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The Second Machine Age

The Second Machine Age

Erik Brynjolfsson and Andrew McAfee

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A gold-medal winner at the Olympics can earn millions of dollars in endorsements, while the silver medal winner—let alone the person who placed tenth or thirtieth—is quickly forgotten, even if the difference is measured in tenths of a second and could have resulted from a gust of wind or a lucky bounce of the ball.
a software programmer who writes a slightly better mapping application—one that loads a little faster, has slightly more complete data, or prettier icons—might completely dominate a market. There would likely be little, if any, demand for the tenth-best mapping application, even it got the job done almost as well. This is relative performance. People will not spend time or effort on the tenth-best product when they have access to the best. And this is not a case where quantity can make up for quality: ten mediocre mapping tools are no substitute for one good one. When consumers care mostly about relative performance, even a small difference in skill or effort or luck can lead to a thousand-fold or million-fold difference in earnings. There were a lot of traffic apps in the marketplace in 2013, but Google only judged one, Waze, worth buying for over one billion dollars
Robert Frank and Philip Cook note in their book, The Winner-Take-All Society, “When a sergeant makes a mistake only the platoon suffers, but when a general makes a mistake the whole army suffers.”
As a controversial Nike ad noted, you don’t win silver, you lose gold
Michael Spence, in his brilliant book The Next Convergence, explains how the integration of global markets is leading to enormous dislocations, especially in labor markets
In the long run, the biggest effect of automation is likely to be on workers not in America and other developed nations, but rather in developing nations that currently rely on low-cost labor for their competitive advantage
once an industry becomes largely automated, the case for locating a factory in a low-wage country becomes less compelling
when demand is very elastic, greater productivity leads to enough of an increase in demand that more labor ends up employed. The possibility of this happening for some types of energy has been called the Jevons paradox: more energy efficiency can sometimes lead to greater total energy consumption. But to economists there is no paradox, just an inevitable implication of elastic demand.
Arthur C. Clarke is purported to have put it, “The goal of the future is full unemployment, so we can play.”24
If you look at the types of tasks that have been offshored in the past twenty years, you see that they tend to be relatively routine, well-structured tasks. Interestingly, these are precisely the tasks that are easiest to automate. If you can give precise instructions to someone else on exactly what needs to be done, you can often write a precise computer program to do the same task. In other words, offshoring is often only a way station on the road to automation
The lesson from economics and business strategy is that you don’t want to compete against close substitutes, especially if they have a cost advantage.
A second lesson of economics and business strategy is that it’s great to be a complement to something that’s increasingly plentiful.
If a worker in China can do the same work as an American, then what economists call “the law of one price” demands that they earn essentially the same wages, because the market will arbitrage away differences just as it would for other commodities
If neither the worker nor any entrepreneur can think of a profitable task that requires that worker’s skills and capabilities, then that worker will go unemployed indefinitely. Over history, this has happened to many other inputs to production that were once valuable, from whale oil to horse labor. They are no longer needed in today’s economy even at zero price. In other words, just as technology can create inequality, it can also create unemployment. And in theory, this can affect a large number of people, even a majority of the population, and even if the overall economic pie is growing.
as long as there are unmet needs and wants in the world, unemployment is a loud warning that we simply aren’t thinking hard enough about what needs doing. We aren’t being creative enough about solving the problems we have using the freed-up time and energy of the people whose old jobs were automated away. We can do more to invent technologies and business models that augment and amplify the unique capabilities of humans to create new sources of value, instead of automating the ones that already exist
cooks, gardeners, repairmen, carpenters, dentists, and home health aides are not about to be replaced by machines in the short term. All of these professions involve a lot of sensorimotor work, and many of them also require the skills of ideation, large-frame pattern recognition, and complex communication. Not all of these jobs are well paying, but they’re also not subject to a head-to-head race against the machine. They may, however, be subject to more competition among people.
the career advice that Google chief economist Hal Varian frequently gives: seek to be an indispensable complement to something that’s getting cheap and plentiful. Examples include data scientists, writers of mobile phone apps, and genetic counselors, who have come into demand as more people have their genes sequenced. Bill Gates has said that he chose to go into software when he saw how cheap and ubiquitous computers, especially microcomputers, were becoming. Jeff Bezos systematically analyzed the bottlenecks and opportunities created by low-cost online commerce, particularly the ability to index large numbers of products, before he set up Amazon. Today, the cognitive skills of college graduates—including not only science, technology, engineering, and math, the so-called STEM disciplines, but also humanities, arts, and social sciences—are often complements to low-cost data and cheap computer power. This helps them command a premium wage.
Montessori classrooms emphasize self-directed learning, hands-on engagement with a wide variety of materials (including plants and animals), and a largely unstructured school day. And in recent years they’ve produced alumni including the founders of Google (Larry Page and Sergey Brin), Amazon (Jeff Bezos), and Wikipedia (Jimmy Wales).
Sometimes, one man’s creativity is another machine’s brute-force analysis
Arum, Roksa, and their colleagues document that college students today spend only 9 percent of their time studying (compared to 51 percent on “socializing, recreating, and other”), much less than in previous decades, and that only 42 percent reported having taken a class the previous semester that required them to read at least forty pages a week and write at least twenty pages total. They write that, “The portrayal of higher education emerging from [this research] is one of an institution focused more on social than academic experiences. Students spend very little time studying, and professors rarely demand much from them in terms of reading and writing.”
As futurist Kevin Kelly put it “You’ll be paid in the future based on how well you work with robots.”7
The top performer in the course at Stanford, in fact, was only the 411th best among all the online students. As Thrun put it, “We just found over 400 people in the world who outperformed the top Stanford student.”16
Ideation in its many forms is an area today where humans have a comparative advantage over machines. Scientists come up with new hypotheses. Journalists sniff out a good story. Chefs add a new dish to the menu. Engineers on a factory floor figure out why a machine is no longer working properly. Steve Jobs and his colleagues at Apple figure out what kind of tablet computer we actually want. Many of these activities are supported and accelerated by computers, but none are driven by them.
people will need to be more adaptable and flexible in their career aspirations, ready to move on from areas that become subject to automation, and seize new opportunities where machines complement and augment human capabilities.
the impact of college is largely determined by individual effort and involvement in the academic, interpersonal, and extracurricular offerings on a campus
Replacing a [bottom 5 percent] teacher with an average teacher would increase the present value of students’ lifetime income by more than $250,000 for the average classroom in our sample.
most economists advocate taxing the pollution. Such taxes are called “Pigovian” after Arthur Pigou, a British economist of the early twentieth century who was one of their early champions
we can expect to see schools ‘flip the classroom’ by having students listen to lectures at home and work through traditional ‘homework’—exercises, problem sets, and writing assignments—in school, where peers, teachers, and coaches are available to help them.
By some estimates, the revenues from optimal congestion pricing would be enough to eliminate all state taxes in California.
Give one group of teachers responsibility for the most measurable goals, while reserving ample time and resources for teachers focusing on the less measurable types of learning, protecting it from being crowded out.
When technology advances too quickly for education to keep up, inequality generally rises.
Venkat Venkatraman put it, “We need digital models of learning and teaching. Not just a technology overlay on old modes of teaching and learning.”
Congestion pricing, aided by electronic passes or digital cameras, can dynamically adjust the cost of the roadway so that drivers would only choose to drive when the total cost created, including the additional congestion, was less than the value of their trip.
The good news is that compared to other industries such as media, retailing, finance, or manufacturing, education is a tremendous laggard in the use of technology. That’s good news because it means we can expect big gains simply by catching up to other industries. Innovators can make a huge difference in this area in the coming decade.
Lengthening the school year may be especially beneficial for poor kids, since research suggests that rich and poor children learn at a similar rate when school is in session, but that poor children fall behind over the summer when they are not in school
increasing the number of immigrant engineers actually leads to higher, not lower, wages for native-born engineers because immigrants help creative ecosystems flourish
English-American political activist Thomas Paine, who advocated in his 1797 pamphlet Agrarian Justice that everyone should be given a lump sum of money upon reaching adulthood to compensate for the unjust fact that some people were born into landowning families while others were not
Martin Luther King, Jr., who wrote in 1967, “I am now convinced that the simplest approach will prove to be the most effective—the solution to poverty is to abolish it directly by a now widely discussed measure: the guaranteed income.”3
While income taxes are not meant to discourage work and employment, they can still have this effect. Payroll taxes can lead to similar shifts, and by design mainly affect people with low and middle incomes.20 They can cause organizations to move away from hiring additional domestic employees, and instead outsource work or make use of part-time contractors. As digital technologies keep acquiring new skills and capabilities, these same organizations will increasingly have another option: they’ll be able to make use of digital laborers rather than humans. The more expensive human labor is, the more readily employers will switch over to machines. And since payroll taxes make human labor more expensive, they’ll very likely have the effect of hastening this switch. Mandates like employer-provided health care coverage have the same effect; they too appear as a tax on human labor and so discourages it, all other things being equal.21
Pay people via nonprofits and other organizations to do ‘socially beneficial’ tasks, as determined by a democratic process
Voltaire beautifully summarized why not when he made the observation quoted at the start of this chapter: “Work saves a man from three great evils: boredom, vice, and need.”6 A guaranteed universal income takes care of need, but not the other two. And just about all the research and evidence we’ve looked at has convinced us that Voltaire was right. It’s tremendously important for people to work not just because that’s how they get their money, but also because it’s one of the principal ways they get many other important things: self-worth, community, engagement, healthy values, structure, and dignity, to name just a few.
Winston Churchill said that, “Democracy is the worst form of government except for all those others that have been tried.”2 We believe the same about capitalism.
Start a ‘made by humans’ labeling movement, similar to those now in place for organic foods, or award credits for companies that employ humans, similar to the carbon offsets that can be purchased. If some consumers wanted to increase the demand for human workers, such labels or credits would let them do so
Our success will depend not just on our technological choices, or even on the coinvention of new organizations and institutions. As we have fewer constraints on what we can do, it is then inevitable that our values will matter more than ever. Will we choose to have information widely disseminated or tightly controlled? Will our prosperity be broadly shared? What will be the nature and magnitude of rewards we give to our innovators? Will we build vibrant relationships and communities? Will everyone have the opportunities to discover, create, and enjoy the best of life?
The Industrial Revolution was accompanied by soot-filled London skies and horrific exploitation of child labor. What will be their modern equivalents? Rapid and accelerating digitization is likely to bring economic rather than environmental disruption, stemming from the fact that as computers get more powerful, companies have less need for some kinds of workers. Technological progress is going to leave behind some people, perhaps even a lot of people, as it races ahead. As we’ll demonstrate, there’s never been a better time to be a worker with special skills or the right education, because these people can use technology to create and capture value. However, there’s never been a worse time to be a worker with only ‘ordinary’ skills and abilities to offer, because computers, robots, and other digital technologies are acquiring these skills and abilities at an extraordinary rate.
Designed for calculation-intensive tasks like simulating nuclear tests, ASCI Red was the first computer to score above one teraflop—one trillion floating point operations* per second—on the standard benchmark test for computer speed.
digital information is not “used up” when it gets used, and it is extremely cheap to make another copy of a digitized resource.
Watson’s database, which consisted of approximately two hundred million pages of documents taking up four terabytes of disk space, included an entire copy of Wikipedia. For a while it also included the salty language–filled Urban Dictionary, but this archive of user-generated content was removed after, to the dismay of its creators, Watson started to include curse words in its responses.
“I keep saying that the sexy job in the next ten years will be statisticians. And I’m not kidding.”
“A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker”
The better machines become at substituting for human labor, the bigger negative effect any tax or mandate will have on human employment.
Research by Michael Luca of Harvard Business School has found that the increased transparency has helped smaller independent restaurants compete with bigger chains because customers can more quickly find quality food via rating services like Yelp, reducing their reliance on brand names’ expensive marketing campaigns.17
for the first time since before the Great Depression, over half the total income in the United States went to the top 10 percent of Americans in 2012. The top 1 percent earned over 22 percent of income, more than doubling their share since the early 1980s. The share of income going to the top hundredth of one percent of Americans, a few thousand people with annual incomes over $11 million, is now at 5.5 percent, after increasing more between 2011 and 2012 than any year since 1927–28
OF THE 3.5 TRILLION photos that have been snapped since the first image of a busy Parisian street in 1838, fully 10 percent were taken in the last year.1
Facebook itself reached one billion users in 2012. It had about 4,600 employees6 including barely 1,000 engineers.7 Contrast these figures with pre-digital behemoth Kodak, which also helped customers share billions of photos. Kodak employed 145,300 people at one point
Nine years later another computer hit 1.8 teraflops. But instead of simulating nuclear explosions, it was devoted to drawing them and other complex graphics in all their realistic, real-time, three-dimensional glory. It did this not for physicists, but for video game players. This computer was the Sony PlayStation 3, which matched the ASCI Red in performance, yet cost about five hundred dollars, took up less than a tenth of a square meter, and drew about two hundred watts.
Once one concedes that it takes time for workers and organizations to adjust to technical change, then it becomes apparent that accelerating technical change can lead to widening gaps and increasing possibilities for technological unemployment. Faster technological progress may ultimately bring greater wealth and longer lifespans, but it also requires faster adjustments by both people and institutions.
Research by Michael Luca of Harvard Business School has found that the increased transparency has helped smaller independent restaurants compete with bigger chains because customers can more quickly find quality food via rating services like Yelp, reducing their reliance on brand names’ expensive marketing campaigns.17
for the first time since before the Great Depression, over half the total income in the United States went to the top 10 percent of Americans in 2012. The top 1 percent earned over 22 percent of income, more than doubling their share since the early 1980s. The share of income going to the top hundredth of one percent of Americans, a few thousand people with annual incomes over $11 million, is now at 5.5 percent, after increasing more between 2011 and 2012 than any year since 1927–28
OF THE 3.5 TRILLION photos that have been snapped since the first image of a busy Parisian street in 1838, fully 10 percent were taken in the last year.1
The shift from analog to digital has delivered a bounty of digital photos and other goods, but it has also contributed to an income distribution that is far more spread out than before.
For almost two hundred years, wages did increase alongside productivity. This created a sense of inevitability that technology helped (almost) everyone. But more recently, median wages have stopped tracking productivity, underscoring the fact that such a decoupling is not only a theoretical possibility but also an empirical fact in our current economy.
Facebook itself reached one billion users in 2012. It had about 4,600 employees6 including barely 1,000 engineers.7 Contrast these figures with pre-digital behemoth Kodak, which also helped customers share billions of photos. Kodak employed 145,300 people at one point
The shift from analog to digital has delivered a bounty of digital photos and other goods, but it has also contributed to an income distribution that is far more spread out than before.
For almost two hundred years, wages did increase alongside productivity. This created a sense of inevitability that technology helped (almost) everyone. But more recently, median wages have stopped tracking productivity, underscoring the fact that such a decoupling is not only a theoretical possibility but also an empirical fact in our current economy.