Average Is Over

"In many ways, Tyler Cowen’s “Average is Over” is the book I should have written 2 years ago. In my Grand Strategy class final paper (“Societal Implications of Pervasive Automation”), I traced many of the same threads that Cowen does - from Kurt Vonnegut’s “Player Piano” to interviewing Martin Ford of “Lights in the Tunnel”. Brynjolfsson and McAffee’s “Race Against the Machine” actually came out 2 days before I submitted the paper. Anyways… all that to say that we’re generally on the same page but I think Cowen makes a few important errors and disingenuously disguises some of his more elitist conclusions.<br/><br/>At its core, “Average is Over” is about how increasing automation and computational power has changed employment and social dynamics and how Cowen thinks things will play out into the future. One interesting observation that Cowen makes is that “man + machine” teams can usually outperform pure machine teams. He treats “freestyle” man+machine chess as a sort of “Drosophila” for studying man+machine dynamics (although, to be fair, he mostly rips this off from Nate Silver’s “The Signal and the Noise”). He also claims that this dynamic is already fundamentally changing scientific research and that in the near future, humans won’t even be able to understand the complexities revealed by their machine collaborators.<br/><br/>But the key concept that Cowen revisits over and over again is David Autor’s “labor market polarization” - basically the idea that people who can harness the power of computers will do just fine and unskilled labor is out of luck. I don’t think any of us need to be convinced that the Brins and Zuckerbergs are doing ok, but Cowen pulls out some pretty incredible stats about the pathetic situation of today’s young unskilled men in the US and Europe. Fully ¾ of 17-24 year old men in the US are unfit for military service and more than 20% of the residents of Berlin live off the public dole.<br/><br/>Unfortunately, the future that Cowen paints for these guys is pretty bleak. As more and more production becomes automated, Cowen thinks that these unskilled laborers will shift into “marketing and services” for the ultra-wealthy tech entrepreneur overlords and resource barons. These jobs will be all about making billionaires feel great about themselves and he postulates that there will be a “premium on conscientousness” and dutifully fulfilling the desires of the wealthy. To me, this seems like a pretty empty existence and unlike Cowen, I think there is a limit to the number of massages and pats on the back a billionaire can get.<br/><br/>The question of what the “average man” will do in the future is the most important piece of this whole issue but is one of the weakest parts of Cowen’s argument. He misses the point - the question is not what human beings will work on in the future, but rather, what will humans do when they don’t have to work anymore? To me, it’s ridiculous that we’d simply make up work for people to do (ever more intricate pamperings of billionaires…) when almost all of their needs can be fulfilled by automated systems. The real question is how people will find meaning and purpose in their lives when they don’t have to work… and how we’ll transition to this new economic paradigm without killing ourselves.<br/><br/>Cowen actually tangentially approaches this issue of purpose when he discusses the problems with our current educational system. He claims that there is a massive confusion in regards to the goals of our educational system - we’re not really sure what we’re supposed to be preparing our children for anymore. This is a symptom of the same overarching problem - as a society, we have no consensus on the meaning of life or the goals of our civilization (damn postmodernism!). In any case, Cowen twists himself into all sorts of knots over education because he can’t bring himself to say that lazy and unmotivated people will be left behind. By sugarcoating this aspect of his theory, he might avoid some popular backlash but he does so at the expense of his credibility. For example: “Online education can thus be extremely egalitarian, but it is egalitarian in a funny way. It can catapult the smart, motivated, but nonelite individuals over the members of elite communities. It does not, however, push the uninterested student to the head of the pack” - you’d be hard pressed to find anyone who doesn’t find this shockingly obvious and not “funny” in the slightest. Cowen also goes a bit overboard in his enthusiasm for “Neo-Victorian” boarding schools where the state (or other institutions) take over the role of parenting for the “lower earners” … although of course he doesn’t directly come out and say it so directly.<br/><br/>Overall though, this is an exceptionally well put-together book and one that addresses an increasingly visible and important problem in our society. Even though I don’t agree with parts of his analysis or proposed solutions, he’s got a reasonable perspective and it’s worth a read. Put it on your list!<br/><br/>Some representative passages below:<br/>####<br/><br/>Where will most of the benefits go? In accord with economic reasoning, they will go to that which is scarce. In today’s global economy here is what is scarce: 1. Quality land and natural resources 2. Intellectual property, or good ideas about what should be produced 3. Quality labor with unique skills Here is what is not scarce these days: 1. Unskilled labor, as more countries join the global economy 2. Money in the bank or held in government securities, which you can think of as simple capital, not attached to any special ownership rights (we know there is a lot of it because it has been earning zero or negative real rates of return)<br/><br/>That means humans with strong math and analytic skills, humans who are comfortable working with computers because they understand their operation, and humans who intuitively grasp how computers can be used for marketing and for other non-techie tasks. It’s not just about programming skills; it is also often about developing the hardware connected with software, understanding what kind of internet ads connect with their human viewers, or understanding what shape and color makes an iPhone attractive in a given market. Computer nerds will indeed do well, but not everyone will have to become a computer nerd… Despite all the talk about STEM fields, I see marketing as the seminal sector for our future economy.<br/><br/>We can expect a lot of job growth in personal services, even if those jobs do not rely very directly on computing power. The more that the high earners pull in, the more people will compete to serve them, sometimes for high wages and sometimes for low wages. This will mean maids, chauffeurs, and gardeners for the high earners, but a lot of the service jobs won’t fall under the service category as traditionally construed. They can be thought of as “creating the customer experience.” Have you ever walked into a restaurant and been greeted by a friendly hostess, and noticed she was very attractive? Have you ever had an assistant bring you coffee before a meeting, touching you on the shoulder before leaving the cup? Have you gone to negotiate a major business deal and been greeted by a mass of smiles and offers of future friendship and collaboration? All of those people are working to make you feel better. They are working at marketing. It sounds a little silly, but making high earners feel better in just about every part of their lives will be a major source of job growth in the future. At some point it is hard to sell more physical stuff to high earners, yet there is usually just a bit more room to make them feel better. Better about the world. Better about themselves. Better about what they have achieved.<br/><br/>Here is another, more general way to think about the shifting gender balance of power in education and parts of the workplace. The wealthier we become, the greater a cushion we have against total failure, starvation, and other completely unacceptable outcomes. In such a world, both women and men will indulge some propensities that otherwise might be stifled or kept under wraps or that would not have been affordable fifty or one hundred years ago. For some men, these propensities are quite destructive and this turns them into labor market failures.<br/><br/>As workers are displaced by smart machines in manufacturing and other areas, more individuals will be employed as personal trainers, valets, private tutors, drivers, babysitters, interior designers, carpenters, and other forms of direct personal services. These are all areas where a patron—often a family or individual—expects a commission or request to be followed… The premium is on conscientiousness, namely whether the worker can follow some straightforward requests with extreme reliability and basic competence.<br/><br/>We have been seeing what is called “labor market polarization,” a concept that is most closely identified with MIT labor economist David Autor. Labor market polarization means that workers are, to an increasing degree, falling into two camps. They either do very well in labor markets or they don’t do well at all.<br/><br/>Those numbers on labor force participation are telling us that, for whatever reason, over 40 percent of adult, non-senior Americans don’t consider it worthwhile to have a job. They can’t find a deal that suits them… Most of the measured declines in employment participation have been coming from younger men, not early retirees.<br/> <br/>Ten years ago, 5 million Americans collected federal disability benefit; now the number is up to 8.2 million, at a direct dollar cost of $115 billion a year—over $1,500 for every American household. Yet the American workplace, as measured by deaths and accidents, has never been safer.<br/><br/>Berlin, a city that has become renowned for its supply of threshold earners, it is commonly recognized that a lot of the young denizens simply aren’t striving after very much, at least not in terms of commercial job opportunities. A fifth of the population lives off social transfers, unemployment is double the national rate, and, as one commentator suggested, “aspiration can be a negative word.” <br/>Overall, these job market trends are bringing higher pay for bosses, more focus on morale in the workplace, greater demands for conscientious and obedient workers, greater inequality at the top, big gains for the cognitive elite, a lot of freelancing in the services sector, and some tough scrambles for workers without a lot of skills. Those are essential characteristics of the coming American labor markets, the new world of work.<br/><br/>The most likely outcome is that the poor will be big winners from these performance ratings. The well-educated wealthy already have fairly good means of finding good professionals, if only by asking their buddies, making donations to the local hospital, and pulling in favors from friends. This new system of ratings won’t put everyone on an even par with regard to ability to pay, but it will equalize the information, and that should be good for most consumers.<br/> <br/>On the negative side, too much knowledge can hinder achievement. What if a computer had graded Einstein at five years of age, when he still was not talking, and assessed his chance of becoming a great scientist? That truth, albeit some imperfect statistical estimate of the truth, will discourage too many people. Alternatively, maybe a future star will be done in because he is repeatedly told, from day one, that he is the anointed one. A certain amount of ambiguity may be good for the career ambitions of young people, and in the future we may miss some of the ambiguity we enjoy today.<br/><br/>Malthusian wages do not mean an impoverished existence for everybody, of course. The machines are still owned by someone, and the owners of machines are very wealthy since the machines can produce a lot of goods and services very cheaply. If just about everyone has a stake in the machines, this could be a utopia rather than a dystopia. Alternatively, perhaps the government owns a share in the machines and it uses that wealth to support the remaining poor, who did not buy machines in time and who now cannot find jobs because of competition from the machines. They will become wards of the state, much as many people live off of oil wealth in some of the less populated petro-states.<br/><br/>Two different effects are operating here, but we can tease them apart for a look at where humanity is headed. On one hand, many successful individuals will learn how to think like smart machines, or at least enough to understand their operation, in order to become wealthy, high-status earners. In that way we will become more like computers—well, a large number of high earners will become more like computers anyway, cognitively speaking. That said, when it comes to our private lives, we will become less like computers, because we rely on computers for many basic functions, such as recording numbers, helping us with arithmetic, and remembering facts through internet search. In these ways we will become more intuitive, more attuned to the psychology and emotions of everyday life, and more spontaneously creative.<br/><br/>When companies move production offshore, they pull away not only low-wage service jobs but also many related jobs, such as high-skilled managers, tech repair people, and others. But hiring immigrants for low-wage jobs helps keep many kinds of support services in the United States. In fact, when immigration is rising as a share of employment in an economic sector, offshoring tends to be falling, and vice versa. That means immigrants are very often competing more with offshored workers than with other laborers in America…. The more subtle reality is that immigration gives us some protection against offshoring and probably helps keep jobs in the United States.<br/><br/>A recent study by Michael Spence, a Nobel laureate in economics, and Sandile Hlatshwayo shows that almost all of our recent job gains (the gross gains in some sectors) have come in so-called non-tradable sectors, such as health care and government. People who work in government, health care, and education just aren’t that worried about foreign competitors or even outsourcing. That security of these non-tradable sectors is nice for many of us, but it also means that people in most newly created jobs in the United States aren’t facing so much of a daily market test. Most of our job growth is coming in what I call low-accountability sectors. People get paid to produce things, or offer services, and we’re never quite sure how much value they are putting on the table. The value they produce, or the lack thereof, is never subject to much of a market test.<br/><br/>We will likely see a new American Century, or rather a North American Century, and if any countries should be worried it is those with low wages, including China. Unless those countries make the next leap up a technology ladder, competing on the basis of capital as well as labor, many of their current competitive advantages will erode.<br/><br/>We as a nation have been thinking about education without knowing what we really want from it. Do we want well-rounded young adults to emerge? Or good citizens? Role models? These goals seem reasonable but what do they mean? <br/><br/>As a society, we’ll put a lot more effort into teaching things better. For all the virtues of human, face-to-face instruction, it fares pretty miserably when it comes to economies of scale and scope.<br/><br/>We could think of the forthcoming educational model as professor as impresario. In some important ways, we would be returning to the original model of face-to-face education as practiced in ancient Greek symposia and meetings in the agora.<br/><br/>Of course, educational institutions aren’t ready to admit how much they share with churches. These temples of secularism don’t want to admit they are about simple tasks such as motivating the slugs or acculturating people into the work habits and sociological expectations of the so-called educated class.<br/><br/>The lesser-performing students will specialize in receiving motivation. Education, for them, will become more like the Marines, full of discipline and team spirit. Not everyone will adopt the so-called “tiger mother” or Asian parenting style, but its benefits will become more obvious. A lot of softer parents will hire schools and tutors to do this for them. The strict English boarding school style of the nineteenth century will, in some form or another, make a comeback. If your eleven-year-old is not getting with the program, you will consider sending him away to the hardworking, whip-cracking Boot Camp for Future Actuaries. Neo-Victorian social ideals may not triumph, but they will become a much stronger force among lower earners.<br/><br/>This framing of income inequality in meritocratic terms will prove self-reinforcing. Worthy individuals will in fact rise from poverty on a regular basis, and that will make it easier to ignore those who are left behind. The wealthy class will be increasingly self-motivated, will be larger over time, and—precisely because we are selecting ever more for self-motivation—will have increasing influence. It is their values that will shape public discourse, and that will mean more stress on ideas of personal ambition and self-motivation. The measure of self-motivation in a young person will become the best way to predict upward mobility.<br/><br/>look at a typical state government budget. The big ticket items are education, roads, courts, and police. Medicaid expenses are pressing on those programs, and yet they are all more popular than spending more money on the health care of the poor… I think of the future as a place where the ordinary worker will have more guaranteed access to health care on paper, not necessarily more actual access in practice, and less money to spend on other items of consumption.<br/> <br/>Since there is considerable net in-migration to Texas, I conclude that a lot of Americans would rather have some more cash than better public services.<br/><br/>The bad news is that there is a lot of waste in American consumption—massive amounts of waste, in fact. Everyone has their favorite story about what the other guy spends his money on and could do without. But also the good news, oddly enough, is that there is a lot of waste in American consumption. Citizens faced with financial pressures will shift into cheaper consumption, and a lot of them will do so without losing very much happiness or value, precisely because there is already so much waste in what they buy.<br/><br/>Not everyone will respond in this way. We’ll end up with a society where the people with decent self-control win back a lot of the lost health gains by better behavior. The people who don’t have good self-control will lose out much more.<br/><br/>If you’re trying to measure the scope or potential for social disorder, look at the rate of crime. In the United States crime rates have been falling for decades and in recent times they have surprised researchers by falling even faster than expected. Yet over those same decades income and wealth inequality have been rising significantly in the United States. It seems that, whether we like it or not, increasing inequality and growing domestic peace are compatible. Very often I read warnings about how income inequality will lead to a society where the poor take by force what they cannot earn in the marketplace. Yet these predictions run aground on the simplest of empirical tests, namely crime rates<br/><br/>If you think about it, we really shouldn’t expect rising income and wealth inequality to lead to revolution and revolt. That is for a very simple psychological reason: Most envy is local. At least in the United States, most economic resentment is not directed toward billionaires or high-roller financiers—not even corrupt ones. It’s directed at the guy down the hall who got a bigger raise. <br/>"