Tag Archives: technology

Not average at all

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Tyler Cowen has followed up the best-selling [amazon_link id=”0525952713″ target=”_blank” ]The Great Stagnation[/amazon_link] with another profoundly interesting book on the impact of new technology on the economy and beyond. [amazon_link id=”0525953736″ target=”_blank” ]Average is Over: Powering America Beyond the Age of the Great Stagnation[/amazon_link] picks up the theme of the disruption technological change and the consequent restructuring of business and focuses on the effects on individual jobs and what people might be able to do to safeguard their livelihood.

[amazon_image id=”0525953736″ link=”true” target=”_blank” size=”medium” ]Average Is Over: Powering America Beyond the Age of the Great Stagnation[/amazon_image]

The bottom line is that you need to think about which of your skills can easily be done – better, cheaper – by a computer, and work hard at developing other skills. The general message is relatively optimistic, with the book concluding that the combination of machine plus human power being much more productive than either alone; one of the examples of how and why this is so is ‘freestyle chess’. So a computer able to do fast routine work plus a human who has either advanced cognitive skills or non-cognitive skills that computers can’t attain could prove a winning team. The spread of computers through the economy would in that case prove to be another instance, seen many times in economic history, of investment in capital ultimately increasing the productivity and living standards of the people working with that capital.

However, the more specific message of the book is rather sober: Cowen doubts that all that many people in America at least have the focus and capacity for work and concentration to turn themselves into complements for robots rather than being substituted by them. And so far there is certainly plenty of evidence that routine work in many sectors of the economy, in the middle-skilled, middle-income bracket, is being away by computerisation, either directly through automation or indirectly through offshoring. About 60% of the jobs lost during the US recession have been in mid-wage occupations. Wages for the median male worker declined by about 28% between 1969 and 2009, this with no nuclear war, no asteroid striking earth, or other disaster. Nor is this disappearing middle of the income distribution just a US phenomenon: last week’s report on UK incomes from the Resolution Foundation pointed to similar evidence. Cowen writes: “The obvious and direct beneficiaries [of ever-more powerful computers] will be the humans who are adept at working with computers. … That means humans with strong math and analytic skills, humans who are comfortable working with computers because they understand their operation.” He argues that the scope of the phenomenon in the wider economy will only grow, pointing to driverless cars and taxi driver jobs, for example. Or think of those dreadful machines that are replacing supermarket cashiers.

A section of the book uses chess as an illustration of the trends – what computers can do, and can’t, and what human skills are substitutes and complements for computer skills. In short, computers do not have intuition, and cannot actually move chess pieces on a board. Nor are people interested in watching computers play chess, nor even human-computer teams – they want to watch other people play, and thanks to the internet chess has become a mass spectator, global sport.

There is a very interesting section on ethics – I wished it had been longer. Driverless cars will be more efficient. When the investment in the infrastructure is made, they will economise on drivers, be able to use fuel more efficiently, observe speed limits, probably be much, much safer. But how will they respond to moral dilemmas? If the choice is running over a baby carriage on a crossing by swerving into a group of five pensioners, what will have been coded into their programmes? Another section of the book predicts that the detailed tracking of measurements will transform all kinds of services, such as medical care. Patients will have increasingly detailed metrics on individual doctors’ performances; doctors will have detailed measures of how patients behave – do they take the full course of medicine? Do they make time-wasting visits? Do they smoke? It will be hard for people to make the judgements weighing up the things that can be measured easily (like death or recovery rates) and those that can’t, such as a caring personality, or a willingness to treat the most serious diseases. Steadily, without discussion, a moral framework is becoming encoded into the machines around us, and by the habits of use that are developing.

I’m not sure I share the book’s view about exactly what kinds of jobs will be left to humans. Cowen argues that these will be marketing jobs, work synthesising lots of areas of expertise to help people make complicated judgements, and coaching jobs for those lucky individuals who can develop their complementary talents, whether that’s being a top doctor, a top tennis player or a top executive. A more optimistic perspective would see opportunities for the growth of fulfilling creative work, such as acting or gardening or creating beautiful clothes; let the robots do the dull, repetitive jobs. Whether that is possible depends of course on whether the productivity gains from computerisation can be shared, and whether income can be distributed from the owners of the machines to the wider society. Clearly, that has not happened during the past generation.

All capitalist societies have faced this issue, however. How can people who are less productive (because there is less capital linked to their job, whether that’s machine-embedded capital or human capital) not be left so far behind that it becomes socially unsustainable. In past centuries that involved, for example, the spread of public schooling to primary and then secondary and tertiary levels, the growth of unions campaigning effectively for labour’s share of profits, redistribution through progressive taxation paying for public services available to all, and so on. I’d have liked more in Average is Over about how social and political institutions might respond to the challenge of the robots, more political economy. Maybe that will be his next book. Meanwhile, there is a clear message here for every reader: if you want to win the race against the machines, you’d better start running.

Here’s Andrew Keen discussing the book with Tyler. I discussed it with him on the FT’s Alphaville podcast.

The internet of stuff

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Andrew Blum’s [amazon_link id=”0670918989″ target=”_blank” ]Tubes: Behind the Scenes at the Internet[/amazon_link] was another holiday book. It was a decent enough on the terrace with a cool drink in between swims, but I was somewhat disappointed in it. The book starts with the author’s home internet connection being lost due to a squirrel chewing through a cable in his yard, and this sets off a quest to track down the physical infrastructure delivering what we all now consider to be more or less a human right, namely broadband internet access.

[amazon_image id=”0670918989″ link=”true” target=”_blank” size=”medium” ]Tubes: Behind the Scenes at the Internet[/amazon_image]

This subject fascinates me, at least since I first read about the new tunnel for fibre-optic cable being driven through the Allegheny Mountains to speed the connection between the Chicago and New York financial markets by a few nanoseconds. Also the question of where the internet servers on which ‘the cloud’ sits are located and what that implies for, say, the balance of payments, or privacy for that matter. Not to mention who owns all the cables and infrastructure, how they interconnect, where the value sits in the value chain, and all that jazz.

So Tubes starts out well and has a number of interesting sections in which the author visits various key locations such as the London Internet Exchange, or the Google and Facebook data centres in Oregon, or the seaside spots in Cornwall and Portugal joined by a new undersea cable. Still, I felt he didn’t tell me enough about these places – fantastic access without enough detail or analysis. Maybe that has something to do with the terms on which he was allowed to visit, although that’s never stated.

Interestingly, Facebook emerges as a far more open company than Google when it comes to Blum’s visits to the data centres – he isn’t even allowed in through the door at their data center – which is also obscured on Google Maps. I wonder if Facebook has changed its approach since the visit?

So I would recommend reading Tubes, which is entertaining and well-written. But I’m still looking for something more analytical about the physical reality of the internet and the intangible economy it is creating.

Weightlessness

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Reading a review of Mark Miodownik‘s new book, [amazon_link id=”0670920541″ target=”_blank” ]Stuff Matters[/amazon_link], brought to mind my own first (1996) book [amazon_link id=”1900961113″ target=”_blank” ]The Weightless World[/amazon_link] (or as a free pdf). It looked at the way technology was changing the structure of the economy and society, and used the idea of dematerialisation as a link – the economy becoming increasingly intangible, manufactures becoming smaller and lighter, value inhering in the design and service etc, rather than the stuff.

[amazon_image id=”1900961113″ link=”true” target=”_blank” size=”medium” ]The Weightless World: Thriving in the Age of Insecurity[/amazon_image]

So I was very struck by the aerogels, graphene and other innovations highlighted in the book. Is even stuff becoming weightless now?

[amazon_image id=”0670920541″ link=”true” target=”_blank” size=”medium” ]Stuff Matters: The Strange Stories of the Marvellous Materials that Shape Our Man-made World[/amazon_image]

Money, money, money

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The Liberty Reserve story is fascinating. E-money guru Dave Birch (at 45:00) has been doing wonders explaining it. There’s been so much written about Bitcoin that I’ve only just realised that Liberty Reserve and several other competitor electronic money sites existed. It might be difficult for the authorities to distinguish between criminal and socially-useful innovation in e-money, although presumably the ability to verify identity is going to be key. Even so, electronic local currencies will no doubt arouse the interest of Her Majesty’s Revenue and Customs in case of tax minimisation activity. There’s surprisingly little sign of policy interest in electronic currencies, however. The only recent paper I’ve spotted is the ECB’s Virtual Currency Schemes (pdf) of October last year.

My top books about money that get to the philosophical issues are David Wolman’s [amazon_link id=”0306818833″ target=”_blank” ]The End of Money[/amazon_link], Keith Hart’s [amazon_link id=”1861972083″ target=”_blank” ]The Memory Bank[/amazon_link], Edward Castranova’s [amazon_link id=”0226096262″ target=”_blank” ]Synthetic Worlds[/amazon_link] and [amazon_link id=”0226893952″ target=”_blank” ]Boggs[/amazon_link] by Lawrence Weschler. The latter three are some years old now. I’m delighted to say, though, that Dave Birch is even now – quill pen in hand – writing on the subject of money and identity.

[amazon_image id=”0306818833″ link=”true” target=”_blank” size=”medium” ]End of Money[/amazon_image]

[amazon_image id=”0226893952″ link=”true” target=”_blank” size=”medium” ]Boggs: A Comedy of Values (Passions and Wonders Series)[/amazon_image]

Robots v aliens

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There has been an awful lot about robots around lately. As well as the links in my previous robot blog post, there was this primer from Robin Hanson, for example. Yesterday I did a talk at COMPAS in Oxford about research questions in the economics of migration, drawing on my experience as a practitioner for five years on the Migration Advisory Committee and also eight years talking to businesses when I was a Competition Commission member.

In MAC discussions, I was always keen to make sure what we called ‘bottom up’ evidence from companies, as well as ‘top down’ evidence from economic indicators,  informed our reports. The reason is that there was always a category of immigration that didn’t sit neatly in the framework of a labour market ‘shortage’. Economists naturally would expect a shortage to be resolved by rising real wages and/or increased labour supply, subject to frictions so it could take some time. But some businesses were clear they always need some immigrant workers, because they operated in global markets. They ranged from law, finance and professional service firms through to high-tech start-ups and engineering businesses. How should we think about their needs, in the context of migration policy?

My suggestion is that economists researching migration need to look more closely at ‘task-based’ models of production and trade. Rather than the conventional models that derive labour demand from a ‘production function’, with firms choosing how much (and what kind) of capital and labour they need to fulfill specific roles in producing the output, task-based models split production into tasks, and allocate inputs to tasks depending on the prevailing wages and technology. When technology is changing rapidly, as it has been, and factor prices change, tasks can be reallocated. In particular, many sectors of the economy, including services, have split their production into stages,some of which can be located anywhere in the world. In the existing literature, this is the phenomenon of ‘global unbundling’ or supply chains stretched over international borders. It can be driven either by low wage costs overseas, or simply by it being more efficient to allocate certain tasks to overseas contractors and workers.

There are some excellent papers on separate aspects of the choices this approach presents to firms – Richard Baldwin and Frederic Robert-Nicoud on trade, Daron Acemoglu and David Autor on labour markets, Ottaviano, Peri and Wright on migration – all building on a 2008 AER paper by Gene Grossman and Esteban Rossi-Hansberg. These need joining up to account for the joint decisions many businesses are taking: do they hire native workers, aliens or robots? Do they locate them at home, requiring some immigrants, or overseas via offshoring? What are the effects of different choices on the level of employment of natives, rather than either aliens or robots? And on their real wages? If migration flows are reduced, what adjustments will businesses of different kinds make in assigning other inputs to tasks – will offshore aliens or robots in fact do better than onshore natives?

All of these are empirical questions so the big problem, it seems to me, is data. The US has a skills database (O*NET) but I’m not aware of one in other countries. The trouble is, if the task-based approach is more useful (more realistic) than the production function approach, it requires quite a significant mental shift. For one thing, wages will be determined by productivity in tasks, so regressing real wages on individuals’ skills will be misleading whenever firms reallocate people with given skills to different tasks. The newer approach fits much better with how I’ve heard businesses describe their strategic decisions over the years. The Acemoglu and Autor survey chapter in the [amazon_link id=”0444534520″ target=”_blank” ]Handbook of Labor Economics[/amazon_link] is a good, comprehensive starting point. The Economist did a brief write-up on the robot aspect a while ago, too.

[amazon_image id=”0444534520″ link=”true” target=”_blank” size=”medium” ]HANDBOOK OF LABOR ECONOMICS, VOL 4B (Handbooks in Economics): New Developments and Research on Labor Markets[/amazon_image]