced.

This type of narrative is commonly heard, but the broader scale data doesn’t really confirm it. If there really was so much automation-ready white collar jobs we should be seeing large macro productivity gains. We aren’t. For all the talk about “software eating the world” and AI, it just ain’t happening in 95% of the economy outside Silicon Valley.

If you want to see what an actual IT revolution looks, go look back at 1994-2001. Then you actually had anomalously high productivity gains. It largely wasn’t about replacing workers, but augmenting them. The reality is that most jobs really can’t be 100% automated. 80% can be automated easily, but there’s just too many weird idiosyncratic corner cases. (A lot of which comes from bugs in other legacy software). Automation can’t handle all of these cases without a massive development effort that isn’t justified by a cost-benefit analysis.

Sheila in HR pretty much just types in the information that somebody fills in the internal 86-B form. But she knows that if somebody checks No for box three, Yes for box six, and is starting in the last pay cycle of the quarter, that she has to manually reset their employment state on the internally developed Intranet personnel site. Sheila knows this not because it’s a logical consequence, or because it’s documented in anyway, or even because this process makes any sense whatsoever. She knows this because she’s worked here for four years, and she remembers what a giant pain in the ass it is.

If you replace Sheila with an automated system, it’s going to work great for six months until this undocumented case pops up. Then it’s going to silently crash the payroll system (which was also automated, and working great up until now), no one’s going to get paid for two weeks, and nobody’s going to know how to fix it. It’s going to result in panicked phone calls at 3 AM, and require bringing in a very expensive technical consultant at extraordinarily expensive emergency rates.

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93 anon February 16, 2017 at 12:09 pm

If automation replaces workers, and margins remain the same, you should see productivity gains.

OTOH, If Uber reduces the price of Taxi medallions that means per driver revenue has fallen.

More efficient and lower margin at the same time?

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94 Cooper February 16, 2017 at 2:36 pm

Anon,

The Bureau of Labor Statistics defines the CPI’s transportation index as a mix of motor vehicle repair/maintenance, auto insurance and airline fares. It’s possible that we’re seeing a big shift from car ownership to ride-sharing and that ride-sharing isn’t being factored into the CPI.

Failure to include ride sharing services in the CPI could be artificially boosting the inflation rate, masking real gains in living standards.

How big is this impact? Have there been any studies on this subject?

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95 anon February 16, 2017 at 4:50 pm

I guess like always it is the moving target of what a median family does that shapes median inflation.

96 Doug February 16, 2017 at 4:51 pm

Uber’s done approximately 2 billion rides in 2016. The average trip is a little under 6 miles. Even generously assuming 100% of those rides are in the US, that’s 12 billion miles driven. Let’s generously assume Lyft and the various other ride shares make up 50% of Uber’s size. That’s a maximum of 20 billion miles driven.

Americans drove 3 *trillion* miles over the same period. Uber at most makes up 0.65% of all car transport in the US. Let’s also generously assume that the transport Uber’s replacing is 10 times more expensive per mile, and that Uber reduces the cost by 100%. That’s a maximum net impact of 6.5% on the price of motor vehicle transport. If motor vehicle CPI was clocked at 3.3%, at most Uber could reduce it to 3.1%. And that’s an extremely high upper bound, using more realistic assumptions gives you less than one tenth that amount.

You’ll arrive at similar conclusions for Snapchat, AirBnB, Dropbox, Slack, Stripe, WeWork, Tesla, etc. People vastly overestimate the impact of modern startups because they vastly overestimate the reach of these services. There’s no hidden gains in aggregate living standards, because 95%+ of the country doesn’t use them in any meaningful way. For all the talk about modern Silicon Valley “disrupting” everything, the startups of yesteryear, like Apple, Microsoft, Cisco and Sun, had a way more extensive economic impact at an equivalent stage of development.

97 Jason Bayz February 16, 2017 at 12:29 pm

You wouldn’t expect productivity to go up if the work was replaced but the workers kept collecting a paycheck. Which is what had happened in a lot of cases. When they ask “how is this time different,” one way is that, if you ask people about their jobs a significant number will tell you that they spend large amount of their time not doing anything productive.

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98 jonfraz February 16, 2017 at 3:01 pm

The problem there is that we no longer need a 40 hour work week, yet we cling to that as a standard due in part to sheer inertia and in part at the insistence of a small number of high achieving workaholics whose own jobs are structured in ways that allow them to make more money by working more hours- and hence they regard those working fewer hours as slackers.

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99 JWatts February 16, 2017 at 2:56 pm

“She knows this because she’s worked here for four years, and she remembers what a giant pain in the ass it is.

If you replace Sheila with an automated system, it’s going to work great for six months until this undocumented case pops up.”

That’s not how the process works. You don’t fire Sheila in this case. You deploy the software and she suddenly has extra time. So you give her some additional duties. Then 1 year later you review the software, and Sheila complains that she still has to do processes, X, Y & Z manually. Then the software integrator offers a quote to the company on how much it would cost to automate those features. The company decides which one’s are worth it and which ones are not. Meanwhile, Sheila gets a new job title that includes a few of the things she used to do and some new responsibilities. Over time the easy processes get automated, the complex ones that don’t add much value get dropped and the essential, complex one’s get amalgamated into a new job role.

Automation generally doesn’t directly result in the laying off of someone. The standard practice is to keep the existing staff and increase production. That’s been the model for over 3 decades now.

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100 Doug February 16, 2017 at 3:27 pm

> Automation generally doesn’t directly result in the laying off of someone. The standard practice is to keep the existing staff and increase production. That’s been the model for over 3 decades now.

Completely agree. My counter-factual was to point out why software/AI/whatever isn’t the jobs killer that armchair futurologist make it out to be. Like you said augmentation, which generally works better with revenue expansion, is still a much better model than automation, which works better with cost cutting.

There’s a lot of hype these days about how machine learning, AI, cloud computing, [insert buzzword here] is somehow a game changer. That it’s a quantum leap over previous IT advances. Yet if you actually look at the macro level data, IT advances were contributing significantly more to economic growth in the late 90s. This could be because the tech is just plain crappier. Spreadsheets have probably contributed 10,000X more economic value than deep neural networks. E-mail facilitates a lot more business than social networking.

Or maybe the macroeconomic conditions are particularly ill-suited to leverage tech advances. Business investment has been anemic since 2008. Corporates really aren’t in the mood for production expansion. For whatever reason cost cutting, particularly cost cuts that fuel share buybacks, rules the day for now. Trying to use modern IT advances to cut costs just doesn’t work that well. So we see little economic impact outside Silicon Valley, a very narrow segment of the economy that’s hyper-focused on growth-expansion over cost-control.

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101 Hazel Meade February 16, 2017 at 5:05 pm

Then the software integrator offers a quote to the company on how much it would cost to automate those features. The company decides which one’s are worth it and which ones are not.

And then five years later you change software platforms and Shiela doesn’t work there anymore and everyone has to relearn the stuff that was in Shiela’s head so they can automate it all over again.

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102 JWatts February 16, 2017 at 5:32 pm

“And then five years later you change software platforms and Shiela doesn’t work there anymore and everyone has to relearn the stuff that was in Shiela’s head so they can automate it all over again.”

No, that generally doesn’t happen. Firms tend to hold onto platforms for a lot longer than 5 years. How many businesses have changed from MS Windows / MS Office to something else? Not many. And generally speaking software packages do tend to learn those lessons and increase functionality.

How many people are truly convinced their phone and computers today (and the software that power them) are worse than the equivalent from 1985? Or 1995? Or even 2005?

103 Doug February 16, 2017 at 6:11 pm

@JWatts

I agree with your point about large-scale software like MS Office. But I think you and Hazel are actually talking about different things here. Don’t forget the sizable bulk of software that’s just internally developed corporate CRUD-esque apps. I’m pretty sure that those tend to decay rather than improve over time. The vast majority of corporations, even major Fortune 500 companies, have no competence at building well-designed maintainable systems. And because software quality is so opaque, the quality of externally contracted software work is pretty much just as awful.

When Microsoft builds a system they build it for a million users. That gives them a large sample size to root out even the obscure corner cases. When an internal corporate IT department builds a system for a hundred users, the same doesn’t hold true. Most white-collar workers are doing at least some tasks that are closer to the latter than the former. Things like handling institutionally specific processes. Sometimes you get a clever abstraction that unifies a grab-bag of seemingly idiosyncratic tasks into a general solution. Then you create a large market for a new product that hitherto didn’t exist. But progress on this front is slow and unpredictable. And to a large extent a lot of the low-hanging fruit has already been picked (spreadsheets, email, search, browsers, databases, revision control, etc.).

104 A Definite Beta Guy February 17, 2017 at 9:16 am

I recently left a company that fired one of the architects for their custom-built software. Last I checked, they were planning to totally scrap the system and build a new one, because they had no idea how it worked. They routinely experienced errors of hundreds of millions of dollars that took days and weeks to correct.

105 Hazel Meade February 17, 2017 at 9:26 am

Well, at my old company their changed their document tracking system from Sharepoint to Windchill and that was a major clusterfuck. I don’t think changes in software platforms are all that uncommon.

Which is another thing really, because in order to innovate and stay competitive you HAVE TO change software platforms on a regular basis. Think of how many companies are fucked if they don’t move to cloud-based computing. You really can’t get away with using Windows , MS Office, Tortoise SVN and Visual C++ forever if the whole world is switching to Android and GitLab (not that I’m saying that is happening). if there are efficiencies to be gained by changing software platforms, you have to make them, or else you become hidebound and uncompetitive.

106 Hazel Meade February 16, 2017 at 5:02 pm

This is right on.
There’s so much of what is called “tribal knowledge” in my business. Knowledge that exists only in the heads of people working there and is not written down.
Even if you tried to write it down, it would be a catalogue of a long list of idiosyncracies.
You CAN build software that automatically handles it, but that means you have a customized system, which means the tribal knowledge is now in the head of the one guy who wrote the software, and as soon as you do a system upgrade you’re fucked unless that one guy still works there and remembers to add the same modifications.

And so on.

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107 Arjun February 16, 2017 at 11:35 am

I would argue that it was precisely because workers and peasants took up revolutionary politics that the gains of the Industrial Revolution were distributed. If workers didn’t mobilize and fight, what incentive would the capitalists have to not keep the masses in a state of immiseration and keep wages stagnant?

Marx’s failure to see how capitalism would survive and how there wouldn’t be an absolute immiseration of the working class lie specifically in his failure to predict how revolts and unrest would lead to a stabilization of capitalism via political reforms like universal suffrage, and economic reforms like the New Deal. But the key point here is that none of these would have happened if people didn’t organize and fight–and much of this happened under the banner of socialism.

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108 Doug February 16, 2017 at 3:31 pm

This doesn’t jibe with history. The US had significantly less revolutionary politics than Britain, which had less than Northwest Continental Europe, which had less than Southern or Eastern Europe. Yet by the tail-end of the industrial revolution we see that median wages are almost the exact opposite of this ordering. US workers end up the wealthiest, followed by Brits, followed by Northern continentals, with Southern/Eastern Europeans coming in last.

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109 Doug February 16, 2017 at 3:34 pm

Additional point, because we forget about them being industrialized: Argentina. Who had basically zero revolutionary politics prior to 1900, and was as wealthy if not wealthier than the US and much more so than Europe. Meteoric rise of radical politicians then follows, and Argentine workers becomes the poorest white people in the world.

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110 hell February 16, 2017 at 4:25 pm

so the moldavians , georgian and bielorrusians are not white

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111 Doug February 16, 2017 at 4:54 pm

Fair enough. Poorest white people West of Vienna.

112 spencer February 16, 2017 at 11:57 am

It is common to see people claim that we lost most jobs in agriculture with no serious problems so we can lose most manufacturing jobs in the same way.

But this ignores the point that the shift out of agriculture into manufacturing was a shift from a low productivity job to a high productivity job so living standards improved sharply.

But now, for the most part as we shift lapor from manufacturing to services it is usually a shift from a high productivity job to a low productivity job. So it is much harder to increase living standards.

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113 anon February 16, 2017 at 2:11 pm

My comments today were below average, but in my defense, I inherited a mess.

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114 A Definite Beta Guy February 16, 2017 at 2:11 pm

To the extent “this time is different,” it’s because different goods make up the household budget. Households prior to the Industrial Revolution needed to work quite hard and still lived under the threat of food scarcity.

Industrial societies and post-industrial societies devote most of their incomes to luxury food items, experiences, health care, education, and positional goods. We have more leisure, but those hours are now spent in front of an electric screen.

The Information Revolution is irrelevant in terms of household well-being if it cannot actually deliver more of what we want. The only people who really know how to leverage this stuff are the Mustachian/ERE crew, IMHO. Everyone else might as well be a hamster pedaling furiously on that stupid wheel.

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115 Cooper February 16, 2017 at 2:20 pm

If automation were really eating the world, wouldn’t we expect to see above-trend gains in total factor productivity?

Productivity in the goods producing sector is still growing nicely. Productivity growth elsewhere remains elusive.

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116 polyglot February 16, 2017 at 2:42 pm

British industrialization failed to raise real wages because the political system became increasingly weighted towards big Landowners and certain vested commercial interests. This happened because the pattern of representation in the House of Commons did not reflect demographic shifts. There were ‘rotten boroughs’- once thriving market towns- which contained only one or two voters. Meanwhile rapidly growing urban centres had little or no Parliamentary representation. Under these circumstances, purely political forces, not economic ones, conspired to worsen the lot of the working man.
The Corn Laws kept the price of bread high so that the aristocrats prospered. The Combination Laws criminalised Trade Union activity. The Poor Law was used by the wealthy to reduce their labour cost and shift the burden to the rate-payer. Thus, an independent weaver like George Eliot’s ‘Silas Marner’, or a small farmer working the land with his own family members, was forced by law to subsidise the wage bill for the big manufacturer or large agricultural estate.
David Ricardo, representing the new rentier middle class and a section of the City of London, developed an Economic theory which stigmatised the ‘unearned increment’ enjoyed by the Landowners. According to his theory, stagnation was inevitable unless the Entrepreneur, not the Landlord, got to keep a bigger share of the Social Product. The movement for Parliamentary Reform gained an impetus from his theory, though the Rev. Thomas Malthus developed an effective ‘under-consumption’ argument in favour of the idle rich but for whose prodigality the working man would starve in yet greater numbers.

Ricardo died in 1823, at the height of reaction, but had he lived he would scarcely have felt vindicated. The Corn Laws did not disappear after the Reform Act of 1832- after all, the wealthy Manufacturer could invest in, or hold mortgages on, Agricultural Estates- and so the ‘Chartist’ struggle turned in a more radical direction. However, the lesson of Revolutionary year of 1848 when ‘History reached a turning point, but failed to turn’, had already been learned by the ‘Physical Force Chartists’. It was the State which possessed a monopoly of coercion and was prepared to use it in a wholly ruthless manner.
Marx and Engels differentiated themselves from the ‘Young Hegelians’ on the Continent by immersing themselves in English language empirical studies of the ‘Proletariat’. However, in making sense of the huge amount of data Early Victorian reformers produced, Marx neglected the salience of distortions introduced by the Legal/Legislative system preferring to develop an abstract ‘essentialist’ theory. Thus, though a Classical Economist like Smith and Ricardo, Marx’s oeuvre was not directly linked to contemporary agitation against corrupt rent-seeking in high places. On the one hand, this meant that there were no ‘Marxist’ politicians who, once elected, did a deal with Vested interest groups- i.e. Marxism retained a sort of intellectual purity. On the other hand, precisely because this intellectual purity would brook no competition, British Marxists resisted the Ricardian or populist conclusion- viz. tax ‘the unearned increment’ represented by Rent and eliminate other distortions in the Justice and Legislative system which had been introduced by rent-seeking.
One major problem with Marx’s theory is that he assumed that ‘the organic composition of capital’ in agriculture and mining was different- much more labour intensive- than in manufacturing. Further, because his analysis assumes a free market steady state, ‘absolute rent’ would not exist if agriculture or mining became more capital intensive than the average.
We, of course, live in a very different world from Marx. When Kennedy and Johnson deported hundreds of thousands of Mexican farm-workers, real wages for agricultural labour did not go up but capital intensity did. Crops which could not be mechanically harvested were abandoned. Agriculture adjusted to the supply shock very quickly- within a year. More importantly, ‘Agribusiness’ used some of its profits for ‘rent-seeking’ behaviour- i.e. influencing political and legal decisions to protect its own interests.
This is not to say that Marx’s world was kinder than ours. In Ireland and the Highlands of Scotland, the Victorians presided over a vast depopulation on a familiar English pattern- sheep devoured the peasants- though the transition was longer and much more painful than in the case of the Mexican braceros.
Tyler Cowan, in his article, thinks that the transition from Agriculture to Industry in England was in conformity with Economic laws, rather than Political and Legal distortions which created rents. He thinks that Marx observed the costs of this transition and thus gained salience. He writes-
Western economies later turned to variants of the social welfare state, but along the way the intellectual currents of the 19th century produced a lot of overreaction in other, more destructive directions. The ideas of Marx fed into the movements behind the Soviet Union, Communist China and the Khmer Rouge. Arguably, fascist doctrine also was in part a response to the disruptions of industrialization in the 19th and early 20th centuries.
Cowan, admittedly, is painting with a broad brush, but there is a serious error in the above. The fact is Marx chose, like Cowan, to ignore actual rent-seeking, in order to develop a ‘pure’ or ‘essentialist’ theory of absolute rent. However, this theory was understood- for e.g. by Lenin- to mean that it was bourgeois capitalism which benefited by nationalising land. In other words, the Soviet Union, Maoist China, the Khmer Rouge and so on were always disingenuous in their land policy. The subscribed to an abstract essentialist Economic philosophy which classified the peasant proprietor as no better than a capitalist and therefore a ‘class enemy’. This pathology in Communist thought did not arise because ‘Marx was a keen observer of the (transition costs) of the Industrial Revolution’ but because Marx chose to be a theoretician, abstracting from actual rent-seeking in England which is what caused real wages to fall, in order to have salience as the propounder of ‘universal economic laws’ for thinkers on the Continent where the Legal/Legislative regime was wholly different.

Cowan thinks Marx’s mistake was ‘the iron law of wages’- i.e. the notion that real wages can’t rise for Malthusian reasons. Actually, the Marxist Economic system says nothing about what the physical standard of living will be. If the proletariat won’t have babies (which is what the word proletariat means) unless a material threshold is met, then that is the new ‘natural price’ of labour and everything has to be adjusted accordingly.
If Cowan was correct in his analysis every Marxist in the world circa 1960 would be either a fool or a hypocrite.

More seriously, Cowan by ignoring what Marx, at least the mature Marx, too ignored- viz. rent seeking as responsible for the high transition costs in English industrialisation- is vitiating his own analysis of the likely costs of further automation.

Within the Marxist fold, we may mention Ernest Mandel as having salience here, however it is the American, Henry George, whom Cowan praised as one of the finest advocates of free trade, who really carried forward the Ricardian program and seized this bull by the horns.

Interestingly Stiglitz has a ‘Henry George theorem’ that is relevant in this context. A Technological revolution is like a public good. If it is associated with localised externalities and network effects then rents go up and can be taxed. This means that either equitable Hicks-Kaldor redistribution or the creation of new jobs can occur.
The problem is that such ‘Knowledge Revolutions’ may be ‘off-shorable’. If Capital too has gone off shore, what is to prevent Technological Unemployment from triggering urban collapse? Increased Agricultural productivity depopulated the countryside. Might not once great cities- e.g Detroit- suffer a similar fate?
Subsidies to agriculture may have some good ‘regret minimizing’ or external benefits- e.g. maybe farmers can manage the countryside in a ecologically worthwhile manner- but politically motivated subsidies to sunset industries are unlikely to have any such advantage. During the stagflation of the Seventies, State subsidies to manufacturing industry worsened incentives to rationalise and innovate.
It may be that ‘Knowledge Revolutions’ can be made to behave like ‘local public goods’ by certain measures we think of as Protectionist- more especially for advanced countries. In that case a ‘Henry George mechanism’ would exist so as to prevent net job loss. With subsidiarity, we might see diverse Tiebout models based on different mechanisms. In this case, even if one’s job disappears because of new Technology, another job oriented towards the same Knowledge Culture would become available and so no great trauma would be experienced.
Will automation impose heavy transition costs? Yes, unless both mobility and ‘Henry George type’ Tiebout model diversity increases more quickly. This is unlikely to happen as a result of State action because the knee-jerk reaction would be to focus on the worst affected area and to subsidise a sunset sector while pretending to invest in a new technology centre which, it will turn out, is actually already obsolescent. Labour mobility gets frozen. Rent seeking snowballs. Stupid bureaucrats back losers. Policy Space becomes multidimensional and McKelvey Chaos prevails.

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117 JWatts February 16, 2017 at 3:11 pm

+1, informative

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118 P Burgos February 17, 2017 at 11:48 am

What does the last paragraph mean, in layman’s terms? How is a technological revolution like a public good? Why do localized externalities and network effects lead to higher rents? (Is it zoning?) What is Hicks-Kaldor redistribution, and why is that mutually exclusive of the creation of new jobs? Why does offshoring matter in this analysis?

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119 polyglot February 18, 2017 at 9:54 am

A Public good is something which has a zero marginal cost- it is ‘non rival’ and ‘non excludable’- like everybody profiting without necessarily having to individually pay for the benefit from National Defence or the Justice system. We have a free-rider problem here- people who benefit may not want to pay. Stiglitz has a ‘Henry George Theorem’ which says that for a localised public good- e.g. good transport infrastructure- rents go up in a particular way and the Local Authority can tax those rents so as to cover the deficit associated with providing the public good.
A new Technology could be localised- e.g. around a Lab or University dept, or a particular company’s R&D facility. Some agents in this local networks can’t be excluded from having this new knowledge and can innovate on that basis. Intellectual property regimes differ but even the most stringent doesn’t allow a general Scientific principle or paradigm to be copyrighted.
Since some of these agents are free-riders, there is a danger that the ‘Knowledge’ public good will be underprovided because not everybody who benefits pays for it. However, if some entity paying for the Knowledge production can levy rents, or extract rents by some mechanism, on local properties owned by these ‘free-riding’ agents, then the problem is solved.
Take a Govt. which pays for R&D at a University. It can make some of the money back by taxing property in the technology hub. Still, if the Knowledge and associated Capital can be moved off-shore- e.g. factories and labs can be moved overseas- then rents overseas will rise and so Stiglitz’s theorem seems to be defeated.
The irony here is that Stiglitz is a champion of pro-poor Globalistation. However the argument could work for Trump.
If the advanced country- the US- triggers a bad overseas intellectual property regime- Knowledge revolutions will yield only local public goods. Innovators will be wary of opening factories or labs in faraway places where the locals might simply steal their ideas without penalty from the law. So, maybe, they will do ‘capital deepening’- i.e. double down on innovation in their own country and region. Then the Local Govt. can tax the rise in property values to fund the innovation in a virtuous circle. They could also compensate people who lose their jobs. A Hicks Kaldor improvement is one where we know that some people are benefiting so much they could compensate all the losers and still come out ahead. This is unlike a ‘polluter’ who makes money by inflicting more cost to others than he gets in benefit.
Localised externalities and network effects should lead to higher ‘economic rent’- i.e. bigger gap between what can be earned in the next best occupation- for all inelastic factors of production. Land is what Henry George focused on but we can generalise this to other resources of an arcane type like 4G Spectrum. In theory, we can tax this ‘rent’ without a disincentive effect because the alternative occupation is so much less rewarding.
In practice, this analysis falls down because longer term everything is elastic and so incentives matter more and more. Artificial restrictions like ‘zoning’ or ‘educational credentials’ (sheepskin effect) will tend to distort things and impose bigger and bigger ‘allocative’ efficiency losses.
This is the big argument for Free Trade. Long run, it creates perverse incentives.
The problem is that for an advanced country with very rapid Technological change and fundamental Knowledge revolutions, it may be that only the short run matters because faster innovation changes the landscape so much.
It could be that by taking ‘offshoring’ off the table, a lot of time and effort which goes into doing things where it is cheapest will go instead into doing things smarter right here. The difference is that local people can capture some ‘rent’ associated with this. In particular, people who lose their jobs in manufacturing or admin can move to well paid service jobs in the same area because even if more work is done by robots or computers still the profits remain localised and so spending on high value added services will go up.
One final point. Tiebout sorting means agents having a choice as to which ‘town’ to migrate to. Each town has a different mix of taxes and local public goods. Competition between towns makes for efficiency. Now imagine that Towns compete for different types of Technology/Knowledge goods. If agents are risk averse, the Town can offer a sort of implicit contract that if automation cuts jobs on the production line, locals will get preference in re-employment. Some ‘Company Towns’ do have this philosophy already.
Long term, this may be what a lot of voters want- a new type of Social Contract where Knowledge based disruption is mediated by some Henry George type mechanism whereby the winners indirectly compensate the losers. The problem is that this limits the benefits of Globalised free trade.
Returning to the story of ‘transition costs’- just as the majority of Britons suffered far more than necessary during the transition to Manufacturing because of corrupt political rent-seeking causing massive distortions, so too might the transition costs of a new type of Globalisation, in which Technology could be almost frictionlessly transferred to low-wage countries, have been greatly exacerbated by all sorts of distortions introduced by lobbyists.
However ‘property rights in jobs’ and Trade Union power also represent distortions. A better way forward might be a new ‘Social Contract’ where the needs and fears of ordinary people are better addressed at the local level.

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120 chuck martel February 16, 2017 at 8:37 pm

Why does anyone think that “jobs”, as we know them today, will necessarily be around in the future? Medieval Europeans certainly didn’t envision a future that included millions of people standing in front of machines or keyboards for eight hours a day in exchange for enpixelated money markers. While we must live in the here and now, that’s no reason to expect that the then and there will be an extension of the present.

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121 Islander February 16, 2017 at 11:28 pm

Automation will present us with a huge problem. Let’s take the concept to the extreme: It’s 2077 and it takes only a single person to push a single green button to put all of us into lives of luxury. But that lady will be the only one to have a job, so no one can afford those services.

The solution to this weird conundrum has been steadily evolving the last 300 years, going by different names. Basic Income, New Deal, Pensions, Holidays & Weekends, Working Hours, rights to Health Care, Education, Food Stamps etc. I love the speeches Pres. Roosevelt gave on the subject.

The path may be tortorous but it’s clear where we are headed: Something that looks like the Basic Income experiments tried out in N. Europe. In Chaos theory this trend would be said to be heading toward an ‘Attractor’.

Sure, we’ll face a whole array of new cultural challenges then, but in the end increased automation might precipitate a second human rennaissance. One can always hope:)

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122 Troll me February 18, 2017 at 7:38 pm

Maybe there’s just enough stuff this time around.

We thought a hundred times more would be enough for satiation. We were wrong.

Double it again? Again after that?

Eventually, the comparative statics are not the same as looking at the industrialization or 1960s early automation concerns.

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