The rise of the machines

The counter-attack has begun. High profile experts are using robots to fight back against the claim that technological innovation has slumped.

Paul Krugman, a New York Times (NYT) columnist and Nobel laureate, is the best known. In his column on December 9 he argued that “there’s no question that in some high-profile industries, technology is displacing workers of all, or almost all, kinds.” He supported this contention with additional material in blog posts.

Krugman links the rise of the robots to other economic trends particularly the surge in the share of national income going to profits. In what he describes as an “almost Marxist” discussion he says capitalists, rather than workers, are reaping most of the benefits of innovation.

He points to two possible explanations for this trend: “One is that technology has taken a turn that places labor at a disadvantage; the other is that we’re looking at the effects of a sharp increase in monopoly power. Think of these two stories as emphasizing robots on one side, robber barons on the other.”

The thrust of his argument is that “robber barons”, or what could be called a new rentier class, are taking most of the gains of technological innovation. So rapid innovation is happening but only a small minority enjoys the benefits.

Krugman’s argument draws on several key sources. He points to Race Against the Machine a recent book by Erik Brynjolfsson and Andrew McAfee of the Massachusetts Institute of Technology, to support his argument about vibrant innovation. He also cites the work of Barry Lynn and Philip Longman of the New America Foundation who point to the growing importance of monopoly power.

Ken Rogoff, a former chief economist at the International Monetary Fund, has put forward a broadly similar argument to Krugman. Izabella Kaminska, a blogger at FT Alphaville who is herself sympathetic to the argument, collated more references in a recent column.

All of these thinkers are ranged against what could be called the techno-pessimists who argue the fundamental problem too little innovation rather than too much. I discussed the arguments of one of the most prominent, Robert Gordon of Northwestern University, in a recent Perspective column in Fund Strategy also examined Tyler Cowen’s argument that the “low hanging fruit” of technological innovation have already been picked in a recent cover story.

Other proponents of techno-pessimism include Peter Thiel and Gary Kasparov who wrote a recent article on the subject for the FT. Their work is particularly interesting as they link poor technological innovation with a broader culture of risk aversion. In that respect their outlook is similar to that put forward by the Big Potatoes manifesto for innovation.

The argument between what could loosely be characterised as techno-optimists and techno-pessimists is important for several reasons. Not only is the question of innovation crucial in itself but the debate is linked to the question of the causes of the current economic malaise. The diagnosis of the crisis in turn leads to fundamentally different proposed solutions.

I am closer to the techno-pessimists although I do not agree with everything all of them argue. For one thing the techno-optimists tend to simply run through a list of amazing technological innovations. There is seldom any attempt to systematically compare the current level of innovation to that of the past.

This blog post first appeared on Fundweb.