Slightly scary AI

On the whole I haven’t been among the most pessimistic people about the likely impact of a potential Artificial Intelligence revolution on the economy and life – although not blithely optimistic either about the scale of the adjustment that will be needed in labour markets and education. But Humans Need Not Apply: A Guide to Wealth and Work in the Age of Artificial Intelligence by Jerry Kaplan has made me more apprehensive. This is not because of anything he writes about the economy, which is standard fare, but rather because of something he says about AI in the first half of the book (quite a short and very readable volume).

Humans Need Not Apply: A Guide to Wealth and Work in the Age of Artificial Intelligence

It starts with an account of high frequency trading and the Flash Crash of 2010. This will be familiar to anybody who has read Michael Lewis’s very entertaining Flash Boys. It seems pretty clear to me that financial regulators need to rein in HFT – not that they are showing any sign of interest in doing so – and there is even a proposed solution recommended in Al Roth’s terrific book about market structure, Who Gets What and Why, as well as in this volume. That is to regulate to allow computer trading to occur only once every second. This would re-create liquidity in the markets (which are illiquid at the milli- or nano-second timescale) and stop the speed arms race.

However, what Kaplan points out is that other AI applications will have undesirable consequences because they will look like the swarms of computers trading in financial markets, and doing it super-well with no application of judgment. One example is the use of AI to personalize the offers made to shoppers online, which will become so efficient that the synthetic intelligence will be able to price discriminate perfectly, extract all the consumer surplus in each market, and undo the hope that online retailing would lead to less rather than more price dispersion. Nobody will be forced to buy, of course. “But while you may exercise freedom as an individual, collectively we will not. Synthetic intellects are fully capable of managing the behaviour of groups to a fine statistical precision while permitting individuals to roam in whatever direction their predictable little hearts desire.”

The book asks many other thought-provoking questions about social norms and ethics. Will my personal robot be allowed to stand in a queue for me? Or repark my car to avoid tickets all day? How can we ensure robots understand what are the moral boundaries on their actions when they’ve been programmed to fulfil a certain kind of task?

It also has one interesting policy suggestion, the “job mortgage”, a means of allowing people to train and retrain without being tied to one specific employer: the government loans people money and is repaid from their subsequent earnings. This would replace the existing student loan schemes and apprenticeships, which Kaplan sees as too restrictive for the period of upheaval ahead.

There seem to be lots of books on this subject out now, but I thought this one worth a read, especially for an economist like me, as the author’s background is a technical one and he explains the technology trends very clearly.


Robots for the people

In between Lionel Davidson’s cracking 1994 thriller – recently reissued – Kolymsky Heights and Colum McCann’s moving novel Let the Great World Spin, I read (at last) Martin Ford’s Rise of the Robots: Technology and the Threat of a Jobless Future. It’s good to see it made the FT Business Book Prize long list, amid terrific company.

Rise of the Robots: Technology and the Threat of a Jobless Future

As one of the economists Ford has a go at in the book, I don’t believe the challenge is one of the total number of jobs jobs. These periodic waves of concern about where all the jobs are going to come from tend to prefigure a wave of job creation. It happened in the 1960s, following publication in 1964 of the ‘Triple Revolution’ report in the US, and it happened again in the 1990s after theĀ ‘Downsizing of America’ report in 1992. This time might be different, as Ford and so many others argue, but repeatedly over 250 years capitalist economies have shown their capacity for creating new forms of work when old forms become redundant for technological or other reasons.

Indeed, at present in the US and UK there is little sign of any direct impact of automation at all. Employment rates are high, and low labour and total factor productivity signal the absence of a significant technological impact on growth and jobs. We have too few robots, not too many. There are some significant data issues here, but that includes the question of measuring jobs in the digital economy – as often noted, Google has far fewer employees than GM, but Mike Mandel has pointed out that the statistics are not counting the extent of job creation in smaller businesses.

That’s not to say there are no challenges from robotisation. Almost as often as they have adapted, capitalist economies have proven themselves bad at the process of transition. The huge wave of automation in manufacturing in the 1980s and 1990s, the deindustrialisation and globalisation, destroyed communities and left successive generations out of work, in poverty, and scarred by the nexus of social problems experienced by so many former mill or mining towns. There is also the question of income distribution. As Ford points out, Thomas Piketty’s tome on inequality hardly mentioned technology amid its quotations from Balzac and Austen, but it did plant this issue firmly at the centre of policy debates. Tony Atkinson’s impressive book Inequality had a detailed list of policy responses. The winners from technology will need to share the benefits if our societies are to thrive.

So I certainly don’t dismiss techno-fears, but I do think “we’re all going to be unemployed” is the wrong way to frame the problems. Having said that, Rise of the Robots is a thorough review of the impact of digital technologies on a number of areas. It covers the likely breakthroughs such as AI and driverless vehicles, going over the exponential pattern as Brynjolfsson and McAfee do in their book The Second Machine Age. Ford has chapters on industries such as health and higher education, where the impact of digital disruption has yet to be experienced.

He raises some interesting questions. For example: “Should the population at large have some sort of claim on [the] accumulated technological balance?” Meaning the vast social and public investment in research and innovation, on which the new digital fortunes are piggybacking. The answer to that is surely yes. There is also the implication of the machines’ greater ability to know what we know: no human an be aware of all research, past or present, but something like IBM Watson can be.

There is a great example in the book of two almost simultaneous cases of patients presenting themselves at different hospitals with mysterious diseases. One almost died during a heart operation, the doctors puzzled as to the diagnosis. Another was correctly diagnosed and treated because the doctor happened to have seen the same mystery symptoms on the TV series House. A smart enough computer would have known without having to have serendipitously watched the right TV programme. Ford seems to see this as a threat, but surely there is only benefit in this ability to pool past human knowledge? And I’m not persuaded that computers are yet anywhere near creating new knowledge however magical they are at collating and making sense of past knowledge. They are standing on the shoulders of human giants, absorbing humanity’s existing intellectual assets.

Well, maybe I’m delusionally optimistic. Ford ends the book with figures from the BLS. Between 1998 and 2013, there was a 42% real increase in US GDP, but no increase in the total hours worked. He thinks that’s a bad thing. I think it’s a good one – with the huge proviso that the benefits of growth must be widely shared. They haven’t been. We don’t have the people’s robots. That’s the real problem.


Recent robot round-up

I’m looking forward to reading Martin Ford’s The Rise of the Robots – it gets a good review in the FT today. Edward Luce calls it “well researched and disturbingly persuasive.”

Rise of the Robots: Technology and the Threat of a Jobless Future

I’m still a robo-sceptic in the sense of thinking there is nothing inevitable about the employment and income distribution outcomes of skill-biased automation. It’s technological determinism to think otherwise, as the underlying technological waves are channelled through economic and political institutions. That’s not to say we shouldn’t be concerned. After all, there was a wave of automation in manufacturing in the late 1970s/early 1980s and the social consequences of that were devastating – the institutions handled the transition very badly.

There is an interesting recent (free) e-book collection of essays (including one of mine) from the IPPR, Technology, Globalization and the Future of Work. Also this recent paper, Robots at Work, by Georg Graetz and Guy Michaels. They find in a panel of data across industry in 17 countries, robotization increased total factor productivity and wages, although with some adverse effects on hours worked by low-skilled workers.


Robots for all!

Yesterday I took part in a fascinating Resolution Foundation discussion, Equity in the Age of the Robot. It was an apt day to be debating the impact of automation on jobs and equity, as the Tube strike probably left half the audience wishing those jobs were already being done by robots and the other half pleased the union is still holding out for the humans.

My contribution was to point out that although we can be concerned about the speed at which automation is going to be able to replace a lot of middling-skill, middling-income jobs, with all the transitional problems that brings, the UK economy needs more robots. That’s the message of the low labour productivity problem. Real wages can’t rise over the long term unless investment in capital and productivity improve. Having said that, we need to worry about

(a) the distribution of the productivity gains, and ensuring these aren’t all extracted by over-paid executives – perhaps thinking about robot ownership; and

(b) equipping people with skills that could be useful and managing the transition in the labour market better than in the past. As Conrad Wolfram pointed out in a recent article, we’re teaching children to be not very good and expensive versions of Siri when it comes to the maths curriculum; they need to understand how to solve quadratic equations but they key skill they need is not memorising and replicating that. Like Professor Alan Manning, I think we should not be resisting the robots but focusing on the institutional and political arrangements that ensure fair outcomes.

I highly commend the work of Michael Osborne, who was presenting new data for the UK showing which jobs are vulnerable to automation by 2020 – mainly in sectors like retailing, logistics, transport. (Here’s the paper he wrote with Carl Benedikt Frey, The Future of Employment: How Susceptible are Jobs to Computerisation?) The whole panel discussion is worth a viewing.

The books cited in the discussion were – of course – Bynjolfsson and McAfee 1 and 2, Race against the machine, and The Second Machine Age.

The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies


Minimum wages and robots

This morning I read a good article in The New Republic about the Silicon Valley jobs market and the exercise of power in the labour market. It describes documents showing that the tech giants in 2005 colluded to keep wage rates down. This was news to me and seems pretty scandalous.

The article goes on to discuss in general why labour markets are not like goods markets, although most economics courses, and many grown-up economists, often speak as if they are. The fact that searching for a job is costly gives all employers a bit (or a lot) of monopsony power (or buyer power). And the prevalence of monopsony power needs to be taken into account in analysing the effect of an increase in the minimum wage: it will slightly decrease the employers’ power and reduce both job turnover and vacancies in low-wage jobs. There is some evidence to support this. The article also cites Alan Manning’s excellent book on this subject, Monopsony in Motion.

Monopsony in Motion: Imperfect Competition in Labor Markets

The US and UK minimum wages are middling by OECD standards (this chart from the OECD database deflates the statutory minimum by the national CPI and uses PPP for private consumption exchange rates to convert to US dollars). There is no obvious correlation with unemployment rates at this headline level.

OECD real hourly minimum wages

Labour market economics is one of the areas of the subject where economics most needs input from the other social sciences. Jobs and pay can’t really be understood without thinking about factors such as institutions, power, psychology and social norms. Never forget this when next reading about the way technology means inequality is inevitable.