Arnold Kling  

Inequality and Innovation

Education Spending... Scholarly Beliefs and Folk Bel...

David Wessel writes,

the best minds in labor economics differ on whether the 1990s and early 2000s are best seen as a continuation of the 1980s inequality trend (Harvard's Mr. Katz) or an end to it (Berkeley's David Card.)

The answer matters. Mr. Card and like-minded scholars say: The superstars are still big winners. But in the rest of the labor market, the widening of inequality in the 1980s reflected a one-time change in attitudes and rules, and isn't going to get wider. Don't blame technology; it was at least as pervasive in the 1990s.

I personally would place my bet on innovation as the source of inequality.

I had lunch today with Robin Hanson, who pointed out that really important innovations will substitute for brains rather than for muscle. As he put it, a purely mechanical innovation can substitute for capital in manufacturing, meaning a small share of a fraction of output. But something that can substitute for a human brain--now that would be a big deal. He predicted really dramatic inequalities if we ever found good substitutes for human brains, because if producers don't need your human brain any more, your bargaining power is sort of hosed.

Hmmm...maybe we are very early along that path, hence the rise in inequality.

Just a thought.

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CATEGORIES: Income Distribution

COMMENTS (9 to date)
Robert writes:

This cuts both ways. If intelligence-replacing technology can increase the profitablity of the firm, it is tempered by a potential decrease the household's need for the firm.

If I can use technology to manage the inventories of my household, then my bargaining position as a consumer is strengthened. If enough of my neighbors implement the same technology, we can circumvent the retail sector entirely. If the school can use technology to replace educators, I can use the same technology to replace the school. If an expert system can diagnose my illness, the information assymetry I face when I go to the doctor is reduced.

While I doubt on philosophical grounds that any technology can make self-sufficiency more practical than specialization, if the threat of doing it myself is plausible, then firms utilizing intelligence-replacing technology face a contestible market.

Mcwop writes:

I do not think it is technology causing the gap. I wonder if it is the growth in professionals (e.g. people with law degrees), number of people with higher ed, more small business owners, and stock options as compensation. If you want to get rich - start your own business (you might also go broke on that one). Also remember, stock options are leveraged, so those can greatly enhance a person's income. Options are much more widely used today as executive comp.

Robert Speirs writes:

If inequality springs from inherent differences in ability, perhaps the rise of super-intelligent systems available to everyone will make differences in ability unimportant. Some men run faster than others. With widely available cars, everyone travels at eighty.
On the other hand, intelligent systems may amplify differences, especially if they are designed for those with more ability. Then the left half of the bell curve will have to rely on noblesse oblige.

spencer writes:

The rise in inequality is because the increased use of technology has lead to greater output and returns to intelligence and education.

Isn't this just the opposite of what your are saying?

It isn't that we are substituting for brains power, it is that we are giving the brain better tools and so increasing the output of brainpower.

In the early industrial revolution we gave labor a mechanical tool to use that increased the output of muscles, so return to muscles increased. so now the same thing is happening to brains.

David Thomson writes:

Why in hell should we care about inequality? This is a pure waste of time. Are we overall getting wealthier? That is the only thing we should be concerned with. The poor of America usually own TV sets, automobiles, and even air conditioners.

Me thinks that some people wasted their time in college reading John Rawls. I could care less if someone like Bill Gates is far wealthier than the rest of us. He has made all of our lives a lot better.

Lord writes:

Intelligence wants to think that it makes the most valuable contribution, but it is the most easily automated, outsourced, and offshored. Most of the things we can do unconsciously or consciously without effort are in fact our most valuable contribution as these are difficult to automate, outsource, and offshore. The greatest value of intelligence is adaptability so that it can determine what is most valuable and apply itself to that.

Chris Bolts writes:
He predicted really dramatic inequalities if we ever found good substitutes for human brains, because if producers don't need your human brain any more, your bargaining power is sort of hosed.

Wouldn't these substitutes also depend on people's demand for them? For example, many companies are going to automated voice systems to handle mundane customer service tasks, but there is a large populace who still prefer to deal with a human being. If the automated voice system becomes too pervasive, consumers can punsih companies by taking their services to another company who provides that human touch. This then reduces the company's and raises the employee's bargaining power.

Roger M writes:

The best analysis of inequality I have read is On The Gap Between The Rich And The Poor by Young Back Choi, available at

Choi shows that if you adjust for differences in household size, age, education, the present value of future pensions, future Social Security benefits, and non-cash benefits provided by the government to the poor, inequality almost disappears.

Tom West writes:

Why in hell should we care about inequality?

Because we're human. True physical and mental suffering because of low status is not a character flaw, it is part of what evolution has built into us. Low status greatly increases your chances of physical and mental ailments. It exists in most primates, and we're no exception. Humans beings are built so that we prefer to be king of the dung hill than a slave in the palace. (Not that our preference is *all* relative - but a huge amount of it is.)

Why reduce inequality? i.e. both compassion and self-interest. Many of us don't want the poor to suffer starvation, sickness, etc. And many of us would prefer that there isn't a significant portion of the population that would prefer the dung hill where they might be king.

It's fine to argue how humans *should* work. But in the end we should be governed by how people *actually* work.

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