The Technology Trap

1. Technological progress has historically created both winners and losers

Attitudes toward technological progress are shaped by how people's incomes are affected by it.

Progress is not inevitable. Throughout history, new technologies have often been resisted by those whose livelihoods they threatened. In preindustrial times, rulers frequently blocked labor-saving inventions to avoid social unrest. The adoption of technology depends on whether those affected stand to gain from it.

Enabling vs. replacing technologies. Economists distinguish between:

• Enabling technologies: Create new tasks/jobs, increase productivity (e.g. telescope)
• Replacing technologies: Substitute for human labor (e.g. power loom)

Replacing technologies tend to face more opposition, as they can reduce demand for labor and wages in the short-term. However, they can also lead to long-term productivity gains that benefit society broadly if the transition is managed well.

2. The Industrial Revolution initially worsened conditions for many workers

The gains of the Industrial Revolution overwhelmingly went to industrialists, who saw their rate of profit double.

Engels's pause. The early Industrial Revolution (1760-1840) saw stagnant or declining living standards for many workers, despite rapid economic growth. This period is known as "Engels's pause" after Friedrich Engels who observed it. Key impacts included:

• Displacement of skilled craftsmen by machines and unskilled factory workers
• Longer working hours in poor conditions
• Child labor in factories
• Rising inequality as profits soared but wages stagnated

Worker resistance. Many workers violently opposed mechanization, exemplified by the Luddite movement which destroyed textile machinery. However, the British government forcefully put down these rebellions to protect industrial progress.

3. The 20th century saw technology benefit workers across the board

For the most part, as late as 1970, middle-income jobs had been taken over by machines, forcing many people into lower-paying jobs or causing them to drop out of the workforce altogether.

Enabling technologies created new jobs. The Second Industrial Revolution (1870-1914) brought technologies like electricity and the internal combustion engine that created many new jobs and industries. This continued through much of the 20th century as technology augmented rather than replaced human skills.

Key developments:

• Rise of manufacturing and clerical jobs accessible to high school graduates
• Increasing wages across skill levels as productivity rose
• Expansion of the middle class and reduced inequality
• Less worker resistance to technology as benefits were broadly shared

This era saw the "great leveling" as economic gains were distributed more equally, supporting a stable democracy and social cohesion.

4. Computers and AI are now displacing middle-skill jobs

The age of automation was not a continuation of twentieth-century mechanization. On the contrary, it was a complete reversal of it.

Job polarization. Since the 1980s, computer technology has been replacing many middle-skill routine jobs while creating high-skill jobs. This has led to:

• Declining employment and wages for workers without college degrees
• Growth in both high-skill, high-wage jobs and low-skill, low-wage jobs
• A "hollowing out" of the middle class

Skill-biased technological change. New technologies increasingly favor highly educated workers, widening the gap between college graduates and others. This has contributed to rising inequality and social stratification.

5. Geographic inequality is increasing as new jobs cluster in skilled cities

Digital industries have overwhelmingly clustered in cities with skilled populations.

The great divergence. While the 20th century saw economic convergence between U.S. regions, this trend has reversed since the 1980s:

• New high-skill jobs are concentrating in cities with educated workforces
• Former manufacturing hubs are declining as routine jobs disappear
• Growing gap between thriving "superstar cities" and struggling regions

Place still matters. Despite predictions that technology would make location irrelevant, geography has become more important for economic opportunity. This is driving increased geographic segregation by education and income.

6. The shrinking middle class threatens social cohesion and democracy

A broad middle class, as many political scientists have pointed out, is an essential pillar of a stable democracy.

Political polarization. The decline of the middle class has coincided with growing political polarization:

• Fewer moderates in Congress
• Declining trust in institutions
• Rise of populist movements

Eroding worker influence. As unions have declined and corporate lobbying has increased, policies have become less responsive to workers' interests. This is exemplified by the failure to raise the minimum wage despite broad public support.

The separation of affluent and struggling communities is reducing empathy and shared experiences across class lines, threatening democratic stability.

7. Policy choices will shape whether AI benefits society broadly or exacerbates inequality

The future of AI depends on how we manage the short run.

AI's potential. Artificial intelligence could dramatically boost productivity and create new jobs, potentially benefiting society broadly as did earlier general-purpose technologies.

The challenge. However, AI also risks exacerbating current trends of job polarization and inequality if its gains accrue mainly to a small group of skilled workers and investors.

Key policy considerations:

• Education and retraining to help workers adapt
• Addressing geographic divergence
• Ensuring workers maintain bargaining power
• Considering new forms of redistribution (e.g. universal basic income)

Proactively managing the transition is crucial to realizing AI's potential benefits while minimizing social disruption. The lessons of past technological revolutions highlight the importance of inclusive growth.

Last updated: October 3, 2024