Not All the Economic News is Bad

The past decade has been terrible in terms of job growth and median wage growth, and sadly that was true even before it culminated in the worst recession since the 1930s.

But not all the news is bad. Although it’s not much discussed, this has actually been the best decade since the 1960s for productivity growth. Last year, labor productivity grew by over 4% and it has averaged over 2.5% in the preceding 10 years.

Why does this matter? Simply this: productivity, output per unit input, is by far the most important determinant of our living standards. As Bob Solow showed in his Nobel Prize winning work, the main thing that makes an economy richer is not working harder or even using more capital or other resources. Instead, the main driver is innovations in products, services and business processes that let us create more value without using more inputs. Productivity comes from new technologies and new techniques of production. The most important of these is what economists call general-purpose technologies like the steam engine or electricity. They contribute to productivity directly, but more importantly, they also spur countless complementary innovations that can keep driving productivity growth for decades.

Our era is fortunate to work with one of the most important and powerful general-purpose technologies in history, information technology, in all its forms. Some of my research suggests that IT has been driving the lion’s share of productivity growth in recent years. What’s more, there is no sign that the digital revolution is slowing. On the contrary, I think we are only in the early stages of a transformation that will be no less important than the ones engendered by the steam engine and electricity.

Unfortunately, not everyone is benefitting from strong productivity growth. In fact, many have been directly hurt as their jobs are automated. This is one of the main themes of my new ebook with Andrew McAfee, Race Against the Machine. Grappling with this paradox, high productivity but stagnating employment, is one of the great challenges for our generation.

How do you think we should address it?

Three Events on Technology, Employment and the Economy

If you’re interested in technology, employment and the economy, you might be interested in three events happening in the next few weeks.

The first is the Compass Summit in Palos Verdes, California, on October 23-26. There will be an impressive array of technologists, business leaders, visionaries and policymakers coming together to discussion how innovation can lead us out of some of messes we’ve created lately. I’ll be giving a talk called “Race Against the Machine: How the Digital Revolution Irreversibly Transforms Employment and the Economy” and my colleagues Tom Malone, Andy McAfee and many others will also be participating.

The second event is a whole symposium on technology and employment that the MIT Center for Digital Business is hosting on October 31 (yes, Halloween), followed by a game of Jeopardy! between a team from the MIT Sloan School, a team from Harvard Business School, and IBM’s Watson. Dave Ferrucci, the “father” of Watson will be speaking, along with some amazing technologists and economists. We’ll look at how technologies like Watson, Google’s self-driving car, Apple’s Siri, Heartland Robots and other amazing technologies have gone from fiction to reality, and what it means for jobs, wealth and the economy.

The morning sessions are at the new MIT Media Lab building on October 31, starting at 9:00 am. In the afternoon, we’ll head over to Harvard Business School. Space is limited, so if you’d like to attend please email Joanne Batziotegos (jtegos at mit dot edu) to reserve a spot.

The third event is Techonomy. This was the best non-MIT conference I went to last year and I’m really looking forward to it this year. It will be in Tucson this year, from November 13-15. I’m going to debate Tyler Cowen, the uber-blogger and economist, on the question “Can Technology Be Society’s Economic Engine?” It should be a lot of fun.

Let me know if you plan to attend any or all of the events, but if you miss them, watch this space for a summary of some of the highlights afterwards.

What CAN'T computers do?

Not too long ago, there was a relatively long list of things machines couldn't do by themselves: play chess, read legal briefs, translate poetry, vacuum floors, drive cars, etc. But that list is getting shorter and shorter every year. The latest casualty may be writing newspaper articles.

Kris Hammond and Larry Birnbaum at Northwestern's Intelligent Information Laboratory have started a company called Narrative Science which does just that. Here's a sample, produced with 60 seconds of the end of the third quarter of a recent football game:

“WISCONSIN appears to be in the driver’s seat en route to a win, as it leads 51-10 after the third quarter. Wisconsin added to its lead when Russell Wilson found Jacob Pedersen for an eight-yard touchdown to make the score 44-3 ... . ”

According to Steve Lohr, in the New York Times:

The Narrative Science software can make inferences based on the historical data it collects and the sequence and outcomes of past games. To generate story “angles,” explains Mr. Hammond of Narrative Science, the software learns concepts for articles like “individual effort,” “team effort,” “come from behind,” “back and forth,” “season high,” “player’s streak” and “rankings for team.” Then the software decides what element is most important for that game, and it becomes the lead of the article, he said. The data also determines vocabulary selection. A lopsided score may well be termed a “rout” rather than a “win.”

He ends his article with a prediction by Dr. Hammond:

“In five years,” he says, “a computer program will win a Pulitzer Prize — and I’ll be damned if it’s not our technology.”

That may be a bit ambitious, but one nearly-certain prediction is that computer power will increase by roughly 10-fold in the next five years, and by 100-fold within a decade.

You can also be sure that journalism won't be the only job affected.

Can Digital Technologies Replace Superstars?

Japan's newest pop star, Aimi Eguchi, is a digital creation.



For the past couple of decades, digital technologies have been responsible for skill biased technical change, automating and replacing routine, low-skill work while augmenting the demand for more skilled workers. Bank tellers, clerks and assembly line workers were early targets of automation, while rock stars and CEOs benefited from being able to scale their efforts.

The incomes of superstars have skyrocketed while median wages have stagnated.


However, there's nothing inevitable about technologies only being used to replace low-wage work. Pop stars, actors, artists, writers, mathematicians, chess grandmasters have all been targets of automation. In many ways, expert knowledge is easier to codify than common sense. In principle, every profession is potentially vulnerable as digital technologies, robotics and artificial intelligence advance.

There will be increasing disruption in the economy as businesses restructure, and employment, wages, and incomes re-align to the new reality.

Which sectors do you think will be most affected in the next 10 years. Which professions, other than b-school professors, are relatively immune for the time being?