The Americans who first greeted The New York Review of Books in 1963 were a mostly prosperous lot. The US economy grew that year by nearly 4.5 percent, following 6 percent growth the year before, and with more than 6 percent growth to come on average over the next three years as well. By fall, when the new Review’s first regular pages appeared, the unemployment rate was just 5.5 percent, on its way to 4.5 percent by mid-1965 and almost to 3.5 percent by late 1966. Nor was there much inflation; consumer prices rose just 1.3 percent in 1963, the same rate that prevailed on average throughout the first half of the 1960s.
Best of all, most Americans’ incomes were outpacing inflation, as they had for a decade and a half before 1963 and would continue to do for another decade after. In 1948 the family just at the middle of the US income scale had earned $26,500 in today’s dollars. By 1963 the median family’s income was up to $41,000. By 1973 it would be $55,700.
Yet even then some worriers expressed concerns about the longer-term economic future and what it might mean for society. Writing at just that time James Meade, a British economist who later won the Nobel Prize, focused in particular on the threat presented by “automation.”1 Replacing human work by robots had been an aspiration—and also a source of fear—for centuries. But the idea had gained new currency with the work of the American mathematician Norbert Wiener, especially following publication of his Cybernetics in 1948. By the mid-1950s the prospect of substituting machines for human effort had captured the attention of popular culture too, with films like Fred Wilcox’s Forbidden Planet vividly imagining the wondrous possibilities but also potentially horrible consequences.
Meade’s vision was no less arresting than Wilcox’s. His concern was how the humans displaced by machines in the economy’s productive process would earn a living. “What of the future?” he asked.
There would be a limited number of exceedingly wealthy property owners; the proportion of the working population required to man the extremely profitable automated industries would be small; wage rates would thus be depressed; there would have to be a large expansion of the production of the labour-intensive goods and services which were in high demand by the few multi-multi-multi-millionaires; we would be back in a super-world of an immiserized proletariat of butlers, footmen, kitchen maids, and other hangers-on. Let us call this the Brave New Capitalists’ Paradise.
“It is to me,” he concluded, “a hideous outlook.”
Meade was hardly the first to think through the economic implications of an ever-increasing ability to substitute machines for working men and women. In the 1810s, handweavers under the banner of the perhaps mythical Ned Ludd rampaged through factories in the English Midlands, smashing the new automated looms that were allowing less skilled (and therefore lower-paid) workers to replace them. By mid-century, however, it was apparent that the economic growth made possible by technological advances, and the rising living standards that ensued, constituted not just another economic “long wave” but the onset of presumably unending improvement. Even then there were enthusiasts as well as detractors. The Great Exhibition at London’s Crystal Palace, in 1851, showcased the myriad wonders of the new Age of Progress. Marx and his followers saw instead the “immiseration” of a newly enslaved working class.
But at least in Britain and America, events turned out more favorably. By the turn of the twentieth century, Alfred Marshall and other British economists were mocking Marx’s prediction that the working class would miss out on the fruits of ever-improving productivity. To the contrary, Marshall concluded, “the hope that poverty and ignorance may gradually be extinguished derives much support from the steady progress of the working classes during the nineteenth century.” Indeed, “the growing demand for intelligent work has caused the artisan classes to increase so rapidly that they now outnumber those whose labour is entirely unskilled,” and “some of them [the artisans] already lead a more refined and noble life than did the majority of the upper classes even a century ago.”2
Perhaps the greatest expression of technological optimism came from John Maynard Keynes. Writing a generation after Marshall, and just before the Great Depression, Keynes predicted that the average income in Britain and America would continue to double every generation or two, and he went on to infer that in time most citizens would be sufficiently satisfied with their material circumstances to regard “the economic problem” as “solved,” and henceforth would take advantage of the ongoing increase in productivity mostly to achieve ends other than private consumption.
Following the tradition of many utopian thinkers of the nineteenth century, Keynes further speculated that in these circumstances society would deemphasize the link between people’s personal role in the production process and their claim on what gets produced, so that the typical individual would spend far less time working but would thereby enjoy no less ability to consume the usual goods and services. As a result, the chief problem Keynes saw—he called it “a fearful problem for the ordinary person”—would be how to occupy the great increase in leisure time.3
More than eight decades later, Keynes’s prediction of a four- to eight-fold increase in the economy’s total income per person, over the hundred years from 1929, looks remarkably on target. For America it may even turn out to have been too modest; extrapolation of the average increase since then gives somewhat more than an eightfold gain by 2029. But Keynes underestimated people’s desire to enjoy an ever higher material standard of living, and he also failed to foresee that our economy’s aggregate income would become more and more unequally distributed, while jobs would at times become scarcer. As a result, there is little sign of the consequences Keynes foresaw for private consumption, for work effort, or for society’s institutional arrangements.
Today it is Meade’s concerns that look the more prescient, at least in America. “Job creation” is the urgent economic issue of our time. Our cities and states compete with one another to attract work opportunities for their residents (but also for anyone who wants to move in from elsewhere), showering potential employers with tax holidays, low-rent land, and relaxed regulation.
Part of the problem is cyclical. The rebound from the 1990–1991 business downturn first popularized the label “jobless recovery.” Total US economic output surpassed the pre-recession peak within eighteen months, but total employment took more than two and a half years to recover. The pattern has worsened since. After the 2000–2001 decline, output recovered within just six months, employment not for four years. Following the 2007–2009 financial crisis, which set off the largest decline in total output the United States has experienced since World War II, output recovered after only nine months. But as of October 2013 it was estimated that there were still nearly two million fewer Americans at work than in January 2008.
America’s jobs problem, however, is more than a feature of business cycles in which output snaps back quickly while employment now takes longer. New technology that enhances the productivity of labor—organizing the production process in more efficient ways, giving workers new and better machines to use, replacing workers with machines altogether—means less labor input is needed to produce what was made before. How much decline workers will therefore see in the demand for their services depends, in the first instance, on how much more productive labor becomes, and on the extent to which society collectively chooses to take advantage of the opportunity to consume more goods than it did before.
But technological change is usually not just about producing more of the same goods with less labor. New technology also introduces new products, thereby eliminating some jobs (fewer openings for making saddles and stabling horses) but at the same time creating new ones (making cars and operating gas stations). Until fairly recently, the labor needed to make old goods in greater volume, plus that needed to meet the demand for newly emerging goods, has equaled if not exceeded the labor released by the enhanced ability to produce the old goods in unchanging quantity.
But there is no reason the balance of these opposing forces must come out this way, and both Keynes’s utopian vision and Meade’s “hideous outlook” stem from the assumption that it will not. Increasingly over the last quarter-century, the balance indeed appears to have shifted.
One reason may simply be that the pace of labor-saving technological change has accelerated. In the mid-1990s Jeremy Rifkin’s The End of Work highlighted a “Third Industrial Revolution.”4 More recently Erik Brynjolfsson and Andrew McAfee, two MIT economists, offered the familiar tale of the inventor of chess as a metaphor for where we now stand in this process. When the shah asked the inventor to name his reward, the clever man asked for one grain of rice for the first square on the chessboard, two for the second, four for the third, and so on, doubling each time until the sixty-fourth square. The shah agreed, not understanding that with the power of exponential expansion the entire world could never produce that much rice.
In Brynjolfsson and McAfee’s metaphor, with new advances like driverless cars and high-quality language translation, the process of labor-saving technical change is now entering the second half of the chessboard.5 Especially in America, which has led the way in investing in information technology, it will increasingly be possible to produce the goods and services that people want with little incremental labor input; production will expand, but employment won’t.
Technology matters for this purpose in a second way as well, one that neither Keynes nor Meade took into account. With new electronic communication technologies facilitating international trade in an ever wider array of services in addition to the traditionally traded goods, the “offshoring” of American jobs now includes not just staffing call centers but reading X-rays, preparing tax returns, and carrying out legal research. Hence even when the incremental production Americans consume requires additional labor, it often does not create job opportunities for Americans. And for many of the low-end tasks that must be done on site—Meade’s butlers, footmen, and kitchen maids, but in today’s setting more likely janitors, gardeners, and hospital orderlies—a steady inflow of mostly unskilled immigrants is eager to do such work at wages that most Americans find unacceptable. As a result, much of even the additional production that requires additional labor input in America does not present employment prospects—at least not ones that look reasonable—for Americans.
The increasingly evident consequence is not only the absence of employment opportunities but widening income inequality and increasing outright poverty—despite the fact that the underlying cause is a rapid and ongoing improvement in our productive capabilities. It is nearly a century and a half since the American economist Henry George wrote Progress and Poverty.6 Much of his analysis no longer fits but the contradiction highlighted in his title resonates today as much as then. Continually advancing technology makes possible expanding production, and for the most part that possibility is realized. But the fruits of the increased production increasingly accrue to only a small slice of the population, mostly consisting of those already at the top of the income scale.
1 See J.E. Meade, Efficiency, Equality and the Ownership of Private Property (Harvard University Press, 1964). Meade’s book was based on lectures that he presented in Stockholm in the spring of 1964. I am grateful to Anthony Atkinson for calling Meade’s book to my attention. ↩
2 See Alfred Marshall, Principles of Economics (London: Macmillan, 1890), p. 3. ↩
3 See John Maynard Keynes, “Economic Possibilities for Our Grandchildren,” in The Nation and Athenaeum (October 11 and 18, 1930). Keynes’s prediction looks even more prescient in light of the publication date, a year after the depression began. But he apparently wrote this paper two years earlier, at a time when Britain was experiencing protracted economic difficulties but nothing like the Great Depression had yet developed. ↩
4 See Jeremy Rifkin, The End of Work: The Decline of the Global Labor Force and the Dawn of the Post-Market Era (Putnam’s, 1995). ↩
5 See Erik Brynjolfsson and Andrew McAfee, Race Against the Machine: How the Digital Revolution Is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy (Digital Frontier Press, 2011). ↩
6 See Henry George, Progress and Poverty: An Inquiry into the Cause of Industrial Depressions, and of Increase of Want with Increase of Wealth—The Remedy (Sterling, 1879). ↩
See J.E. Meade, Efficiency, Equality and the Ownership of Private Property (Harvard University Press, 1964). Meade’s book was based on lectures that he presented in Stockholm in the spring of 1964. I am grateful to Anthony Atkinson for calling Meade’s book to my attention. ↩
See Alfred Marshall, Principles of Economics (London: Macmillan, 1890), p. 3. ↩
See John Maynard Keynes, “Economic Possibilities for Our Grandchildren,” in The Nation and Athenaeum (October 11 and 18, 1930). Keynes’s prediction looks even more prescient in light of the publication date, a year after the depression began. But he apparently wrote this paper two years earlier, at a time when Britain was experiencing protracted economic difficulties but nothing like the Great Depression had yet developed. ↩
See Jeremy Rifkin, The End of Work: The Decline of the Global Labor Force and the Dawn of the Post-Market Era (Putnam’s, 1995). ↩
See Erik Brynjolfsson and Andrew McAfee, Race Against the Machine: How the Digital Revolution Is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy (Digital Frontier Press, 2011). ↩
See Henry George, Progress and Poverty: An Inquiry into the Cause of Industrial Depressions, and of Increase of Want with Increase of Wealth—The Remedy (Sterling, 1879). ↩