The Digital Revolution and the Inequality Debate

This article, “Sorry, neoliberals: Inequality is driven by greed, not technology,” by Sean McElwee, says in summary that “A new study shows low wages are really caused by low minimum wage, weakened unions and the effects of globalization.” As I mentioned in my series, “Working Till 2025,” this is part of a raging debate in economics that is going on right now. What I find perplexing is the attempt by many to characterize the problem as an either / or proposition. Consider this excerpt:

Mishel is more hopeful. After all, if inequality is the inevitable product of technological change, the only way to prevent higher inequality is to slow innovation. But Mishel is no Luddite. His State of Working America 2012 report (co-written with Josh Bivens, Elise Gould and Heidi Shierholz) argues that it is economic policy, not changing technology, that drives wage inequality. The decreasing value of the minimum wage, the weakness of unions and the impacts of globalization have all coalesced to keep down wages.

Sure, poor policy was part of the problem, but that does not mean technological change was not a factor. The financial meltdown was amplified by the invention of derivatives and high speed trading with computers. Seems kind of hard to argue that technology played no role there. Yes, policy changes are needed, but let’s make those changes with our eyes wide open. The is a complex problem with multiple facets, and we need to treat it as such.

In this article, “Gordon Versus The Androids,” Paul Krugman reviews a paper by Bob Gordon, and concludes that he is most likely wrong. Let me echo and amplify Krugman’s conclusion starting with this excerpt from the paper:

The analysis links periods of slow and rapid growth to the timing of the three industrial revolutions (IR’s), that is, IR #1 (steam, railroads) from 1750 to 1830; IR #2 (electricity, internal combustion engine, running water, indoor toilets, communications, entertainment, chemicals, petroleum) from 1870 to 1900; and IR #3 (computers, the web, mobile phones) from 1960 to present. It provides evidence that IR #2 was more important than the others and was largely responsible for 80 years of relatively rapid productivity growth between 1890 and 1972. Once the spin-off inventions from IR #2 (airplanes, air conditioning, interstate highways) had run their course, productivity growth during 1972-96 was much slower than before. In contrast, IR #3 created only a short-lived growth revival between 1996 and 2004.

So, the industrial revolution was more important than the digital revolution, and the latter created only a short-lived revival that ended in 2004? I’m sorry, but I most respectfully disagree. Krugman himself goes on to say:

So how are things going on the android front? A decade ago I would have said “very badly”: the field of artificial intelligence had marched from failure to failure.

But something has happened—things that were widely regarded as jokes not long ago, like speech recognition, machine translation, self-driving cars, and so on, have suddenly become more or less working reality. Our suddenly smarter machines aren’t intelligent in the way people are, and the way they do their work is nothing like the way we do it: the translation program doesn’t understand the text, the self-driving car isn’t consciously avoiding collisions. Instead, they’re using big data and correlations and so on to implement algorithms – mindless algorithms, you might say. But if they can take people’s place, does it matter?

He is reading the tea leaves: the digital revolution has only just begun.

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