Let’s Get a Couple Things Straight…

There’s a new story in Bloomberg BusinessWeek by David Lynch called “It’s a Man vs. Machine Recovery.” It’s about technology’s recent impact on wages and employment, and includes quotes from Race Against the Machine, the ebook Erik Brynjolfsson and I published recently.

I like the piece overall, but want to correct an impression or two that it leaves. Lynch writes:

But with more than 20 million Americans still jobless or underemployed, others worry that something fundamental has changed. “What’s different now is the speed and scale of what’s happening,” says Erik Brynjolfsson, director of the MIT Center for Digital Business. Brynjolfsson and Andrew McAfee, co-authors of the recently published book Race Against the Machine, argue that the economy is in the early stages of a “Great Restructuring” that is hollowing out the labor market and exacerbating inequality.

Nonsense, say economists including James D. Hamilton of the University of California at San Diego. There’s nothing new about machines replacing people. In 1900, 41 percent of Americans worked on farms. Today, thanks to labor-saving tractors and combines, the figure is less than 2 percent. Yet ex-farm workers found new jobs. And as manufacturing grew leaner in recent decades, factory workers—or their children—migrated to finance, health care, computers, and other growing industries.

“In 2005 the average U.S. worker could produce what would have required two people to do in 1970, what would have required four people in 1940, and would have required six people in 1910,” Hamilton writes in an e-mail. “The result of this technological progress was not higher unemployment but instead rising real wages. The evidence from the last two centuries is unambiguous—productivity gains lead to more wealth, not poverty.”

This is worded to make it sound like we’re unaware of previous waves of mechanization or automation. We’re not. In fact, the stats about migration away from the farm come straight from our book. We’re well aware of standard economic theory about technology’s impact on wages and the labor force, and of the Luddite and Lump of Labor fallacies. So portraying Race Against the Machine as ‘nonsense’ in the eyes of mainstream economics is not just a narrative trick to make the story read well- it’s actually pretty disingenuous.

And we’re adamant throughout the book and especially in the final chapter that the productivity gains from technology are fantastic, generating wealth and growing the overall economic pie. But that wealth has not been distributed equally, especially in recent years. In contrast to what Hamilton says, real incomes for the median American worker are actually lower than they were 15 years ago. Chapter 3 of our book describes why we think ever more powerful technologies are contributing to this phenomenon.

At the end of the piece, Lynch does correctly state that we’re “digital optimists,” and I appreciate that. But I wish he’d not spun our ideas as economic ‘nonsense.’