This quote from Bloomberg Businessweek’s decent article on Piketty and his book ‘Capital in the Twenty-First Century’:
If, as Summers and others argue, labor and capital aren’t very good substitutes—meaning additional dollars invested require new workers to make the investment profitable—then over time, as capital grows faster than the labor force, the return on new investment will fall pretty sharply, either because you can’t get workers to operate your machines or you have to pay them higher wages to get them to work for you. On the other hand, if it’s relatively easy to substitute capital for labor—imagine staffing your fast-food restaurants with hamburger-cooking machines and order-taking computers that never take a break and don’t demand raises or health insurance—then additional investments may be made at a high rate of return. Berkeley’s DeLong explains Piketty’s future in a single word: “Robots!”
And this book: ‘The Second Machine Age‘.
One is a runaway sensation. The other … I’m not sure yet. But both seem to be two books for their time.
The quote above critiquing Picketty’s assumptions about whether or not your can really swap ‘capital’ for ‘labour’ and remain profitable connects closely with the subject of the second book reference.
It’s entirely conceivable that machines will outstrip human output in no time at all. The inventor of the flatbed scanner, Ray Kurtzweil, who is now leading Google’s efforts to create artificial intelligence and has had a habit of making wildly accurate predictions, believes AI technology is advancing ‘exponentially’ and that we will see an AI that passes the ‘Turing Test’ by 2045. If true, this sets us well on the path towards the second machine age where, the fear is, this time it’s the educated middle-classes who will be scrapped just as the lumpenproletariat during the industrial revolution.
The interaction of society and technology is an ancient one and one of the biggest issues of our time.
Going back to this criticism of Piketty’s book, ‘Capital’, it’s interesting to note that recent figures comparing US and French productivity (i.e. economic output per worker per hour) shows that lackadaisical French workers (who have more holidays and who work in a more unionised and regulated labour system) are more productive than the entrepreneurial Americans, who work longer hours and produce less.
This observation goes to the heart of the matter. Another observation that’s been made is that, with direct relevance to inequality in the USA, workers’ real wages have declined since the 1970s. To counteract the effect of lower household incomes, families have tended to respond in a three-step sequence: at first, women went to work to work; when those wages declined, people ended up working more hours; and then that was no longer enough, people borrowed money, or ‘released equity’ on their homes, etc. Now that has run out.
Ken Burns’ affecting documentary on The Dust Bowl captured one essential truth about human resilience: people survive by wearing out their coping mechanisms one-by-one until they can’t cope anymore.
But what new variables will come into play that offset or delay (rather than solve) our mounting problems?