Lawrence H. Summers: The Inequality Puzzle "And there is the basic truth that technology and globalization...
...give greater scope to those with extraordinary entrepreneurial ability, luck, or managerial skill. Think about the contrast between George Eastman, who pioneered fundamental innovations in photography, and Steve Jobs.... Eastman Kodak Co. provided a foundation for a prosperous middle class in Rochester for generations, no comparable impact has been created by Jobs’s innovations....
Even where capital accumulation is concerned, I am not sure that Piketty’s theory emphasizes the right aspects. Looking to the future, my guess is that the main story... will be the devastating consequences of robots, 3-D printing, artificial intelligence, and the like for those who perform routine tasks. Already there are more American men on disability insurance than doing production work in manufacturing. And the trends are all in the wrong direction, particularly for the less skilled, as the capacity of capital embodying artificial intelligence to replace white-collar as well as blue-collar work will increase rapidly in the years ahead....
I looked at the first paragraph of this last Friday, so let me today focus on the second paragraph...
The way I see it, robots do play a central part in the logic of Piketty's argument, even if their particular links in his chain of reasoning are not properly stressed and highlighted--and this is, I think, one flaw in what I do think is a great book. The Rise of the Robots is one powerful reason why Piketty believes that the large runup in the wealth-to-annual-income ratio he expects to see in the North Atlantic over the next century will not be accompanied by a sharply-falling rate of profit.
Think of it this way: Humans used to have five ways of creating economic value: through backs, through fingers, through routine control, through smiles, and through creative insight:
- Strong backs (usually those bathed in the steroid testosterone) could do the heavy lifting.
Nimble fingers could do the fine manipulating.
Cybernetic control loops could keep the lifting and manipulating on their proper tracks.
Smiles--in fact, an entire universe of human social interactions--could keep us as a group all pulling in roughly the same direction, playing positive-sum rather than negative-sum economic games, and could also provide the personal services from which we derive so much of our human well-being.
Genuine creative insight could think up new ways of doing things and new things to do that would be useful: luxurious or convenient, and over the course of time could transform conveniences into necessities, luxuries into conveniences, and invent yet new dimensions of luxury.
That was how things stood in 1800. But a whole bunch of water has flowed under the bridge since:
The coal, steam, and metal technologies of the First Industrial Revolution devalued the strong backs. But that was OK: the general upward march of prosperity and technology of the First Industrial Revolution produced plenty of other work in the cities for those whose backs were no longer in as high relative demand for agricultural or construction labor.
Not the first but the second and third generations of the assembly-line mass-production and continuous-process technologies of the Second Industrial Revolution devalued the nimble fingers. But that was okay too.
Why was that OK? Because every machine and every process still needed a cybernetic controller. And no alternative cybernetic controller could fit in a shoebox and run on 50 W of power. Human brains remain a unique resource, one strongly complementary with capital. With labor a complement to capital the rate of profit could not but fall with an increasing wealth-to-annual-income ratio to the extent that increasing wealth took the form of increasing numbers and sophistication of machines and processes. But now rapidly-exploding information and communications technologies are severely reducing the need for human brains as blue-collar or white-collar cybernetic controllers of machines, processes, and accounting and distribution systems. Rather than just substituting for backs and fingers and leaving brains as complements to capital, now increasing capital substitutes for brains as well--both blue-collar and white-collar brains. And this means that the long industrial age in which brains are so useful and so strong a complement to capital that even though capital is a substitute for backs and fingers capital and labor are, at the aggregate level, strong complements. Since the start of the industrial age, it is this aggregate level complementarity that has driven the inverse relationship of the capital-output ratio and the rate of profit, and kept sharp increases in relative wealth from translating into sharp increases in the share of income received by wealthholders as well.
But when brains join fingers and backs as factors of production that are not complements to but substitutes for capital, what then? And how fast will that process happen? What will then be left to drive capital-labor complementarity? There will be genuine creative insight--new ways of doing things and new things to do--but that will not be a large share of employment, will it?
And there will be smiles--services that are inherently and necessarily personal, "face time", and all the rest of the social universe of human interactions to keep us as a group pulling in roughly the same direction, playing positive-sum games, and providing the direct personal services from which we derive well-being. That is the world that we will be moving in to shortly? Is that world still a world in which labor and capital are complements?
The Rise of the Robots is not the principal argument Piketty advances to support his claim that the increase in the wealth-to-annual-income ratio he forecasts is not going to be neutralized in its effects on income distribution by a fall in the rate of profit. Piketty's main argument, I think, is that wealth dominates politics, and more wealth dominates politics more completely. Hence the modern state becomes an executive committee for managing the affairs of the ruling class, and is rather good at taking steps to keep the rate of profit from falling and different components of wealth from competing against each other too hard. But the Rise of the Robots is an argument.
However, Larry is very right in one powerful and all-important thing: The fact that the Rise of the Robots may well wind up allowing an increase in the capital-output ratio to drive an increase in the capital share of income may be one of its less-important consequences for all of us who "perform routine tasks". And how many are there of us whose tasks are not, from some viewpoint, "routine"?