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Charts of the Day: Should workers fear IBM’s Watson?

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The Great Stagnation or the Great Acceleration? There will be a must-see debate tomorrow at TED between economists Robert Gordon of Northwestern University and MIT’s Erik Brynjolfsson on whether growth and innovation are at an end or just at the beginning, “Is America Past its Prime?” Both academics have given initial TED talks worth watching.

Here are two great charts from Brynjolfsson’s presentation. The first is the answer accuracy rate of Jeopardy! contestants (the dots) compared with the increasing accuracy of IBM’s Watson right up until its victory in 2011.

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The second is what Brynjolfsson calls the “Great Decoupling.”

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If technological unemployment is a real issue, here are some possible next steps:

Assuming the answer isn’t to smash the machines, or at least unplug them, what can we do to create an economy that provides plentiful jobs and rising incomes? The good news is that the right policies to deal with technological acceleration are pretty much the same as if you’re combating technological stagnation. Brynjolfsson and McAfee offer a list of ideas, mostly centered around education and entrepreneurship, that work either way and could appeal to both the left and the right.

Among them: 1) pay teachers more so better students want to become teachers; 2) hold teachers more accountable for performance by eliminating tenure; 3) encourage more high-skill immigration; 4) create special visas for entrepreneurs; 5) teach entrepreneurship throughout higher education; 6) create a database of “startup-in-a-box” templates; 7) lower governmental barriers to starting a business; 8) upgrade the nation’s transportation, energy, and communication infrastructure; 9) increase government funding for basic research such as that carried out by DARPA and NIH; 10) resist efforts to regulate hiring and firing; 11) lower payroll taxes; 12) decouple benefits, such as health insurance, from jobs; 13) don’t rush to regulate new innovation business structures such as crowdsourcing; 14) eliminate inefficient, crony capitalist distortions such as the home mortgage deduction and the Too Big To Fail big bank subsidy; 15) shorten copyright periods and increase the flexibility of fair use.

In addition, it may become more important for people to generate income from capital, not just labor, if machines depress wages over the long run. That’s right, a return to the Ownership Society. A good first step would be to transform the income tax into a consumption tax by no longer taxing capital income. And we should make it easier for average families to own stock. But that’s becoming harder to do with many companies going private. Noah Smith,a finance professor at Stony Brook University, recommends reforming regulations like Sarbanes-Oxley “that make it risky and difficult to go public.”

Another option, suggested by economist Tyler Cowen, are so-called universal 401(k) plans where government would help fund tax-free retirement accounts for lower-income Americans, matching personal contributions to those accounts. “A fiscally responsible universal 401(k) plan would not make everyone happy. Libertarians and conservatives would be suspicious of government-created accounts. Liberals might not like freezing or reducing future expenditures on Medicare and Social Security.”

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