Pethokoukis, Economics, U.S. Economy

3 key ideas from what will be one of the most important books of 2014


I am fortunate enough to have already previewed The Second Machine Age by MIT’s Erik Brynjolfsson and Andrew McAfee, out next month. It is an excellent expansion of the thesis outlined in their monograph and Kindle Single, Race Against the Machine. The authors have posted an excerpt online. Here is an excerpt of that excerpt, summarizing their conclusions:

The first is that we’re living in a time of astonishing progress with digital technologies—those that have computer hardware, software, and networks at their core. These technologies are not brand-new; businesses have been buying computers for more than half a century, and Time magazine declared the personal computer its “Machine of the Year” in 1982. But just as it took generations to improve the steam engine to the point that it could power the Industrial Revolu – tion, it’s also taken time to refine our digital engines.

Our second conclusion is that the transformations brought about by digital technology will be profoundly beneficial ones. We’re heading into an era that won’t just be different; it will be better, because we’ll be able to increase both the variety and the volume of our consumption. When we phrase it that way—in the dry vocabulary of economics—it almost sounds unappealing. Who wants to consume more and more all the time? But we don’t just consume calories and gasoline. We also consume information from books and friends, entertainment from superstars and amateurs, expertise from teachers and doctors, and countless other things that are not made of atoms. Technology can bring us more choice and even freedom.

Our third conclusion is less optimistic: digitization is going to bring with it some thorny challenges. …  Technological progress is going to leave behind some people, perhaps even a lot of people, as it races ahead. As we’ll demonstrate, there’s never been a better time to be a worker with special skills or the right education, because these people can use technology to create and capture value. However, there’s never been a worse time to be a worker with only ‘ordinary’ skills and abilities to offer, because computers, robots, and other digital technologies are acquiring these skills and abilities at an extraordinary rate.


Image Credit: Cleveland Fed

Image Credit: Cleveland Fed

In Race Against the Machine, Brynjolfsson and McAfee offered a numbers of ideas — there are even more in the new book — to help carbon-based lifeforms compete. 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.

Here is the key thing: Even if you  are a technopessimist, that list of policy ideas makes pretty good sense anyway as way of boosting growth and helping more Americans flourish and prosper.


13 thoughts on “3 key ideas from what will be one of the most important books of 2014

  1. The Basic Income Guarantee will alter the standard economic model. The SEM altered with quantitative easing.
    So long as the wealthy alone do not have the right to vote, and the greater the number of relatively poor, the more radical the government policies.
    Difficult to synthesize factors many of which have not yet certainly emerged.

    • It’s too bad they use the home mortgage deduction as their example for eliminating crony capitalism. I understand their thinking from the standpoint that the HMD distorts capital and investment, but it is like banning hot dogs and apple pie. There are plenty of other crony capitalism examples they could have used. For example, 1) eliminate various corporate tax credits and lower the nominal rate to international standards in order to encourage domestic investment; 2) overhaul our regulatory structure to remove crony protective provisions and provide a more level playing field for emerging and small businesses. This is implied in the financial arena by eliminating TBTF, but the problem extends well beyond wall street.

  2. Copyright term should be the same as patent term – 21 years. Currently, you can smudge some feces on a piece of paper and you are protected for 90+ years; spend billions developing a new drug and you have 21 years max to recover your investment. A testament to the fundamental unseriousness of our society.

  3. If you have already previewed the entire book, why aren’t you talking about the facet of technology development Brynjolfsson and McAfee find most challenging, the worrisome “spread,” or increasing distance between technological sophisticates and ordinary humanity. Is it because you are in favor of restricting access to novel tech, as now, through monopolistic competition?

  4. (no new ideas, and stated ideas are weak)

    (a) all advances in economics have been accompanied by increases in calculative technologies that facilitate a wider distribution of knowledge and labor.

    (b) however, such advances are only beneficial if they increase the number of people in the work force, in more productive capacities.

    (c) The tendency of humans to extrapolate a line, from what is the upward curve of a normal distribution is pervasive in social, political and scientific thinking. The idea that additional computational power, or additional calculative power, will increase the division of labor ad infinitum is such an error.

    (d) logical consequence is that there is very little for people to do at some point, and at that point, what does morality and politics look like? Malthusian?

    (e) the most obvious failure to apply technology is to replace representative democracy with direct democracy and smaller governments. I suspect that the economic benefit of disassembling the central state into polycentric orders would produce innovation in organization alone that would be sufficient to redistribute labor and increase employment.

    But the only empirical test is to try it.

    • My observation is that the authors are proposing practical changes to invigorate the economy within our existing political structure while you are proposing to disassemble that structure in favor of a different model.

      Given that political change to the degree you propose is unlikely, I suggest you think through the purpose and likely effects of each of the suggestions made by the authors rather than casting them off in a cynical 8 word sentence. Would we be better off as a nation if these 15 recommendations were implemented? Would the result be more jobs, greater take home pay and higher living standards across the economic spectrum than we will have under existing policies? The answers are unequivocally yes. (perhaps with the exception of the crony capitalists and investment bankers)

  5. An excellent set of recommendations. Too few understand why they are important. Hopefully this book will take off and help to educate our innumerate “intellectuals”.

  6. Oftentimes you will read a book that correctly identifies the problem but then offer solutions that fail completely. This is not the case with this book.

    If we as a nation were to adopt the measures that the authors are proposing, we will grow and prosper. However should we continue on the current progressive path or shift to the “old wealth” ideas of the far right, we will surely continue to decline.

  7. Ironic that the book seems to forward concepts prior to the paradigm changing digital age. For instance, it seems to prioritize the current educational paradigm by offering suggestions on how to slightly improve it, instead of embracing computer aided learning and MOOCs. Furthermore, their policy prescriptions come right out of the Republican playbook, when some of the biggest hurtles to success and achievement are the gap between classes (i.e. rich and poor, educated and non-educated, safe and unsafe, healthy and non-healthy). Perhaps it comes with the title Race Against the Machines, when it ought to be Embrace the Machines. You aren’t going to optimize thinking this is 2.0, like it is delineated, instead it is a spectrum, with new powerful tools coming out all the time.

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