The Second Machine Age

The Second Machine Age, by Erik Brynjolfsson and Andrew McAfee, two MIT professors and researchers, offers mostly an economist’s point of view on the consequences of the technological changes that are remaking civilisation.

Although a fair number of chapters is dedicated to the technological innovations that are shaping the first decades of the 21st century, the book is at its best when the economic issues are presented and discussed.

The book is particularly interesting in its treatment of the bounty vs. spread dilema: will economic growth be fast enough to lift everyone’s standard of living, or will increased concentration of wealth lead to such an increase in inequality that many will be left behind?

The chapter that provides evidence on the steady increase in inequality is specially appealing and convincing. While average income, in the US, has been increasing steadily in the last decades, median income (the income of those who are exactly in the middle of the pay scale) has stagnated for several decades, and may even be decreasing in the last few years. For the ones at the bottom at the scale, the situation is much worst now than decades ago.

Abundant evidence of this trend also comes from the analysis of the shares of GDP that are due to wages and to corporate profits. Although these two fractions of GDP have fluctuated somewhat in the last century, there is mounting evidence that the fraction due to corporate profits is now increasing, while the fraction due to wages is decreasing.

All this evidence, put together, leads to the inevitable conclusion that society has to explicitly address the challenges posed by the fourth industrial revolution.

The last chapters are, indeed, dedicated to this issue. The authors do not advocate a universal basic income, but come out in defence of a negative income tax for those whose earnings are below a given level. The mathematics of the proposal are somewhat unclear but, in the end, one thing remains certain: society will have to address the problem of mounting inequality brought in by technology and globalisation.

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