Will robots terminate the US middle class?

Share this article

"We can make inequality much more bearable"

Will robots terminate the US middle class?

Shutterstock

James Pethokoukis | American Enterprise Institute

A Q&A with Tyler Cowen, author of ‘Average is Over’

Flash fact:

most of the jobs lost during the Great Recession were mid-wage occupations,
most of the jobs added in the recovery have been low-wage jobs.
many of those disappearing middle-level jobs are what economists call “routine, manual tasks” that can be easily automated.

If economist Tyler Cowen is right, that trend is merely a taste of things to come.

I chat with Cowen about his new book, “Average Is Over: Powering America beyond the Age of the Great Stagnation.” It’s a follow-up to his popular e-book, “The Great Stagnation: How America Ate All the Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better.”

As you write:

The basic look of our lives in the surrounding physical environment has not been revolutionized all that much in 40 or 50 years. That’s about to change. One day soon, we’ll look back and see that we have produced two nations– a fantastically successful nation working in a technologically dynamic sector and everything else.

Two principles:

First, machine intelligence can replace human labor.
Second, machine intelligence can augment the value of other human labor for many individuals, which is where we get your famous 15 percent will do great, 85 percent not so much.

We see signs in the slow recovery that most sectors are still in the great stagnation.

But we have already had one dynamic sector, incredibly dynamic, and that’s information technology.

The great stagnation will end for some people, but not for everyone. And just ask yourself the question:

Are you more productive working with the computer or is maybe the computer better off without you?

Those folks who are good at working with computers – and it’s broader than just science, tech, math, engineering, those kind of professions — that for those folks the economy will be better than it’s ever been.

You already see this. There are urban enclaves in the United States where wealth is just fantastically high, real estate prices are booming, social indicators are very good. It’s going to be all the more true in the future. And we’re not just talking about the “1 percent.”

There’ll still be billionaires of course, but you’ll really have large numbers of Americans with lives as good and as happy as those which current millionaires have.

If you look at Singapore today, Singapore measures itself as having about 17 percent millionaires already. So in essence, you know, we’re running to catch up to Singapore. We have about 4 percent.

So the top end sort of the income bracket will be people who can deal with machines.

And then, you’ll have machines — from robots to software taking all sort of those – taking the middle-income group of jobs.
And then the lower skill jobs, that’s your other 85 percent

You know, there’s a cycle in all of these areas.

So right now, we’re maybe barely at the point of where man plus computer is better at chess than just computer.
But that’s expected to flip very, very soon if it hasn’t already, if you look at the performance of the very best computers on the very best hardware.
But that’s saving grace, so to speak, is that artificial intelligence comes to an economy slowly. It comes to it unevenly at different paces in different sectors.
So we’re always going to have a bunch of sectors which graduate into machine-only,
and then a bunch of other sectors which come online that machines can do something at all, and then they work together with humans.

Very, very far out in time we’ll have so many smart machines producing so much, either for free or very cheaply, that it will be just fine. I think the distant future vision is really quite utopian, even though I think the next 20 years or more will have some pretty tough transitions.

Zero Marginal Product workers. Who are those people?

Those are individuals who find it hard to get a job at all because they are perceived as just not having that much to offer at any wage.
And I see this as a growing problem.
I suspect it’s about 1 percent of the workforce. People you just wouldn’t hire no matter what.
So stimulus won’t help them.
Flexible wages won’t help them.

The bigger problem might be that technology is accelerating the trend of companies laying off workers and then turning to machines. And that accelerates a lot of labor force trends. It’s both a cyclical problem and a structural problem.

How you can be pro-immigration in the sense that you see the need for more low skill immigration given these trends?

If we don’t have more low skilled immigration, we’ll outsource more.
Ultimately, I would rather have that production in the United States that will be more complementary jobs for people who are already here.
I’m not suggesting immigration will solve our labor market problems. It won’t. But I think somewhat counter intuitively, the arguments of the book actually imply we should have some more people living in this country, including at the lower end part of the skills’ ladder.
We live in a world of competing economic clusters. And the main competition right now is some parts of Northeast Asia.
I would like North America to be the dominant cluster.
So I would like to see the U.S. have a much larger population. It would address a lot of our fiscal issues. And again, when the alternative is outsourcing, there’s a lot of evidence that having more immigrants, even low skilled immigrants, it doesn’t lower or much lowers U.S. wages at all.
I think in the longer run, it will create more complementary jobs by keeping more of the production in this country.
So I absolutely want to go in that direction. More immigration, high skill, absolutely, but low skill too.
Low skilled laborers free up high skill laborers to be more productive by doing personal services for them. So you also get more creativity.

Are these trends so overwhelming that policy is useless?

I think we could do a lot to ease the transition.
- government is spending too much money on the elderly
- government is not spending enough on the young.
- should get rid of most occupational licensing.
- we could rethink and improve it welfare.
I don’t think we’re going to prevent rising inequality, but I think we can make it much more bearable.

Science is very healthy. There’re new discoveries all the time. The lags are much longer than we’d like to think, but absolutely progress is not over, and we’re about to see a new wave of progress over the lifetimes of our children.

Read the whole interview at American Enterprise Institute