Average Is over: Powering America Beyond the Age of the Great Stagnation - Hardcover

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Work and Wages in iWorld

his book is far from all good news. Being young and having no job remains stubbornly common. Wages for young people fortunate enough to get a job have gone down. Inflation-adjusted wages for young high school graduates were 11 percent higher in 2000 than they were more than a decade later, and inflation-adjusted wages of young college graduates (four years only) have fallen by more than 5 percent. Unemployment rates for young college graduates have been running for years now in the neighborhood of 10 percent and underemployment rates near 20 percent. The sorry truth is that a lot of young people are facing diminished job opportunities, even several years after the formal end of the recession in 2009, when the economy began to once again expand after a historic contraction.

Many people are seeing the erosion of their economic futures. The labor market troubles of the young—which you can observe in many countries—are a harbinger of the new world of work to come.

Lacking the right training means being shut out of opportunities like never before.

At the same time, the very top earners, who often have advanced postsecondary degrees, are earning much more. Average is over is the catchphrase of our age, and it is likely to apply all the more to our future.

This maxim will apply to the quality of your job, to your earnings, to where you live, to your education and to the education of your children, and maybe even to your most intimate relationships. Marriages, families, businesses, countries, cities, and regions all will see a greater split in material outcomes; namely, they will either rise to the top in terms of quality or make do with unimpressive results.

These trends stem from some fairly basic and hard-to-reverse forces: the increasing productivity of intelligent machines, economic globalization, and the split of modern economies into both very stagnant sectors and some very dynamic sectors. Consider the iPhone. The iPhone is made on a global scale, and it blends computers, the internet, communications, and artificial intelligence in one blockbuster, game-changing innovation. It reflects so many of the things that our contemporary world is good at, indeed great at. Today’s iPhone would have been the most powerful computer in the world as recently as 1985. Yet to cite two contrasting sectors, typical air travel doesn’t go faster than it did in 1970, and it is not clear our K–12 educational system has much improved.

This imbalance in technological growth will have some surprising implications. For instance, workers more and more will come to be classified into two categories. The key questions will be: Are you good at working with intelligent machines or not? Are your skills a complement to the skills of the computer, or is the computer doing better without you? Worst of all, are you competing against the computer? Are computers helping people in China and India compete against you?

If you and your skills are a complement to the computer, your wage and labor market prospects are likely to be cheery. If your skills do not complement the computer, you may want to address that mismatch. Ever more people are starting to fall on one side of the divide or the other. That’s why average is over.

This insight clarifies many key issues, such as how we should reform our education; where new jobs will come from and why (some) wages might start rising again; which regions will see skyrocketing real estate prices and which will empty out; why some companies will get smarter and smarter, while others just try to ship product out the door; which human beings will earn a lot more and which workers will move to low-rent areas to make ends meet; and how shopping, dating, and meeting negotiations will all change.

What lies ahead of us will be a very surprising time, and it is likely that new technologies already emerging will lead us out of what I called in a previous book “the great stagnation.” It is true that there has been a persistent slowdown in real economic growth in the Western world and Japan, but this book suggests how that might plausibly change. It is not the new technologies per se; it is how some of us will use them.

The technology of intelligent machines may conjure up science fiction visions of rebellious robots or computers that feel and maybe fall in love or proclaim themselves to be gods. The reality of the progress on the ground is based on an integration of capabilities rather than on any one thing that might be described as “artificial intelligence.” What is happening is an increase in the ability of machines to substitute for intelligent human labor, whether we wish to call those machines “AI,” “software,” “smart phones,” “superior hardware and storage,” “better integrated systems,” or any combination of the above. This is the wave that will lift you or that will dump you.

The fascination with technology and the future of work has inspired some fascinating writings, including Martin Ford’s classic The Lights in the Tunnel, the more recent and excellent eBook Race Against the Machine by Erik Brynjolfsson and Andrew McAfee, and Ray Kurzweil’s futuristic work on how humans will meld with technology. Debates about mechanization periodically resurface, most prominently in the 1930s and in the 1960s but now once again in our new millennium. Average Is Over builds upon these influential works and attempts to go beyond them in terms of detail and breadth. In these pages I paint a vision of a future which at first appears truly strange, but at least to me is also discomfortingly familiar and indeed intuitive. As a blogger and economics writer, I find that the question I receive most often from readers is—by far— something like: “What will the low- and mid-skilled jobs of the future look like?” This question is on everyone’s mind with a new urgency but it goes back to David Ricardo and Charles Babbage in the nineteenth century. Ricardo was a leading economist of his time who wrote on “the machinery question,” while Babbage was the intellectual father of the modern computer and he—not coincidentally—also wrote on how radical mechanization was going to reshape work.

These questions have reemerged as culturally central because we are at the crux of a technological revolution once again. It’s becoming increasingly clear that mechanized intelligence can solve a rapidly expanding repertoire of problems. Solutions began appearing on the margins of the world’s interests. Deep Blue, an IBM computer, defeated the then–world champion Garry Kasparov in a chess match in 1997. Watson, a computer program, beat Ken Jennings—the human champion—on Jeopardy! in 2010, surpassing most expectations as to how quickly this would happen. Interesting developments, yes, but the technological news is becoming more central to our concerns.

We’re on the verge of having computer systems that understand the entirety of human “natural language,” a problem that was considered a very tough one only a few years ago. Just talk to Siri on your iPhone and she is likely to understand your voice, give you the right answer, and help you make an appointment. Siri disappoints with its mistakes and frequently obtuse responses, but it—or its competitors—will improve rapidly with more data and with assistance from crowd-sourced recommendations and improvements. We’re close to the point where the available knowledge at the hands of the individual, for questions that can be posed clearly and articulately, is not so far from the knowledge of the entire world. Whether it is...