Alberto Mingardi  

Again on Cowen's techno-pessimism

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I find it kind of amusing that in a very short time the public discussion of the dangers lying ahead has moved from the great stagnation to excessive automation. That is, we stopped talking of productivity stalling, to start worrying about productivity growing too much. light bulb.jpg

Whither the debate, pessimists tend to outnumber optimists - but that's no news. Few pessimists are as articulate as Tyler Cowen. David has already written an excellent critique of Cowen's last piece for Bloomberg.
David is clearly pointing out some of the weaknesses of the piece, but doesn't comment much on a point raised by Cowen which I found quite bizarre.

Writes Cowen:

Industrialization, and the decline of the older jobs in agriculture and the crafts economy, also had some pernicious effects on social ideas. The early to mid-19th century saw the rise of socialist ideologies, largely as a response to economic disruptions. Whatever mistakes Karl Marx made, he was a keen observer of the Industrial Revolution, and there is a reason he became so influential. He failed to see the long-run ability of capitalism to raise living standards significantly, but he understood and vividly described the transition costs and the economic volatility.

David's reply is that there are alternative explanations for the rise of socialism, one of them being Schumpeter's. Joseph Schumpeter maintained that by allowing for mass education, bourgeois capitalism has actually nurtured a class of people that opposed it deeply. For one thing, socialist intellectuals are an outcome of the same critical reasoning that before brought people to question feudal institutions and so helped in the formation of the liberal order, which made capitalism possible. But, at the same time, the problem with mass education is that it ends up with an oversupply of intellectuals, who in turn became enraged at not being properly appreciated by the market and thus start despising it.

Hayek instead pointed out the importance of flawed intellectual history in bringing millions to socialism. Think about a text as influential as Engels's "The Condition of the Working Class in England". That work shaped the understanding of the Industrial Revolution of many: not only professional historians, but the general public, too. And yet, with the benefit of hindsight, one can't but smile today when he reads Engels arguing that the introduction of machinery has killed upward social mobility, making the proletariat for the first time a "permanent class of the population, whereas it had formerly often been merely a transition leading to the bourgeoisie".

David already pointed out that the Industrial Revolution should be compared with what happened before (centuries in which private per capita consumption didn't grow much at all). I would add that if Marx and Engels were perceived by contemporaries as keen observers of the industrial revolution, this doesn't necessarily mean they "got" it - and they certainly got its long term consequences wrong. This is hardly a trivial mistake, as Marx was engaged in nothing less than deciphering the direction of history.

On the top of that, Cowen's point seems to be that we should be very wary of the transition costs of innovation because they got us socialism. OK. But now we already had socialism: it can perhaps find new acolytes but it will hardly be a novelty. Some good news is that Douglas Rushkoff doesn't seem to be as compelling as Karl Marx was. More good news is that we have experience, let alone historical knowledge, that may allow us to put some arguments in perspective. For one thing, we can't buy into prophecies that are built on assumptions that imply that the past could not have been. "This time is different!" - or maybe not.

I guess Tyler fears not so much socialism in new clothes, but some, new dark ideologies on the rise. It seems to me that even socialism in a way was just a new dress for a deep rooted attitude: nostalgia. Human beings tend to share a strong "anti-present bias". We systematically long for an unattainable return to the past, or a glorious future yet to come, debasing the blessings of the times we're living through. This is true in personal relationships and in our attitudes towards workplaces, as well as in politics. For some people this is what motivates thrift and hard work; for others this just leads to day dreaming, while others become wanna-be revolutionaries. My gut feeling is that political nostalgia may be the venom poisoning societies that are rapidly ageing (thus having more people naturally inclined to long for the past instead of for the future).

It seems rather commonsensical to claim that socialism was a consequence of industrialisation. Let's assume that's true. Can we say that it would have been worth not having the Industrial Revolution, just for avoiding the Russian Revolution? I'm not quite sure. Nor I am sure that the link between the two is so obviously straightforward. For one, socialism never got truly revolutionary (so really "dangerous", in Tyler's view) in England, the country that perhaps got closer to having a "laissez faire industrialization". Was that just because conflict was at some point internalized in the political system? Or did culture, including political culture, play a role? Or perhaps did people perceive the benefits of that transformation process, together with the apparent drawbacks?

Socialism became a revolutionary force in Russia well before the country became industrialised and thus could experience the "transition costs" of industrialisation. Ditto for China.

I don't want to argue that we close our eyes in front of the "transition costs" of innovation, or pretend they do not exist. But the kind of balanced approach Cowen cares for would be served better by not painting intellectual history with such a big brush.


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COMMENTS (10 to date)
Lliam writes:

Good piece. I don't know enough to have a firm view on the matter, but my prior is a high degree of skepticism that this time really is different.

Miguel Madeira writes:

The Schumpeter's seems very weak for the time in question - does not explain the massive support to socialism (including marxism) from the industrial working class in most european countries (and also from the wage-labour peasants of countries like Portugal or Spain, usually illiterates), during most of the 20th and the last decades of the 19th centuries (don't forget that the "radical upper-middle class intellectuals versus moderate-to-conservative blue-collar workers" is - or were - largely an American eccentricity).

Thaomas writes:

One good way for Libertarians not "close their eyes" to "'transition costs'" would be to enter the debate about what specifically can be done to minimize them. Some people are harmed by increased international trade or immigration, or technological change. What to do? The percentage of people with health insurance was falling and the percent of GDP spent on medical services is much higher in the US than other countries. What to do? CO2 concentration in the atmosphere is rising. What to do?

Unfortunately the too-typical Libertarian response to any specific policy proposal is to point out that it does not improve the lot of everyone or (usually the same thing) that is not total non-involvement of any level of government in that policy area. Why not counter-propose some less bad (e.g., EITC instead of minimum wage) alternative?

To bring Tyler's fear down to earth, which is the bigger danger to capitalism, a carbon tax today or a hysterical response to some ACC-related catastrophe a couple of decades from now?

Capt. J Parker writes:

I liked this part of Dr. Mingardi's post:

"Joseph Schumpeter maintained that by allowing for mass education, bourgeois capitalism has actually nurtured a class of people that opposed it deeply."

Yesterday, a Wall Street Journal Op-Ed featured and referenced Eric Hoffer thus:
The “phenomenal increase of the student population”—enrollment in colleges and universities would more than triple between 1958 and 1978—created a critical mass: “For the first time in America, there is a chance that alienated intellectuals, who see our way of life as an instrument of debasement and dehumanization, might shape a new generation in their own image.” The problem for society is “that the alienated intellectual does not want to be left alone,” Hoffer wrote. “He wants to influence affairs, have a hand in making history, and feel important.” The country continued to be plagued by problems “like race relations, violence, drugs.” Common people, however, “know that at present money cannot cure crime, poverty, etc., whereas the social doctors go on prescribing an injection of so many billions for every social ailment.”

The Op-Ed is titled The ‘Longshoreman Philosopher’ Saw Trump Coming in 1970.

This link might be gated but you can often get one Wall Street Journal article free if you google the title and follow the google link.



Michael Rulle writes:

There does appear to be this new found "terminator" fear about technology, AI, and Robots somehow making us all jobless. I don't know about TC's belief that Marx was some clear eyed observer of the transition costs of greater productivity, but, if that was Marx's view, it would seem to be obviously incorrect as the last 175 years demonstrate.

The New Left, led by Herbert Marcuse, was certainly of the opposite opinion. He believed in a technological socialist Utopia. I don't know his views on "transition" costs, but he obviously believed greater technological advancement, hence greater productivity, (presumably better created by communism than capitalism) was a long term good.

Every day, it seems, some new technology is announced in a way that is implicitly designed to scare us. This morning on the radio someone was discussing one of the fast food chains automating its ordering process "because of the $15 minimum wage".The front page of the journal talked about "Supersmart robots outnumbering humans and be smarter than humans in 30 years". While I believe both of these statements are partially false for their own reasons (What does "smarter than humans" mean?), they certainly should be welcomed and not feared.

I have often enjoyed taking an idea to the extreme (i.e., reductio ad absurdum) and conduct a thought experiment to determine its utility. What if a robot, using "molecule resequencing" could convert garbage into a mansion in two days. Would that be good or bad?

Personally, I think that would be good. If not, we can always go back to Milton Friedman's joke of requiring all labor be conducted using only a spoon. So today, we see critics of Trump saying "saving jobs" is useless because robots will take them away in 5 years anyway. Zero sum (and its modern iteration--intertemporal zero-sum which requires geniuses in government to fix the "transition" problem) has been with us a long time and will likely be with us for many more years. My bigger worry, however, is productivity and its lack there of.

Some say we measure it wrong--either way, we need more of it.

Joshua Abell writes:

If Cowen is correct about "this time" it is because we are a less free nation, and a less free world. In the US, entrepreneurship is down, the minimum wage makes it illegal to employ people starting a new career, and over 1/3 of the population has to get permission from the government to have the job they have (occupational licensing).

Unfortunately, as the US becomes less free, no other people seems to be leading the charge of freedom.

Or maybe I'm just grumpy today.

Thaomas writes:

Scott,

I'd like to see your view on this paper:

https://papers.ssrn.com/sol3/papers2.cfm?abstract_id=2915984

It seems to me he somewhat misstates the NK conclusion which is not so much a "claim" of impotence of monetary policy at the ZLB but of having no way to model monetary policy except by changes in the interest rate. An impotence of the model is not the same as the model of impotence.

Nevertheless the authors seem to get to something like your conclusion so a comparison of policy recommendations would be instructive.

Mark Bahner writes:
There does appear to be this new found "terminator" fear about technology, AI, and Robots somehow making us all jobless.

Let's look some possible--likely, I think-- impacts of completely autonomous vehicles:

Computer-driven delivery vehicles will mean that it will be much easier and more efficient to order things over the Internet, for delivery to your home. We can already see Amazon surpassing brick-and-mortar retail, and this will be even more emphasized by computer-driven delivery vehicles. I don't think this will mean that computer-driven vehicles will be sent out from brick-and-mortar stores. I think it's much more likely that brick-and-mortar stores will simply be replaced with warehouses with very narrow aisles and merchandise stocked floor-to-ceiling, probably accessed by robots.

What jobs will be hurt by this, and where do they fit on the list of most common in the U.S.? I predict retail salespeople (#1) and cashiers (#2) will lose 70-90% of their jobs (adjusted for the increase in future population). But imagine a world in which 90% of the brick-and-mortar stores of Walmart, Costco, Kroger, Walgreens, etc. are shut down. That has a much larger effect than just on retail salespeople and cashiers.

I think thinking about this possibility...which I think is at most 30 years out, should be something economists should spend a LOT of time thinking about.

Mark Bahner writes:
I don't know enough to have a firm view on the matter, but my prior is a high degree of skepticism that this time really is different.

The reason this time is different is that there has never been an invention or device that has come even close to matching the thinking ability of a human brain...at a less-than-astronomical price. Our brains have always been our key advantage.

Mark Bahner writes:

Thaomas,

I was completely with you until you chose your ultimate issue being global warming. :-) If there's some sort of hysterical panicking related to global warming that happens decades from now, I think that's their problem.

I liked these questions:

Some people are harmed by increased international trade or immigration, or technological change. What to do? The percentage of people with health insurance was falling and the percent of GDP spent on medical services is much higher in the US than other countries. What to do?
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