ERIK BRYNJOLFSSON ANDREW MCAFEE

To Mart ha Pavlakis, t he love of my life.

To my parent s, David McAfee and Nancy Haller, who prepared me for t he second machine age
by giving me every advant age a person could have.
Chapt er 1 THE BIG STORIES
Chapt er 2 THE SKILLS OF THE NEW MACHINES: TECHNOLOGY RACES AHEAD
Chapt er 3 MOORES LAW AND THE SECOND HALF OF THE CHESSBOARD
Chapt er 4 THE DIGITIZATION OF JUST ABOUT EVERYTHING
Chapt er 5 INNOVATION: DECLINING OR RECOMBINING?
Chapt er 6 ARTIFICIAL AND HUMAN INTELLIGENCE IN THE SECOND MACHINE AGE
Chapt er 7 COMPUTING BOUNTY
Chapt er 8 BEYOND GDP
Chapt er 9 THE SPREAD
Chapt er 10 THE BIGGEST WINNERS: STARS AND SUPERSTARS
Chapt er 11 IMPLICATIONS OF THE BOUNTY AND THE SPREAD
Chapt er 12 LEARNING TO RACE WITH MACHINES: RECOMMENDATIONS FOR INDIVIDUALS
Chapt er 13 POLICY RECOMMENDATIONS
Chapt er 14 LONG-TERM RECOMMENDATIONS
Chapt er 15 TECHNOLOGY AND THE FUTURE
(Which Is Very Different from Technology Is t he Fut ure)
Acknowledgment s
Not es
Illust rat ion Sources
Index
Technology is a gift of God. After the gift of life it is perhaps the greatest of Gods gifts. It is the mother of
civilizations, of arts and of sciences.
Freeman Dyson
WHAT HAVE BEEN THE most important developments in human history?
As anyone invest igat ing t his quest ion soon learns, it s difficult t o answer. For one t hing,
when does human hist ory even begin? Anat omically and behaviorally modern Homo sapiens,
equipped wit h language, fanned out from t heir African homeland some sixt y t housand years
ago.
1
By 25,000 BCE
2
t hey had wiped out t he Neandert hals and ot her hominids, and t hereaft er
faced no compet it ion from ot her big-brained, upright -walking species.
We might consider 25,000 BCE a reasonable t ime t o st art t racking t he big st ories of
humankind, were it not for t he development -ret arding ice age eart h was experiencing at t he
t ime.
3
In his book Why the West RulesFor Now, ant hropologist Ian Morris st art s t racking
human societ al progress in 14,000 BCE, when t he world clearly st art ed get t ing warmer.
Anot her reason it s a hard quest ion t o answer is t hat it s not clear what crit eria we should
use: what const it ut es a t ruly import ant development ? Most of us share a sense t hat it would
be an event or advance t hat significant ly changes t he course of t hingsone t hat bends t he
curve of human hist ory. Many have argued t hat t he domest icat ion of animals did just t his, and
is one of our earliest import ant achievement s.
The dog might well have been domest icat ed before 14,000 BCE, but t he horse was not ;
eight t housand more years would pass before we st art ed breeding t hem and keeping t hem in
corrals. The ox, t oo, had been t amed by t hat t ime (ca. 6,000 BCE) and hit ched t o a plow.
Domest icat ion of work animals hast ened t he t ransit ion from foraging t o farming, an import ant
development already underway by 8,000 BCE.
4
Agricult ure ensures plent iful and reliable food sources, which in t urn enable larger human
set t lement s and, event ually, cit ies. Cit ies in t urn make t empt ing t arget s for plunder and
conquest . A list of import ant human development s should t herefore include great wars and t he
empires t hey yielded. The Mongol, Roman, Arab, and Ot t oman empirest o name just four
were t ransformat ive; t hey affect ed kingdoms, commerce, and cust oms over immense areas.
Of course, some import ant development s have not hing t o do wit h animals, plant s, or fight ing
men; some are simply ideas. Philosopher Karl Jaspers not es t hat Buddha (563483 BCE),
Confucius (551479 BCE), and Socrat es (469399 BCE) all lived quit e close t o one anot her in
t ime (but not in place). In his analysis t hese men are t he cent ral t hinkers of an Axial Age
spanning 800200 BCE. Jaspers calls t his age a deep breat h bringing t he most lucid
consciousness and holds t hat it s philosophers brought t ransformat ive schools of t hought t o
t hree major civilizat ions: Indian, Chinese, and European.
5
The Buddha also founded one of t he worlds major religions, and common sense demands
t hat any list of major human development s include t he est ablishment of ot her major fait hs like
Hinduism, Judaism, Christ ianit y, and Islam. Each has influenced t he lives and ideals of hundreds
of millions of people.
6
Many of t hese religions ideas and revelat ions were spread by t he writ t en word, it self a
fundament al innovat ion in human hist ory. Debat e rages about precisely when, where, and how
writ ing was invent ed, but a safe est imat e put s it in Mesopot amia around 3,200 BCE. Writ t en
symbols t o facilit at e count ing also exist ed t hen, but t hey did not include t he concept of zero,
as basic as t hat seems t o us now. The modern numbering syst em, which we call Arabic, arrived
around 830 CE.
7
The list of import ant development s goes on and on. The At henians began t o pract ice
democracy around 500 BCE. The Black Deat h reduced Europes populat ion by at least 30
percent during t he lat t er half of t he 1300s. Columbus sailed t he ocean blue in 1492, beginning
int eract ions bet ween t he New World and t he Old t hat would t ransform bot h.
The History of Humanity in One Graph
How can we ever get clarit y about which of t hese development s is t he most import ant ? All of
t he candidat es list ed above have passionat e advocat espeople who argue forcefully and
persuasively for one development s sovereignt y over all t he ot hers. And in Why the West Rules
For Now Morris confront s a more fundament al debat e: whet her any at t empt t o rank or
compare human event s and development s is meaningful or legit imat e. Many ant hropologist s
and ot her social scient ist s say it is not . Morris disagrees, and his book boldly at t empt s t o
quant ify human development . As he writ es, reducing t he ocean of fact s t o simple numerical
scores has drawbacks but it also has t he one great merit of forcing everyone t o confront t he
same evidencewit h surprising result s.
8
In ot her words, if we want t o know which
development s bent t he curve of human hist ory, it makes sense t o t ry t o draw t hat curve.
Morris has done t hought ful and careful work t o quant ify what he t erms social development
(a groups abilit y t o mast er it s physical and int ellect ual environment t o get t hings done) over
t ime.* As Morris suggest s, t he result s are surprising. In fact , t heyre ast onishing. They show
t hat none of t he development s discussed so far has mat t ered very much, at least in
comparison t o somet hing elsesomet hing t hat bent t he curve of human hist ory like not hing
before or since. Heres t he graph, wit h t ot al worldwide human populat ion graphed over t ime
along wit h social development ; as you can see, t he t wo lines are nearly ident ical:
FI GURE 1. 1 Numeri c al l y Speaki ng, Most of Human Hi st ory I s Bori ng.
For many t housands of years, humanit y was a very gradual upward t raject ory. Progress was
achingly slow, almost invisible. Animals and farms, wars and empires, philosophies and religions
all failed t o exert much influence. But just over t wo hundred years ago, somet hing sudden and
profound arrived and bent t he curve of human hist oryof populat ion and social development
almost ninet y degrees.
Engines of Progress
By now youve probably guessed what it was. This is a book about t he impact of t echnology,
aft er all, so it s a safe bet t hat were opening it t his way in order t o demonst rat e how import ant
t echnology has been. And t he sudden change in t he graph in t he lat e eight eent h cent ury
corresponds t o a development weve heard a lot about : t he Indust rial Revolut ion, which was
t he sum of several nearly simult aneous development s in mechanical engineering, chemist ry,
met allurgy, and ot her disciplines. So youve most likely figured out t hat t hese t echnological
development s underlie t he sudden, sharp, and sust ained jump in human progress.
If so, your guess is exact ly right . And we can be even more precise about which t echnology
was most import ant . It was t he st eam engine or, t o be more precise, one developed and
improved by James Wat t and his colleagues in t he second half of t he eight eent h cent ury.
Prior t o Wat t , st eam engines were highly inefficient , harnessing only about one percent of
t he energy released by burning coal. Wat t s brilliant t inkering bet ween 1765 and 1776
increased t his more t han t hreefold.
9
As Morris writ es, t his made all t he difference: Even t hough
[t he st eam] revolut ion t ook several decades t o unfold . . . it was nonet heless t he biggest and
fast est t ransformat ion in t he ent ire hist ory of t he world.
10
The Indust rial Revolut ion, of course, is not only t he st ory of st eam power, but st eam st art ed
it all. More t han anyt hing else, it allowed us t o overcome t he limit at ions of muscle power,
human and animal, and generat e massive amount s of useful energy at will. This led t o fact ories
and mass product ion, t o railways and mass t ransport at ion. It led, in ot her words, t o modern life.
The Indust rial Revolut ion ushered in humanit ys first machine aget he first t ime our progress
was driven primarily by t echnological innovat ionand it was t he most profound t ime of
t ransformat ion our world has ever seen.* The abilit y t o generat e massive amount s of
mechanical power was so import ant t hat , in Morriss words, it made mockery of all t he drama
of t he worlds earlier hist ory.
11
FI GURE 1. 2 What Bent t he Curve of Human Hi st ory? The I ndust ri al Revol ut i on.
Now comes t he second machine age. Comput ers and ot her digit al advances are doing for
ment al powert he abilit y t o use our brains t o underst and and shape our environment swhat
t he st eam engine and it s descendant s did for muscle power. Theyre allowing us t o blow past
previous limit at ions and t aking us int o new t errit ory. How exact ly t his t ransit ion will play out
remains unknown, but whet her or not t he new machine age bends t he curve as dramat ically as
Wat t s st eam engine, it is a very big deal indeed. This book explains how and why.
For now, a very short and simple answer: ment al power is at least as import ant for progress
and development for mast ering our physical and int ellect ual environment t o get t hings done
as physical power. So a vast and unprecedent ed boost t o ment al power should be a great
boost t o humanit y, just as t he ealier boost t o physical power so clearly was.
Playing Catch-Up
We wrot e t his book because we got confused. For years we have st udied t he impact of digit al
t echnologies like comput ers, soft ware, and communicat ions net works, and we t hought we had
a decent underst anding of t heir capabilit ies and limit at ions. But over t he past few years, t hey
st art ed surprising us. Comput ers st art ed diagnosing diseases, list ening and speaking t o us,
and writ ing high-qualit y prose, while robot s st art ed scurrying around warehouses and driving
cars wit h minimal or no guidance. Digit al t echnologies had been laughably bad at a lot of t hese
t hings for a long t imet hen t hey suddenly got very good. How did t his happen? And what
were t he implicat ions of t his progress, which was ast onishing and yet came t o be considered a
mat t er of course?
We decided t o t eam up and see if we could answer t hese quest ions. We did t he normal
t hings business academics do: read lot s of papers and books, looked at many different kinds of
dat a, and bat t ed around ideas and hypot heses wit h each ot her. This was necessary and
valuable, but t he real learning, and t he real fun, st art ed when we went out int o t he world. We
spoke wit h invent ors, invest ors, ent repreneurs, engineers, scient ist s, and many ot hers who
make t echnology and put it t o work.
Thanks t o t heir openness and generosit y, we had some fut urist ic experiences in t odays
incredible environment of digit al innovat ion. Weve ridden in a driverless car, wat ched a
comput er beat t eams of Harvard and MIT st udent s in a game of Jeopardy!, t rained an
indust rial robot by grabbing it s wrist and guiding it t hrough a series of st eps, handled a
beaut iful met al bowl t hat was made in a 3D print er, and had count less ot her mind-melt ing
encount ers wit h t echnology.
Where We Are
This work led us t o t hree broad conclusions.
The first is t hat were living in a t ime of ast onishing progress wit h digit al t echnologiest hose
t hat have comput er hardware, soft ware, and net works at t heir core. These t echnologies are
not brand-new; businesses have been buying comput ers for more t han half a cent ury, and
Time magazine declared t he personal comput er it s Machine of t he Year in 1982. But just as
it t ook generat ions t o improve t he st eam engine t o t he point t hat it could power t he Indust rial
it t ook generat ions t o improve t he st eam engine t o t he point t hat it could power t he Indust rial
Revolut ion, it s also t aken t ime t o refine our digit al engines.
Well show why and how t he full force of t hese t echnologies has recent ly been achieved and
give examples of it s power. Full, t hough, doesnt mean mat ure. Comput ers are going t o
cont inue t o improve and t o do new and unprecedent ed t hings. By full force, we mean simply
t hat t he key building blocks are already in place for digit al t echnologies t o be as import ant and
t ransformat ional t o societ y and t he economy as t he st eam engine. In short , were at an
inflect ion point a point where t he curve st art s t o bend a lot because of comput ers. We are
ent ering a second machine age.
Our second conclusion is t hat t he t ransformat ions brought about by digit al t echnology will
be profoundly beneficial ones. Were heading int o an era t hat wont just be different ; it will be
bet t er, because well be able t o increase bot h t he variet y and t he volume of our consumpt ion.
When we phrase it t hat wayin t he dry vocabulary of economicsit almost sounds
unappealing. Who want s t o consume more and more all t he t ime? But we dont just consume
calories and gasoline. We also consume informat ion from books and friends, ent ert ainment
from superst ars and amat eurs, expert ise from t eachers and doct ors, and count less ot her
t hings t hat are not made of at oms. Technology can bring us more choice and even freedom.
When t hese t hings are digit izedwhen t heyre convert ed int o bit s t hat can be st ored on a
comput er and sent over a net workt hey acquire some weird and wonderful propert ies.
Theyre subject t o different economics, where abundance is t he norm rat her t han scarcit y. As
well show, digit al goods are not like physical ones, and t hese differences mat t er.
Of course, physical goods are st ill essent ial, and most of us would like t hem t o have great er
volume, variet y, and qualit y. Whet her or not we want t o eat more, wed like t o eat bet t er or
different meals. Whet her or not we want t o burn more fossil fuels, wed like t o visit more places
wit h less hassle. Comput ers are helping accomplish t hese goals, and many ot hers. Digit izat ion
is improving t he physical world, and t hese improvement s are only going t o become more
import ant . Among economic hist orians t heres wide agreement t hat , as Mart in Weit zman put s
it , t he long-t erm growt h of an advanced economy is dominat ed by t he behavior of t echnical
progress.
12
As well show, t echnical progress is improving exponent ially.
Our t hird conclusion is less opt imist ic: digit izat ion is going t o bring wit h it some t horny
challenges. This in it self should not be t oo surprising or alarming; even t he most beneficial
development s have unpleasant consequences t hat must be managed. The Indust rial
Revolut ion was accompanied by soot -filled London skies and horrific exploit at ion of child labor.
What will be t heir modern equivalent s? Rapid and accelerat ing digit izat ion is likely t o bring
economic rat her t han environment al disrupt ion, st emming from t he fact t hat as comput ers get
more powerful, companies have less need for some kinds of workers. Technological progress is
going t o leave behind some people, perhaps even a lot of people, as it races ahead. As well
demonst rat e, t heres never been a bet t er t ime t o be a worker wit h special skills or t he right
educat ion, because t hese people can use t echnology t o creat e and capt ure value. However,
t heres never been a worse t ime t o be a worker wit h only ordinary skills and abilit ies t o offer,
because comput ers, robot s, and ot her digit al t echnologies are acquiring t hese skills and
abilit ies at an ext raordinary rat e.
Over t ime, t he people of England and ot her count ries concluded t hat some aspect s of t he
Indust rial Revolut ion were unaccept able and t ook st eps t o end t hem (democrat ic government
and t echnological progress bot h helped wit h t his). Child labor no longer exist s in t he UK, and
London air cont ains less smoke and sulfur dioxide now t han at any t ime since at least t he lat e
1500s.
13
The challenges of t he digit al revolut ion can also be met , but first we have t o be clear
on what t hey are. It s import ant t o discuss t he likely negat ive consequences of t he second
machine age and st art a dialogue about how t o mit igat e t hemwe are confident t hat t heyre
not insurmount able. But t hey wont fix t hemselves, eit her. Well offer our t hought s on t his
import ant t opic in t he chapt ers t o come.
So t his is a book about t he second machine age unfolding right nowan inflect ion point in
t he hist ory of our economies and societ ies because of digit izat ion. It s an inflect ion point in t he
right direct ionbount y inst ead of scarcit y, freedom inst ead of const raint but one t hat will
bring wit h it some difficult challenges and choices.
This book is divided int o t hree sect ions. The first , composed of chapt ers 1 t hrough 6,
describes t he fundament al charact erist ics of t he second machine age. These chapt ers give
many examples of recent t echnological progress t hat seem like t he st uff of science fict ion,
explain why t heyre happening now (aft er all, weve had comput ers for decades), and reveal
why we should be confident t hat t he scale and pace of innovat ion in comput ers, robot s, and
ot her digit al gear is only going t o accelerat e in t he fut ure.
The second part , consist ing of chapt ers 7 t hrough 11, explores bount y and spread, t he t wo
economic consequences of t his progress. Bount y is t he increase in volume, variet y, and qualit y
and t he decrease in cost of t he many offerings brought on by modern t echnological progress.
It s t he best economic news in t he world t oday. Spread, however, is not so great ; it s ever-
bigger differences among people in economic successin wealt h, income, mobilit y, and ot her
import ant measures. Spread has been increasing in recent years. This is a t roubling
development for many reasons, and one t hat will accelerat e in t he second machine age unless
we int ervene.
The final sect ionchapt ers 12 t hrough 15discusses what int ervent ions will be
appropriat e and effect ive for t his age. Our economic goals should be t o maximize t he bount y
while mit igat ing t he negat ive effect s of t he spread. Well offer our ideas about how t o best
accomplish t hese aims, bot h in t he short t erm and in t he more dist ant fut ure, when progress
really has brought us int o a world so t echnologically advanced t hat it seems t o be t he st uff of
science fict ion. As we st ress in our concluding chapt er, t he choices we make from now on will
det ermine what kind of world t hat is.
* Morris defines human social development as consisting of four attributes: energy capture (per-person calories obtained
from the environment for food, home and commerce, industry and agriculture, and transportation), organization (the size
of the largest city), war-making capacity (number of troops, power and speed of weapons, logistical capabilities, and
other similar factors), and information technology (the sophistication of available tools for sharing and processing
information, and the extent of their use). Each of these is converted into a number that varies over time from zero to 250.
Overall social development is simply the sum of these four numbers. Because he was interested in comparisons
between the West (Europe, Mesopotamia, and North America at various times, depending on which was most advanced)
and the East (China and Japan), he calculated social development separately for each area from 14,000 BCE to 2000 CE.
In 2000, the East was higher only in organization (since Tokyo was the worlds largest city) and had a social development
score of 564.83. The Wests score in 2000 was 906.37. We average the two scores.
* We refer to the Industrial Revolution as the first machine age. However, the machine age is also a label used by some
economic historians to refer to a period of rapid technological progress spanning the late nineteenth and early twentieth
centuries. This same period is called by others the Second Industrial Revolution, which is how well refer to it in later
chapters.
Any sufficiently advanced technology is indistinguishable from magic.
Arthur C. Clarke
IN THE SUMMER OF 2012, we went for a drive in a car t hat had no driver.
During a research visit t o Googles Silicon Valley headquart ers, we got t o ride in one of t he
companys aut onomous vehicles, developed as part of it s Chauffeur project . Init ially we had
visions of cruising in t he back seat of a car t hat had no one in t he front seat , but Google is
underst andably skit t ish about put t ing obviously aut onomous aut os on t he road. Doing so
might freak out pedest rians and ot her drivers, or at t ract t he at t ent ion of t he police. So we sat
in t he back while t wo members of t he Chauffeur t eam rode up front .
When one of t he Googlers hit t he but t on t hat swit ched t he car int o fully aut omat ic driving
mode while we were headed down Highway 101, our curiosit iesand self-preservat ion
inst inct sengaged. The 101 is not always a predict able or calm environment . It s nice and
st raight , but it s also crowded most of t he t ime, and it s t raffic flows have lit t le obvious rhyme or
reason. At highway speeds t he consequences of driving mist akes can be serious ones. Since
we were now part of t he ongoing Chauffeur experiment , t hese consequences were suddenly
of more t han just int ellect ual int erest t o us.
The car performed flawlessly. In fact , it act ually provided a boring ride. It didnt speed or
slalom among t he ot her cars; it drove exact ly t he way were all t aught t o in drivers ed. A lapt op
in t he car provided a real-t ime visual represent at ion of what t he Google car saw as it
proceeded along t he highwayall t he nearby object s of which it s sensors were aware. The car
recognized all t he surrounding vehicles, not just t he nearest ones, and it remained aware of
t hem no mat t er where t hey moved. It was a car wit hout blind spot s. But t he soft ware doing t he
driving was aware t hat cars and t rucks driven by humans do have blind spot s. The lapt op
screen displayed t he soft wares best guess about where all t hese blind spot s were and
worked t o st ay out of t hem.
We were st aring at t he screen, paying no at t ent ion t o t he act ual road, when t raffic ahead of
us came t o a complet e st op. The aut onomous car braked smoot hly in response, coming t o a
st op a safe dist ance behind t he car in front , and st art ed moving again once t he rest of t he
t raffic did. All t he while t he Googlers in t he front seat never st opped t heir conversat ion or
showed any nervousness, or indeed much int erest at all in current highway condit ions. Their
hundreds of hours in t he car had convinced t hem t hat it could handle a lit t le st op-and-go
t raffic. By t he t ime we pulled back int o t he parking lot , we shared t heir confidence.
The New New Division of Labor
Our ride t hat day on t he 101 was especially weird for us because, only a few years earlier, we
were sure t hat comput ers would not be able t o drive cars. Excellent research and analysis,
conduct ed by colleagues who we respect a great deal, concluded t hat driving would remain a
human t ask for t he foreseeable fut ure. How t hey reached t his conclusion, and how
t echnologies like Chauffeur st art ed t o overt urn it in just a few years, offers import ant lessons
about digit al progress.
In 2004 Frank Levy and Richard Murnane published t heir book The New Division of Labor.
1
The division t hey focused on was bet ween human and digit al laborin ot her words, bet ween
people and comput ers. In any sensible economic syst em, people should focus on t he t asks and
jobs where t hey have a comparat ive advant age over comput ers, leaving comput ers t he work
for which t hey are bet t er suit ed. In t heir book Levy and Murnane offered a way t o t hink about
which t asks fell int o each cat egory.
One hundred years ago t he previous paragraph wouldnt have made any sense. Back t hen,
comput ers were humans. The word was originally a job t it le, not a label for a t ype of machine.
Comput ers in t he early t went iet h cent ury were people, usually women, who spent all day doing
arit hmet ic and t abulat ing t he result s. Over t he course of decades, innovat ors designed
machines t hat could t ake over more and more of t his work; t hey were first mechanical, t hen
elect ro-mechanical, and event ually digit al. Today, few people if any are employed simply t o do
arit hmet ic and record t he result s. Even in t he lowest -wage count ries t here are no human
comput ers, because t he nonhuman ones are far cheaper, fast er, and more accurat e.
If you examine t heir inner workings, you realize t hat comput ers arent just number crunchers,
t heyre symbols processors. Their circuit ry can be int erpret ed in t he language of ones and
zeroes, but equally validly as t rue or false, yes or no, or any ot her symbolic syst em. In principle,
t hey can do all manner of symbolic work, from mat h t o logic t o language. But digit al novelist s
are not yet available, so people st ill writ e all t he books t hat appear on fict ion best seller list s.
We also havent yet comput erized t he work of ent repreneurs, CEOs, scient ist s, nurses,
rest aurant busboys, or many ot her t ypes of workers. Why not ? What is it about t heir work t hat
makes it harder t o digit ize t han what human comput ers used t o do?
Computers Are Good at Following Rules . . .
These are t he quest ions Levy and Murnane t ackled in The New Division of Labor, and t he
answers t hey came up wit h made a great deal of sense. The aut hors put informat ion
processing t askst he foundat ion of all knowledge workon a spect rum. At one end are t asks
like arit hmet ic t hat require only t he applicat ion of well-underst ood rules. Since comput ers are
really good at following rules, it follows t hat t hey should do arit hmet ic and similar t asks.
Levy and Murnane go on t o highlight ot her t ypes of knowledge work t hat can also be
expressed as rules. For example, a persons credit score is a good general predict or of whet her
t heyll pay back t heir mort gage as promised, as is t he amount of t he mort gage relat ive t o t he
persons wealt h, income, and ot her debt s. So t he decision about whet her or not t o give
someone a mort gage can be effect ively boiled down t o a rule.
Expressed in words, a mort gage rule might say, If a person is request ing a mort gage of
amount M and t hey have a credit score of V or higher, annual income great er t han I or t ot al
wealt h great er t han W, and t ot al debt no great er t han D, t hen approve t he request . When
expressed in comput er code, we call a mort gage rule like t his an algorithm. Algorit hms are
simplificat ions; t hey cant and dont t ake everyt hing int o account (like a billionaire uncle who
has included t he applicant in his will and likes t o rock-climb wit hout ropes). Algorit hms do,
however, include t he most common and import ant t hings, and t hey generally work quit e well at
t asks like predict ing payback rat es. Comput ers, t herefore, can and should be used for
mort gage approval.*
. . . But Lousy at Pattern Recognition
At t he ot her end of Levy and Murnanes spect rum, however, lie informat ion processing t asks
t hat cannot be boiled down t o rules or algorit hms. According t o t he aut hors, t hese are t asks
t hat draw on t he human capacit y for pat t ern recognit ion. Our brains are ext raordinarily good at
t aking in informat ion via our senses and examining it for pat t erns, but were quit e bad at
describing or figuring out how were doing it , especially when a large volume of fast -changing
informat ion arrives at a rapid pace. As t he philosopher Michael Polanyi famously observed, We
know more t han we can t ell.
2
When t his is t he case, according t o Levy and Murnane, t asks
cant be comput erized and will remain in t he domain of human workers. The aut hors cit e
driving a vehicle in t raffic as an example of such as t ask. As t hey writ e,
As the driver makes his left turn against traffic, he confronts a wall of images and sounds generated by oncoming
cars, traffic lights, storefronts, billboards, trees, and a traffic policeman. Using his knowledge, he must estimate the
size and position of each of these objects and the likelihood that they pose a hazard. . . . The truck driver [has] the
schema to recognize what [he is] confronting. But articulating this knowledge and embedding it in software for all but
highly structured situations are at present enormously difficult tasks. . . . Computers cannot easily substitute for
humans in [jobs like driving].
So Much for That Distinction
We were convinced by Levy and Murnanes argument s when we read The New Division of
Labor in 2004. We were furt her convinced t hat year by t he init ial result s of t he DARPA Grand
Challenge for driverless cars.
DARPA, t he Defense Advanced Research Project s Agency, was founded in 1958 (in
response t o t he Soviet Unions launch of t he Sputnik sat ellit e) and t asked wit h spurring
t echnological progress t hat might have milit ary applicat ions. In 2002 t he agency announced it s
first Grand Challenge, which was t o build a complet ely aut onomous vehicle t hat could
complet e a 150-mile course t hrough Californias Mojave Desert . Fift een ent rant s performed
well enough in a qualifying run t o compet e in t he main event , which was held on March 13,
2004.
The result s were less t han encouraging. Two vehicles didnt make it t o t he st art ing area, one
flipped over in t he st art ing area, and t hree hours int o t he race only four cars were st ill
operat ional. The winning Sandst orm car from Carnegie Mellon Universit y covered 7.4 miles
(less t han 5 percent of t he t ot al) before veering off t he course during a hairpin t urn and get t ing
st uck on an embankment . The cont est s $1 million prize went unclaimed, and Popular Science
called t he event DARPAs Debacle in t he Desert .
3
Wit hin a few years, however, t he debacle in t he desert became t he fun on t he 101 t hat we
experienced. Google announced in an Oct ober 2010 blog post t hat it s complet ely aut onomous
cars had for some t ime been driving successfully, in t raffic, on American roads and highways.
By t he t ime we t ook our ride in t he summer of 2012 t he Chauffeur project had grown int o a
small fleet of vehicles t hat had collect ively logged hundreds of t housands of miles wit h no
human involvement and wit h only t wo accident s. One occurred when a person was driving t he
Chauffeur car; t he ot her happened when a Google car was rear-ended (by a human driver)
Chauffeur car; t he ot her happened when a Google car was rear-ended (by a human driver)
while st opped at a red light .
4
To be sure, t here are st ill many sit uat ions t hat Googles cars cant
handle, part icularly complicat ed cit y t raffic or off-road driving or, for t hat mat t er, any locat ion
t hat has not already been met iculously mapped in advance by Google. But our experience on
t he highway convinced us t hat it s a viable approach for t he large and growing set of everyday
driving sit uat ions.
Self-driving cars went from being t he st uff of science fict ion t o on-t he-road realit y in a few
short years. Cut t ing-edge research explaining why t hey were not coming anyt ime soon was
out paced by cut t ing-edge science and engineering t hat brought t hem int o exist ence, again in
t he space of a few short years. This science and engineering accelerat ed rapidly, going from a
debacle t o a t riumph in a lit t le more t han half a decade.
Improvement in aut onomous vehicles reminds us of Hemingways quot e about how a man
goes broke: Gradually and t hen suddenly.
5
And self-driving cars are not an anomaly; t heyre
part of a broad, fascinat ing pat t ern. Progress on some of t he oldest and t oughest challenges
associat ed wit h comput ers, robot s, and ot her digit al gear was gradual for a long t ime. Then in
t he past few years it became sudden; digit al gear st art ed racing ahead, accomplishing t asks it
had always been lousy at and displaying skills it was not supposed t o acquire anyt ime soon.
Let s look at a few more examples of surprising recent t echnological progress.
Good Listeners and Smooth Talkers
In addit ion t o pat t ern recognit ion, Levy and Murnane highlight complex communication as a
domain t hat would st ay on t he human side in t he new division of labor. They writ e t hat ,
Conversat ions crit ical t o effect ive t eaching, managing, selling, and many ot her occupat ions
require t he t ransfer and int erpret at ion of a broad range of informat ion. In t hese cases, t he
possibilit y of exchanging informat ion wit h a comput er, rat her t han anot her human, is a long
way off.
6
In t he fall of 2011, Apple int roduced t he iPhone 4S feat uring Siri, an int elligent personal
assist ant t hat worked via a nat ural-language user int erface. In ot her words, people t alked t o it
just as t hey would t alk t o anot her human being. The soft ware underlying Siri, which originat ed
at t he California research inst it ut e SRI Int ernat ional and was purchased by Apple in 2010,
list ened t o what iPhone users were saying t o it , t ried t o ident ify what t hey want ed, t hen t ook
act ion and report ed back t o t hem in a synt het ic voice.
Aft er Siri had been out for about eight mont hs, Kyle Wagner of t echnology blog Gizmodo
list ed some of it s most useful capabilit ies: You can ask about t he scores of live games
What s t he score of t he Giant s game?or about individual player st at s. You can also make
OpenTable reservat ions, get Yelp scores, ask about what movies are playing at a local t heat er
and t hen see a t railer. If youre busy and cant t ake a call, you can ask Siri t o remind you t o call
t he person back lat er. This is t he kind of everyday t ask for which voice commands can act ually
be incredibly useful.
7
The Gizmodo post ended wit h caut ion: That act ually sounds pret t y cool. Just wit h t he
obvious Siri crit erion: If it actually works.
8
Upon it s release, a lot of people found t hat Apples
int elligent personal assist ant didnt work well. It didnt underst and what t hey were saying,
asked for repeat ed clarificat ions, gave st range or inaccurat e answers, and put t hem off wit h
responses like Im really sorry about t his, but I cant t ake any request s right now. Please t ry
again in a lit t le while. Analyst Gene Munst er cat alogued quest ions wit h which Siri had t rouble:
Where is Elvis buried? Responded, I cant answer t hat for you. It t hought t he persons
name was Elvis Buried.
When did the movie Cinderella come out? Responded wit h a movie t heat er search on
Yelp.
When is the next Halleys Comet? Responded, You have no meet ings mat ching
Halleys.
I want to go to Lake Superior. Responded wit h direct ions t o t he company Lake
Superior X-Ray.
9
Siris somet imes bizarre and frust rat ing responses became well known, but t he power of t he
t echnology is undeniable. It can come t o your aid exact ly when you need it . On t he same t rip
t hat afforded us some t ime in an aut onomous car, we saw t his first hand. Aft er a meet ing in
San Francisco, we hopped in our rent al car t o drive down t o Googles headquart ers in Mount ain
View. We had a port able GPS device wit h us, but didnt plug it in and t urn it on because we
t hought we knew how t o get t o our next dest inat ion.
We didnt , of course. Confront ed wit h an Escherian maze of elevat ed highways, off-ramps,
and surface st reet s, we drove around looking for an on-ramp while t ensions mount ed. Just
when our meet ing at Google, t his book project , and our professional relat ionship seemed in
serious jeopardy, Erik pulled out his phone and asked Siri for direct ions t o U.S. 101 Sout h. The
phone responded inst ant ly and flawlessly: t he screen t urned int o a map showing where we
were and how t o find t he elusive on-ramp.
We could have pulled over, found t he port able GPS and t urned it on, t yped in our dest inat ion,
and wait ed for our rout ing, but we didnt want t o exchange informat ion t hat way. We want ed
t o speak a quest ion and hear and see (because a map was involved) a reply. Siri provided
exact ly t he nat ural language int eract ion we were looking for. A 2004 review of t he previous
half-cent urys research in aut omat ic speech recognit ion (a crit ical part of nat ural language
processing) opened wit h t he admission t hat Human-level speech recognit ion has proved t o
be an elusive goal, but less t han a decade lat er major element s of t hat goal have been
reached. Apple and ot her companies have made robust nat ural language processing
t echnology available t o hundreds of millions of people via t heir mobile phones.
10
As not ed by
Tom Mit chell, who heads t he machine-learning depart ment at Carnegie Mellon Universit y:
Were at t he beginning of a t en-year period where were going t o t ransit ion from comput ers
t hat cant underst and language t o a point where comput ers can underst and quit e a bit about
language.
11
Digital Fluency: The Babel Fish Goes to Work
Nat ural language processing soft ware is st ill far from perfect , and comput ers are not yet as
good as people at complex communicat ion, but t heyre get t ing bet t er all t he t ime. And in t asks
like t ranslat ion from one language t o anot her, surprising development s are underway: while
comput ers communicat ion abilit ies are not as deep as t hose of t he average human being,
t heyre much broader.
A person who speaks more t han one language can usually t ranslat e bet ween t hem wit h
reasonable accuracy. Aut omat ic t ranslat ion services, on t he ot her hand, are impressive but
rarely error-free. Even if your French is rust y, you can probably do bet t er t han Google Translat e
wit h t he sent ence Mont y Pyt hons Dirt y Hungarian Phrasebook sket ch is one of t heir
funniest ones. Google offered, Sket ch des Mont y Pyt hon Phrasebook sale hongrois est lun
des plus drles les leurs. This conveys t he main gist , but has serious grammat ical problems.
There is less chance you could have made progress t ranslat ing t his sent ence (or any ot her)
int o Hungarian, Arabic, Chinese, Russian, Norwegian, Malay, Yiddish, Swahili, Esperant o, or any
of t he ot her sixt y-t hree languages besides French t hat are part of t he Google Translat e
service. But Google will at t empt a t ranslat ion of t ext from any of t hese languages int o any
ot her, inst ant aneously and at no cost for anyone wit h Web access.
12
The Translat e services
smart phone app let s users speak more t han fift een of t hese languages int o t he phone and, in
response, will produce synt hesized, t ranslat ed speech in more t han half of t he fift een. It s a
safe bet t hat even t he worlds most mult ilingual person cant mat ch t his breadt h.
For years inst ant aneous t ranslat ion ut ilit ies have been t he st uff of science fict ion (most
not ably The Hitchhikers Guide to the Galaxys Babel Fish, a st range creat ure t hat once
insert ed in t he ear allows a person t o underst and speech in any language).
13
Google Translat e
and similar services are making it a realit y t oday. In fact , at least one such service is being used
right now t o facilit at e int ernat ional cust omer service int eract ions. The t ranslat ion services
company Lionbridge has part nered wit h IBM t o offer GeoFluent , an online applicat ion t hat
inst ant ly t ranslat es chat s bet ween cust omers and t roubleshoot ers who do not share a
language. In an init ial t rial, approximat ely 90 percent of GeoFluent users report ed t hat it was
good enough for business purposes.
14
Human Superiority in Jeopardy!
Comput ers are now combining pat t ern mat ching wit h complex communicat ion t o quit e lit erally
beat people at t heir own games. In 2011, t he February 14 and 15 episodes of t he TV game
show Jeopardy! included a cont est ant t hat was not a human being. It was a supercomput er
called Wat son, developed by IBM specifically t o play t he game (and named in honor of
legendary IBM CEO Thomas Wat son, Sr.). Jeopardy! debut ed in 1964 and in 2012 was t he fift h
most popular syndicat ed TV program in America.
15
On a t ypical day almost 7 million people
wat ch host Alex Trebek ask t rivia quest ions on various t opics as cont est ant s vie t o be t he first
t o answer t hem correct ly.*
The shows longevit y and popularit y st em from it s being easy t o underst and yet ext remely
hard t o play well. Almost everyone knows t he answers t o some of t he quest ions in a given
episode, but very few people know t he answers t o almost all of t hem. Quest ions cover a wide
range of t opics, and cont est ant s are not t old in advance what t hose t opics will be. Players also
have t o be simult aneously fast , bold, and accurat efast because t hey compet e against one
anot her for t he chance t o answer each quest ion; bold because t hey have t o t ry t o answer a lot
of quest ions, especially harder ones, in order t o accumulat e enough money t o win; and
accurat e because money is subt ract ed for each incorrect answer.
Jeopardy!s producers furt her challenge cont est ant s wit h puns, rhymes, and ot her kinds of
wordplay. A clue might ask, for example, for A rhyming reminder of t he past in t he cit y of t he
NBAs Kings.
16
To answer correct ly, a player would have t o know what t he acronym NBA st ood
for (in t his case, it s t he Nat ional Basket ball Associat ion, not t he Nat ional Bank Act or chemical
compound n-But ylamine), which cit y t he NBAs Kings play in (Sacrament o), and t hat t he clues
demand for a rhyming reminder of t he past meant t hat t he right answer is What is a
Sacrament o mement o? inst ead of a Sacrament o souvenir or any ot her fact ually correct
response. Responding correct ly t o clues like t hese requires mast ery of pat t ern mat ching and
complex communicat ion. And winning at Jeopardy! requires doing bot h t hings repeat edly,
accurat ely, and almost inst ant aneously.
During t he 2011 shows, Wat son compet ed against Ken Jennings and Brad Rut t er, t wo of
t he best knowledge workers in t his esot eric indust ry. Jennings won Jeopardy! a record
sevent y-four t imes in a row in 2004, t aking home more t han $3,170,000 in prize money and
becoming somet hing of a folk hero along t he way.
17
In fact , Jennings is somet imes given credit
for t he exist ence of Wat son.
18
According t o one st ory circulat ing wit hin IBM, Charles Lickel, a
research manager at t he company int erest ed in pushing t he front iers of art ificial int elligence,
was having dinner in a st eakhouse in Fishkill, New York, one night in t he fall of 2004. At 7 p.m.,
he not iced t hat many of his fellow diners got up and went int o t he adjacent bar. When he
followed t hem t o find out what was going on, he saw t hat t hey were clust ered in front of t he
bars TV wat ching Jennings ext end his winning st reak beyond fift y mat ches. Lickel saw t hat a
mat ch bet ween Jennings and a Jeopardy!-playing supercomput er would be ext remely popular,
in addit ion t o being a st ern t est of a comput ers pat t ern mat ching and complex communicat ion
abilit ies.
Since Jeopardy! is a t hree-way cont est , t he ideal t hird cont est ant would be Brad Rut t er, who
beat Jennings in t he shows 2005 Ult imat e Tournament of Champions and won more t han
$3,400,000.
19
Bot h men had packed t heir brains wit h informat ion of all kinds, were deeply
familiar wit h t he game and all of it s idiosyncrasies, and knew how t o handle pressure.
These t wo humans would be t ough for any machine t o beat , and t he first versions of
Wat son werent even close. Wat son could be t uned by it s programmers t o be eit her more
aggressive in answering quest ions (and hence more likely t o be wrong) or more conservat ive
and accurat e. In December 2006, short ly aft er t he project st art ed, when Wat son was t uned t o
t ry t o answer 70 percent of t he t ime (a relat ively aggressive approach) it was only able t o
come up wit h t he right response approximat ely 15 percent of t he t ime. Jennings, in sharp
cont rast , answered about 90 percent of quest ions correct ly in games when he buzzed in first
(in ot her words, won t he right t o respond) 70 percent of t he t ime.
20
But Wat son t urned out t o be a very quick learner. The supercomput ers performance on t he
aggression vs. accuracy t radeoff improved quickly, and by November 2010, when it was
aggressive enough t o win t he right t o answer 70 percent of a simulat ed mat chs t ot al
quest ions, it answered about 85 percent of t hem correct ly. This was impressive improvement ,
but it st ill didnt put t he comput er in t he same league as t he best human players. The Wat son
t eam kept working unt il mid-January of 2011, when t he mat ches were recorded for broadcast
in February, but no one knew how well t heir creat ion would do against Jennings and Rut t er.
Wat son t rounced t hem bot h. It correct ly answered quest ions on t opics ranging from
Olympic Oddit ies (responding pent at hlon t o A 1976 ent ry in t he modern t his was kicked
out for wiring his epee t o score point s wit hout t ouching his foe) t o Church and St at e
(realizing t hat t he answers all cont ained one or t he ot her of t hese words, t he comput er
answered gest at e when t old It can mean t o develop gradually in t he mind or t o carry during
pregnancy). While t he supercomput er was not perfect (for example, it answered chic inst ead
of class when asked about st ylish elegance, or st udent s who all graduat ed in t he same
year as part of t he cat egory Alt ernat e Meanings), it was very good.
Wat son was also ext remely fast , repeat edly buzzing in before Jennings and Rut t er t o win
t he right t o answer quest ions. In t he first of t he t wo games played, for example, Wat son
buzzed in first 43 t imes, t hen answered correct ly 38 t imes. Jennings and Rut t er combined t o
buzz in only 33 t imes over t he course of t he same game.
21
At t he end of t he t wo-day t ournament , Wat son had amassed $77,147, more t han t hree
t imes as much as eit her of it s human opponent s. Jennings, who came in second, added a
personal not e on his answer t o t he t ournament s final quest ion: I for one welcome our new
comput er overlords. He lat er elaborat ed, Just as fact ory jobs were eliminat ed in t he t went iet h
cent ury by new assembly-line robot s, Brad and I were t he first knowledge-indust ry workers put
out of work by t he new generat ion of t hinking machines. Quiz show cont est ant may be t he
first job made redundant by Wat son, but Im sure it wont be t he last .
22
The Paradox of Robotic Progress
A final import ant area where we see a rapid recent accelerat ion in digit al improvement is
robot icsbuilding machines t hat can navigat e t hrough and int eract wit h t he physical world of
fact ories, warehouses, bat t lefields, and offices. Here again we see progress t hat was very
gradual, t hen sudden.
The word robot ent ered t he English language via t he 1921 Czech play, R.U.R. (Rossums
Universal Robot s) by Karel Capek, and aut omat ons have been an object of human
fascinat ion ever since.
23
During t he Great Depression, magazine and newspaper st ories
speculat ed t hat robot s would wage war, commit crimes, displace workers, and even beat boxer
Jack Dempsey.
24
Isaac Asimov coined t he t erm robotics in 1941 and provided ground rules for
t he young discipline t he following year wit h his famous Three Laws of Robot ics:
1. A robot may not injure a human being or, t hrough inact ion, allow a human being t o come
t o harm.
2. A robot must obey t he orders given t o it by human beings, except where such orders
would conflict wit h t he First Law.
3. A robot must prot ect it s own exist ence as long as such prot ect ion does not conflict
wit h t he First or Second Laws.
25
Asimovs enormous influence on bot h science fict ion and real-world robot -making has
persist ed for sevent y years. But one of t hose t wo communit ies has raced far ahead of t he
ot her. Science fict ion has given us t he chat t y and loyal R2-D2 and C-3PO, Battlestar
Galacticas ominous Cylons, t he t errible Terminat or, and endless variet ies of androids, cyborgs,
and replicant s. Decades of robot ics research, in cont rast , gave us Hondas ASIMO, a humanoid
robot best known for a spect acularly failed demo t hat showcased it s inabilit y t o follow
Asimovs t hird law. At a 2006 present at ion t o a live audience in Tokyo, ASIMO at t empt ed t o
walk up a shallow flight of st airs t hat had been placed on t he st age. On t he t hird st ep, t he
robot s knees buckled and it fell over backward, smashing it s faceplat e on t he floor.
26
ASIMO has since recovered and demonst rat ed skills like walking up and down st airs, kicking
a soccer ball, and dancing, but it s short comings highlight a broad t rut h: a lot of t he t hings
humans find easy and nat ural t o do in t he physical world have been remarkably difficult for
robot s t o mast er. As t he robot icist Hans Moravec has observed, It is comparat ively easy t o
make comput ers exhibit adult -level performance on int elligence t est s or playing checkers, and
difficult or impossible t o give t hem t he skills of a one-year-old when it comes t o percept ion and
mobilit y.
27
This sit uat ion has come t o be known as Moravecs paradox, nicely summarized by Wikipedia
as t he discovery by art ificial int elligence and robot ics researchers t hat , cont rary t o t radit ional
assumpt ions, high-level reasoning requires very lit t le comput at ion, but low-level sensorimot or
skills require enormous comput at ional resources.
28
* Moravecs insight is broadly accurat e, and
import ant . As t he cognit ive scient ist St even Pinker put s it , The main lesson of t hirt y-five years
of AI research is t hat t he hard problems are easy and t he easy problems are hard. . . . As t he
new generat ion of int elligent devices appears, it will be t he st ock analyst s and pet rochemical
engineers and parole board members who are in danger of being replaced by machines. The
gardeners, recept ionist s, and cooks are secure in t heir jobs for decades t o come.
29
Pinkers point is t hat robot ics expert s have found it fiendishly difficult t o build machines t hat
mat ch t he skills of even t he least -t rained manual worker. iRobot s Roomba, for example, cant
do everyt hing a maid does; it just vacuums t he floor. More t han t en million Roombas have been
sold, but none of t hem is going t o st raight en t he magazines on a coffee t able.
When it comes t o work in t he physical world, humans also have a huge flexibilit y advant age
over machines. Aut omat ing a single act ivit y, like soldering a wire ont o a circuit board or
fast ening t wo part s t oget her wit h screws, is pret t y easy, but t hat t ask must remain const ant
over t ime and t ake place in a regular environment . For example, t he circuit board must show
up in exact ly t he same orient at ion every t ime. Companies buy specialized machines for t asks
like t hese, have t heir engineers program and t est t hem, t hen add t hem t o t heir assembly lines.
Each t ime t he t ask changeseach t ime t he locat ion of t he screw holes move, for example
product ion must st op unt il t he machinery is reprogrammed. Todays fact ories, especially large
ones in high-wage count ries, are highly aut omat ed, but t heyre not full of general-purpose
robot s. Theyre full of dedicat ed, specialized machinery t hat s expensive t o buy, configure, and
reconfigure.
Rethinking Factory Automation
Rodney Brooks, who co-founded iRobot , not iced somet hing else about modern, highly
aut omat ed fact ory floors: people are scarce, but t heyre not absent . And a lot of t he work t hey
do is repet it ive and mindless. On a line t hat fills up jelly jars, for example, machines squirt a
precise amount of jelly int o each jar, screw on t he t op, and st ick on t he label, but a person
places t he empt y jars on t he conveyor belt t o st art t he process. Why hasnt t his st ep been
aut omat ed? Because in t his case t he jars are delivered t o t he line t welve at a t ime in
cardboard boxes t hat dont hold t hem firmly in place. This imprecision present s no problem t o a
person (who simply sees t he jars in t he box, grabs t hem, and put s t hem on t he conveyor belt ),
but t radit ional indust rial aut omat ion has great difficult y wit h jelly jars t hat dont show up in
exact ly t he same place every t ime.
In 2008 Brooks founded a new company, Ret hink Robot ics, t o pursue and build unt radit ional
indust rial aut omat ion: robot s t hat can pick and place jelly jars and handle t he count less ot her
imprecise t asks current ly done by people in t odays fact ories. His ambit ion is t o make some
progress against Moravecs paradox. What s more, Brooks envisions creat ing robot s t hat wont
need t o be programmed by high-paid engineers; inst ead, t he machines can be t aught t o do a
t ask (or ret aught t o do a new one) by shop floor workers, each of whom need less t han an
hour of t raining t o learn how t o inst ruct t heir new mechanical colleagues. Brookss machines
are cheap, t oo. At about $20,000, t heyre a small fract ion of t he cost of current indust rial
robot s. We got a sneak peek at t hese pot ent ial paradox-bust ers short ly before Ret hinks
public unveiling of t heir first line of robot s, named Baxt er. Brooks invit ed us t o t he companys
headquart ers in Bost on t o see t hese aut omat ons, and t o see what t hey could do.
Baxt er is inst ant ly recognizable as a humanoid robot . It has t wo burly, joint ed arms wit h
claw-like grips for hands; a t orso; and a head wit h an LCD face t hat swivels t o look at t he
nearest person. It doesnt have legs, t hough; Ret hink sidest epped t he enormous challenges of
aut omat ic locomot ion by put t ing Baxt er on wheels and having it rely on people t o get from
place t o place. The companys analyses suggest t hat it can st ill do lot s of useful work wit hout
t he abilit y t o move under his own power.
To t rain Baxt er, you grab it by t he wrist and guide t he arm t hrough t he mot ions you want it
t o carry out . As you do t his, t he arm seems weight less; it s mot ors are working so you dont
have t o. The robot also maint ains safet y; t he t wo arms cant collide (t he mot ors resist you if
you t ry t o make t his happen) and t hey aut omat ically slow down if Baxt er senses a person
wit hin t heir range. These and many ot her design feat ures make working wit h t his aut omat on a
nat ural, int uit ive, and nont hreat ening experience. When we first approached it , we were
nervous about cat ching a robot arm t o t he face, but t his apprehension faded quickly, replaced
by curiosit y.
Brooks showed us several Baxt ers at work in t he companys demo area. They were blowing
past Moravecs paradoxsensing and manipulat ing lot s of different object s wit h hands
ranging from grips t o suct ion cups. The robot s arent as fast or fluid as a well-t rained human
worker at full speed, but t hey might not need t o be. Most conveyor belt s and assembly lines do
not operat e at full human speed; t hey would t ire people out if t hey did.
Baxt er has a few obvious advant ages over human workers. It can work all day every day
wit hout needing sleep, lunch, or coffee breaks. It also wont demand healt hcare from it s
employer or add t o t he payroll t ax burden. And it can do t wo complet ely unrelat ed t hings at
once; it s t wo arms are capable of operat ing independent ly.
Coming Soon to Assembly Lines, Warehouses, and Hallways Near You
Aft er visit ing Ret hink and seeing Baxt er in act ion, we underst ood why Texas Inst rument s Vice
President Remi El-Ouazzane said in early 2012, We have a firm belief t hat t he robot ics market
is on t he cusp of exploding. Theres a lot of evidence t o support his view. The volume and
variet y of robot s in use at companies is expanding rapidly, and innovat ors and ent repreneurs
have recent ly made deep inroads against Moravecs paradox.
30
Kiva, anot her young Bost on-area company, has t aught it s aut omat ons t o move around
warehouses safely, quickly, and effect ively. Kiva robot s look like met al ot t omans or squashed
R2-D2s. They scut t le around buildings at about knee-height , st aying out of t he way of humans
and one anot her. Theyre low t o t he ground so t hey can scoot underneat h shelving unit s, lift
t hem up, and bring t hem t o human workers. Aft er t hese workers grab t he product s t hey need,
t he robot whisks t he shelf away and anot her shelf-bearing robot t akes it s place. Soft ware
t racks where all t he product s, shelves, robot s, and people are in t he warehouse, and
orchest rat es t he cont inuous dance of t he Kiva aut omat ons. In March of 2012, Kiva was
acquired by Amazona leader in advanced warehouse logist icsfor more t han $750 million in
cash.
31
Bost on Dynamics, yet anot her New England st art up, has t ackled Moravecs paradox head-
on. The company builds robot s aimed at support ing American t roops in t he field by, among
ot her t hings, carrying heavy loads over rough t errain. It s BigDog, which looks like a giant met al
mast iff wit h long skinny legs, can go up st eep hills, recover from slips on ice, and do ot her very
dog-like t hings. Balancing a heavy load on four point s while moving over an uneven landscape
is a t ruly nast y engineering problem, but Bost on Dynamics has been making good progress.
As a final example of recent robot ic progress, consider t he Double, which is about as
different from t he BigDog as possible. Inst ead of t rot t ing t hrough rough enemy t errain, t he
Double rolls over cubicle carpet s and hospit al hallways carrying an iPad. It s essent ially an
upside-down pendulum wit h mot orized wheels at t he bot t om and a t ablet at t he t op of a four-
t o five-foot st ick. The Double provides t elepresenceit let s t he operat or walk around a
dist ant building and see and hear what s going on. The camera, microphone, and screen of t he
iPad serve as t he eyes, ears, and face of t he operat or, who sees and hears what t he iPad sees
and hears. The Double it self act s as t he legs, t ransport ing t he whole assembly around in
response t o commands from t he operat or. Double Robot ics calls it t he simplest , most elegant
way t o be somewhere else in t he world wit hout flying t here. The first bat ch of Doubles, priced
at $2,499, sold out soon aft er t he t echnology was announced in t he fall of 2012.
32
The next round of robot ic innovat ion might put t he biggest dent in Moravecs paradox ever.
In 2012 DARPA announced anot her Grand Challenge; inst ead of aut onomous cars, t his one
was about aut omat ons. The DARPA Robot ics Challenge (DRC) combined t ool use, mobilit y,
sensing, t elepresence, and many ot her long-st anding challenges in t he field. According t o t he
websit e of t he agencys Tact ical Technology Office,
The primary technical goal of the DRC is to develop ground robots capable of executing complex tasks in
dangerous, degraded, human-engineered environments. Competitors in the DRC are expected to focus on robots
that can use standard tools and equipment commonly available in human environments, ranging from hand tools
to vehicles, with an emphasis on adaptability to tools with diverse specifications.
33
Wit h t he DRC, DARPA is asking t he robot ics communit y t o build and demonst rat e high-
funct ioning humanoid robot s by t he end of 2014. According t o an init ial specificat ion supplied
by t he agency, t hey will have t o be able t o drive a ut ilit y vehicle, remove debris blocking an
ent ryway, climb a ladder, close a valve, and replace a pump.
34
These seem like impossible
requirement s, but weve been assured by highly knowledgeable colleaguesones compet ing
in t he DRC, in fact t hat t heyll be met . Many saw t he 2004 Grand Challenge as inst rument al
in accelerat ing progress wit h aut onomous vehicles. Theres an excellent chance t hat t he DRC
will be similarly import ant at get t ing us past Moravecs paradox.
More Evidence That Were at an Inflection Point
Self-driving cars, Jeopardy! champion supercomput ers, and a variet y of useful robot s have all
appeared just in t he past few years. And t hese innovat ions are not just lab demos; t heyre
showing off t heir skills and abilit ies in t he messy real world. They cont ribut e t o t he impression
t hat were at an inflect ion point a bend in t he curve where many t echnologies t hat used t o
be found only in science fict ion are becoming everyday realit y. As many ot her examples show,
t his is an accurat e impression.
On t he Star Trek t elevision series, devices called t ricorders were used t o scan and record
t hree kinds of dat a: geological, met eorological, and medical. Todays consumer smart phones
serve all t hese purposes; t hey can be put t o work as seismographs, real-t ime weat her radar
maps, and heart - and breat hing-rat e monit ors.
35
And, of course, t heyre not limit ed t o t hese
domains. They also work as media players, game plat forms, reference works, cameras, and
GPS devices. On Star Trek, t ricorders and person-t o-person communicat ors were separat e
devices, but in t he real world t he t wo have merged in t he smart phone. They enable t heir users
t o simult aneously access and generat e huge amount s of informat ion as t hey move around.
This opens up t he opport unit y for innovat ions t hat vent ure capit alist John Doerr calls
SoLoMosocial, local, and mobile.
36
Comput ers hist orically have been very bad at writ ing real prose. In recent t imes t hey have
been able t o generat e grammat ically correct but meaningless sent ences, a st at e of affairs
t hat s been mercilessly exploit ed by prankst ers. In 2008, for example, t he Int ernat ional
Conference on Comput er Science and Soft ware Engineering accept ed t he paper Towards
t he Simulat ion of E-commerce and invit ed it s aut hor t o chair a session. This paper was
writ t en by SCIgen, a program from t he MIT Comput er Science and Art ificial Int elligence Lab
t hat generat es random Comput er Science research papers. SCIgens aut hors wrot e t hat ,
Our aim here is t o maximize amusement , rat her t han coherence, and aft er reading t he
abst ract of Towards t he Simulat ion of E-commerce it s hard t o argue wit h t hem:
37
Recent advances in cooperative technology and classical communication are based entirely on the assumption
that the Internet and active networks are not in conflict with object-oriented languages. In fact, few information
theorists would disagree with the visualization of DHTs that made refining and possibly simulating 8
bitarchitectures a reality, which embodies the compelling principles of electrical engineering.
38
Recent development s make clear, t hough, t hat not all comput er-generat ed prose is
nonsensical. Forbes.com has cont ract ed wit h t he company Narrat ive Science t o writ e t he
corporat e earnings previews t hat appear on t he websit e. These st ories are all generat ed by
algorit hms wit hout human involvement . And t heyre indist inguishable from what a human
would writ e:
Forbes Earning Preview: H.J. Heinz
A quality first quarter earnings announcement could push shares of H.J. Heinz (HNZ) to a new 52-week high as
the price is just 49 cents off the milestone heading into the companys earnings release on Wednesday, August 29,
2012.
The Wall Street consensus is 80 cents per share, up 2.6 percent from a year ago when H.J reported earnings of
78 cents per share.
The consensus estimate remains unchanged over the past month, but it has decreased from three months ago
when it was 82 cents. Analysts are expecting earnings of $3.52 per share for the fiscal year. Analysts project
revenue to fall 0.3 percent year-over-year to $2.84 billion for the quarter, after being $2.85 billion a year ago. For the
year, revenue is projected to roll in at $11.82 billion.
39
Even comput er peripherals like print ers are get t ing in on t he act , demonst rat ing useful
capabilit ies t hat seem st raight out of science fict ion. Inst ead of just put t ing ink on paper, t hey
are making complicat ed t hree-dimensional part s out of plast ic, met al, and ot her mat erials. 3D
print ing, also somet imes called addit ive manufact uring, t akes advant age of t he way
comput er print ers work: t hey deposit a very t hin layer of mat erial (ink, t radit ionally) on a base
(paper) in a pat t ern det ermined by t he comput er.
Innovat ors reasoned t hat t here is not hing st opping print ers from deposit ing layers one on
t op of t he ot her. And inst ead of ink, print ers can also deposit mat erials like liquid plast ic t hat
get s cured int o a solid by ult raviolet light . Each layer is very t hinsomewhere around one-
t ent h of a millimet erbut over t ime a t hree-dimensional object t akes shape. And because of
t he way it is built up, t his shape can be quit e complicat edit can have voids and t unnels in it ,
and even part s t hat move independent ly of one anot her. At t he San Francisco headquart ers of
Aut odesk, a leading design soft ware company, we handled a working adjust able wrench t hat
was print ed as a single part , no assembly required.
40
This wrench was a demonst rat ion product made out of plast ic, but 3D print ing has
expanded int o met als as well. Aut odesk CEO Carl Bass is part of t he large and growing
communit y of addit ive manufact uring hobbyist s and t inkerers. During our t our of his companys
gallery, a showcase of all t he product s and project s enabled by Aut odesk soft ware, he showed
us a beaut iful met al bowl he designed on a comput er and had print ed out . The bowl had an
elaborat e lat t ice pat t ern on it s sides. Bass said t hat hed asked friends of his who were
experienced in working wit h met alsculpt ors, ironworkers, welders, and so onhow t he bowl
was made. None of t hem could figure out how t he lat t ice was produced. The answer was t hat
a laser had built up each layer by fusing powdered met al.
3D print ing t oday is not just for art project s like Basss bowl. It s used by count less
companies every day t o make prot ot ypes and model part s. It s also being used for final part s
ranging from plast ic vent s and housings on NASAs next -generat ion Moon rover t o a met al
prost het ic jawbone for an eight y-t hree-year-old woman. In t he near fut ure, it might be used t o
print out replacement part s for fault y engines on t he spot inst ead of maint aining st ockpiles of
t hem in invent ory. Demonst rat ion project s have even shown t hat t he t echnique could be used
t o build concret e houses.
41
Most of t he innovat ions described in t his chapt er have occurred in just t he past few years.
Theyve t aken place in areas where improvement had been frust rat ingly slow for a long t ime,
and where t he best t hinking oft en led t o t he conclusion t hat it wouldnt speed up. But t hen
digit al progress became sudden aft er being gradual for so long. This happened in mult iple
areas, from art ificial int elligence t o self-driving cars t o robot ics.
How did t his happen? Was it a flukea confluence of a number of lucky one-t ime
advances? No, it was not . The digit al progress weve seen recent ly is cert ainly impressive, but
it s just a small indicat ion of what s t o come. It s t he dawn of t he second machine age. To
underst and why it s unfolding now, we need t o underst and t he nat ure of t echnological
progress in t he era of digit al hardware, soft ware, and net works. In part icular, we need t o
underst and it s t hree key charact erist ics: t hat it is exponential, digital, and combinatorial. The
next t hree chapt ers will discuss each of t hese in t urn.
* In the years leading up to the Great Recession that began in 2007, companies were giving mortgages to people with
lower and lower credit scores, income, and wealth, and higher and higher debt levels. In other words, they either rewrote
or ignored their previous mortgage approval algorithms. It wasnt that the old mortgage algorithms stopped working; it
was that they stopped being used.
* To be precise, Trebek reads answers and the contestants have to state the question that would give rise to this answer.
* Sensorimotor skills are those that involve sensing the physical world and controlling the body to move through it.
The greatest shortcoming of the human race is our inability to understand the exponential function.
Albert A. Bartlett
ALTHOUGH HES COFOUNDER OF Int el, a major philant hropist , and recipient of t he President ial Medal of
Freedom, Gordon Moore is best known for a predict ion he made, almost as an aside, in a 1965
art icle. Moore, t hen working at Fairchild Semiconduct or, wrot e an art icle for Electronics
magazine wit h t he admirably direct t it le Cramming More Component s ont o Int egrat ed
Circuit s. At t he t ime, circuit s of t his t ypewhich combined many different kinds of elect rical
component s ont o a single chip made primarily of siliconwere less t han a decade old, but
Moore saw t heir pot ent ial. He wrot e t hat , Int egrat ed circuit s will lead t o such wonders as
home comput ersor at least t erminals connect ed t o a cent ral comput eraut omat ic cont rols
for aut omobiles, and personal port able communicat ions equipment .
1
The art icles most famous forecast , however, and t he one t hat has made Moore a household
name, concerned t he component cramming of t he t it le:
The complexity for minimum component costs has increased at a rate of roughly a factor of two per year. . . .
Certainly over the short term this rate can be expected to continue, if not to increase. Over the longer term, the rate
of increase is a bit more uncertain, although there is no reason to believe it will not remain nearly constant for at
least ten years.
2
This is t he original st at ement of Moores Law, and it s wort h dwelling for a moment on it s
implicat ions. Complexit y for minimum component cost s here essent ially means t he amount of
int egrat ed circuit comput ing power you could buy for one dollar. Moore observed t hat over t he
relat ively brief hist ory of his indust ry t his amount had doubled each year: you could buy t wice
as much power per dollar in 1963 as you could in 1962, t wice as much again in 1964, and t wice
as much again in 1965.
Moore predict ed t his st at e of affairs would cont inue, perhaps wit h some change t o t iming,
for at least anot her t en years. This bold st at ement forecast circuit s t hat would be more t han
five hundred t imes as powerful in 1975 as t hey were in 1965.*
As it t urned out , however, Moores biggest mist ake was in being t oo conservat ive. His law
has held up ast onishingly well for over four decades, not just one, and has been t rue for digit al
progress in areas ot her t han int egrat ed circuit s. It s wort h not ing t hat t he t ime required for
digit al doubling remains a mat t er of disput e. In 1975 Moore revised his est imat e upward from
one year t o t wo, and t oday it s common t o use eight een mont hs as t he doubling period for
general comput ing power. St ill, t heres no disput e t hat Moores Law has proved remarkably
prescient for almost half a cent ury.
3
Its Not a Law: Its a Bunch of Good Ideas
Moores Law is very different from t he laws of physics t hat govern t hermodynamics or
Newt onian classical mechanics. Those laws describe how t he universe works; t heyre t rue no
mat t er what we do. Moores Law, in cont rast , is a st at ement about t he work of t he comput er
indust rys engineers and scient ist s; it s an observat ion about how const ant and successful
t heir effort s have been. We simply dont see t his kind of sust ained success in ot her domains.
There was no period of t ime when cars got t wice as fast or t wice as fuel efficient every year
or t wo for fift y years. Airplanes dont consist ent ly have t he abilit y t o fly t wice as far, or t rains
t he abilit y t o haul t wice as much. Olympic runners and swimmers dont cut t heir t imes in half
over a generat ion, let alone a couple of years.
So how has t he comput er indust ry kept up t his amazing pace of improvement ?
There are t wo main reasons. First , while t ransist ors and t he ot her element s of comput ing are
const rained by t he laws of physics just like cars, airplanes, and swimmers, t he const raint s in
t he digit al world are much looser. They have t o do wit h how many elect rons per second can be
put t hrough a channel et ched in an int egrat ed circuit , or how fast beams of light can t ravel
t hrough fiber-opt ic cable. At some point digit al progress bumps up against it s const raint s and
Moores Law must slow down, but it t akes awhile. Henry Samueli, chief t echnology officer of
chipmaker Broadcom Corporat ion, predict ed in 2013 t hat Moores Law is coming t o an endin
t he next decade it will pret t y much come t o an end so we have 15 years or so.
4
But smart people have been predict ing t he end of Moores Law for a while now, and t heyve
been proved wrong over and over again.
5
This is not because t hey misunderst ood t he physics
involved, but because t hey underest imat ed t he people working in t he comput er indust ry. The
second reason t hat Moores Law has held up so well for so long is what we might call brilliant
t inkeringfinding engineering det ours around t he roadblocks t hrown up by physics. When it
became difficult t o cram int egrat ed circuit s more t ight ly t oget her, for example, chip makers
inst ead layered t hem on t op of one anot her, opening up a great deal of new real est at e. When
communicat ions t raffic t hreat ened t o out st rip t he capacit y even of fiber-opt ic cable, engineers
developed wavelengt h division mult iplexing (WDM), a t echnique for t ransmit t ing many beams
of light of different wavelengt hs down t he same single glass fiber at t he same t ime. Over and
over again brilliant t inkering has found ways t o skirt t he limit at ions imposed by physics. As Int el
execut ive Mike Marberry put s it , If youre only using t he same t echnology, t hen in principle you
run int o limit s. The t rut h is weve been modifying t he t echnology every five or seven years for
40 years, and t heres no end in sight for being able t o do t hat .
6
This const ant modificat ion has
made Moores Law t he cent ral phenomenon of t he comput er age. Think of it as a st eady
drumbeat in t he background of t he economy.
Charting the Power of Constant Doubling
Once t his doubling has been going on for some t ime, t he lat er numbers overwhelm t he earlier
ones, making t hem appear irrelevant . To see t his, let s look at a hypot het ical example. Imagine
t hat Erik gives Andy a t ribble, t he fuzzy creat ure wit h a high reproduct ive rat e made famous in
an episode of Star Trek. Every day each t ribble gives birt h t o anot her t ribble, so Andys
menagerie doubles in size each day. A geek would say in t his case t hat t he t ribble family is
experiencing exponential growt h. That s because t he mat hemat ical expression for how many
t ribbles t here are on day x is 2
x 1
, where t he x 1 is referred t o as an exponent . Exponent ial
growt h like t his is fast growt h; aft er t wo weeks Andy has more t han sixt een t housand of t he
creat ures. Heres a graph of how his t ribble family grows over t ime:
FI GURE 3. 1 Tri bbl es over Ti me: The Power of Const ant Doubl i ng
This graph is accurat e, but misleading in an import ant sense. It seems t o show t hat all t he
act ion occurs in t he last couple of days, wit h not hing much happening in t he first week. But t he
same phenomenont he daily doubling of t ribbleshas been going on t he whole t ime wit h no
accelerat ions or disrupt ions. This st eady exponent ial growt h is what s really int erest ing about
Eriks gift t o Andy. To make it more obvious, we have t o change t he spacing of t he numbers
on t he graph.
The graph weve already drawn has st andard linear spacing; each segment of t he vert ical
axis indicat es t wo t housand more t ribbles. This is fine for many purposes but , as weve seen,
it s not great for showing exponent ial growt h. To highlight it bet t er, well change t o logarit hmic
spacing, where each segment of t he vert ical axis represent s a t enfold increase in t ribbles: an
increase first from 1 t o 10, t hen from 10 t o 100, t hen from 100 t o 1,000, and so on. In ot her
words, we scale t he axis by powers of 10 or orders of magnit ude.
Logarit hmic graphs have a wonderful propert y: t hey show exponent ial growt h as a perfect ly
st raight line. Heres what t he growt h of Andys t ribble family looks like on a logarit hmic scale:
FI GURE 3. 2 Tri bbl es over Ti me: The Power of Const ant Doubl i ng
This view emphasizes t he st eadiness of t he doubling over t ime rat her t han t he large
numbers at t he end. Because of t his, we oft en use logarit hmic scales for graphing doublings
and ot her exponent ial growt h series. They show up as st raight lines and t heir speed is easier
t o evaluat e; t he bigger t he exponent , t he fast er t hey grow, and t he st eeper t he line.
Impoverished Emperors, Headless Inventors, and the Second Half of the
Chessboard
Our brains are not well equipped t o underst and sust ained exponent ial growt h. In part icular, we
severely underest imat e how big t he numbers can get . Invent or and fut urist Ray Kurzweil ret ells
an old st ory t o drive t his point home. The game of chess originat ed in present -day India during
t he sixt h cent ury CE, t he t ime of t he Gupt a Empire.
7
As t he st ory goes, it was invent ed by a
very clever man who t raveled t o Pat aliput ra, t he capit al cit y, and present ed his brainchild t o t he
emperor. The ruler was so impressed by t he difficult , beaut iful game t hat he invit ed t he
invent or t o name his reward.
The invent or praised t he emperors generosit y and said, All I desire is some rice t o feed my
family. Since t he emperors largess was spurred by t he invent ion of chess, t he invent or
suggest ed t hey use t he chessboard t o det ermine t he amount of rice he would be given. Place
one single grain of rice on t he first square of t he board, t wo on t he second, four on t he t hird,
and so on, t he invent or proposed, so t hat each square receives t wice as many grains as t he
previous.
Make it so, t he emperor replied, impressed by t he invent ors apparent modest y.
Moores Law and t he t ribble exercise allow us t o see what t he emperor did not : sixt y-t hree
inst ances of doubling yields a fant ast ically big number, even when st art ing wit h a single unit . If
his request were fully honored, t he invent or would wind up wit h 2
64 1
, or more t han eight een
quint illion grains of rice. A pile of rice t his big would dwarf Mount Everest ; it s more rice t han has
been produced in t he hist ory of t he world. Of course, t he emperor could not honor such a
request . In some versions of t he st ory, once he realizes t hat hes been t ricked, he has t he
invent or beheaded.
Kurzweil t ells t he st ory of t he invent or and t he emperor in his 2000 book The Age of Spiritual
Machines: When Computers Exceed Human Intelligence. He aims not only t o illust rat e t he
power of sust ained exponent ial growt h but also t o highlight t he point at which t he numbers
st art t o become so big t hey are inconceivable:
After thirty-two squares, the emperor had given the inventor about 4 billion grains of rice. Thats a reasonable
quantityabout one large fields worthand the emperor did start to take notice.
But the emperor could still remain an emperor. And the inventor could still retain his head. It was as they headed
into the second half of the chessboard that at least one of them got into trouble.
8
Kurzweils great insight is t hat while numbers do get large in t he first half of t he chessboard,
we st ill come across t hem in t he real world. Four billion does not necessarily out st rip our
int uit ion. We experience it when harvest ing grain, assessing t he fort unes of t he worlds richest
people t oday, or t allying up nat ional debt levels. In t he second half of t he chessboard, however
as numbers mount int o t rillions, quadrillions, and quint illionswe lose all sense of t hem. We
also lose sense of how quickly numbers like t hese appear as exponent ial growt h cont inues.
Kurzweils dist inct ion bet ween t he first and second halves of t he chessboard inspired a
quick calculat ion. Among many ot her t hings, t he U.S. Bureau of Economic Analysis (BEA) t racks
American companies expendit ures. The BEA first not ed informat ion t echnology as a dist inct
corporat e invest ment cat egory in 1958. We t ook t hat year as t he st art ing point for when
Moores Law ent ered t he business world, and used eight een mont hs as t he doubling period.
Aft er t hirt y-t wo of t hese doublings, U.S. businesses ent ered t he second half of t he chessboard
when it comes t o t he use of digit al gear. That was in 2006.
Of course, t his calculat ion is just a fun lit t le exercise, not anyt hing like a serious at t empt t o
ident ify t he one point at which everyt hing changed in t he world of corporat e comput ing. You
could easily argue wit h t he st art ing point of 1958 and a doubling period of eight een mont hs.
Changes t o eit her assumpt ion would yield a different break point bet ween t he first and second
halves of t he chessboard. And business t echnologist s were not only innovat ing in t he second
half; as well discuss lat er, t he breakt hroughs of t oday and t omorrow rely on, and would be
impossible wit hout , t hose of t he past .
We present t his calculat ion here because it underscores an import ant idea: t hat exponent ial
growt h event ually leads t o st aggeringly big numbers, ones t hat leave our int uit ion and
experience behind. In ot her words, t hings get weird in t he second half of t he chessboard. And
like t he emperor, most of us have t rouble keeping up.
One of t he t hings t hat set s t he second machine age apart is how quickly t hat second half of
t he chessboard can arrive. Were not claiming t hat no ot her t echnology has ever improved
exponent ially. In fact , aft er t he one-t ime burst of improvement in t he st eam engine Wat t s
innovat ions creat ed, addit ional t inkering led t o exponent ial improvement over t he ensuing t wo
hundred years. But t he exponent s were relat ively small, so it only went t hrough about t hree or
four doublings in efficiency during t hat period.
9
It would t ake a millennium t o reach t he second
half of t he chessboard at t hat rat e. In t he second machine age, t he doublings happen much
fast er and exponent ial growt h is much more salient .
Second-Half Technologies
Our quick doubling calculat ion also helps us underst and why progress wit h digit al t echnologies
feels so much fast er t hese days and why weve seen so many recent examples of science
fict ion becoming business realit y. It s because t he st eady and rapid exponent ial growt h of
Moores Law has added up t o t he point t hat were now in a different regime of comput ing:
were now in t he second half of t he chessboard. The innovat ions we described in t he previous
chapt ercars t hat drive t hemselves in t raffic; Jeopardy!-champion supercomput ers; aut o-
generat ed news st ories; cheap, flexible fact ory robot s; and inexpensive consumer devices t hat
are simult aneously communicat ors, t ricorders, and comput ershave all appeared since 2006,
as have count less ot her marvels t hat seem quit e different from what came before.
One of t he reasons t heyre all appearing now is t hat t he digit al gear at t heir heart s is finally
bot h fast and cheap enough t o enable t hem. This wasnt t he case just a decade ago. What
does digit al progress look like on a logarit hmic scale? Let s t ake a look.
FI GURE 3. 3 The Many Di mensi ons of Moores Law
This graph shows t hat Moores Law is bot h consist ent and broad; it s been in force for a long
t ime (decades, in some cases) and applies t o many t ypes of digit al progress. As you look at it ,
keep in mind t hat if it used st andard linear scaling on t he vert ical axis, all of t hose st raight -ish
lines would look like t he first graph above of Andys t ribble familyhorizont al most of t he way,
t hen suddenly close t o vert ical at t he end. And t here would really be no way t o graph t hem all
t oget hert he numbers involved are just t oo different . Logarit hmic scaling t akes care of t hese
issues and allows us t o get a clear overall pict ure of improvement in digit al gear.
It s clear t hat many of t he crit ical building blocks of comput ingmicrochip densit y,
processing speed, st orage capacit y, energy efficiency, download speed, and so onhave been
improving at exponent ial rat es for a long t ime. To underst and t he real-world impact s of
Moores Law, let s compare t he capabilit ies of comput ers separat ed by only a few doubling
periods. The ASCI Red, t he first product of t he U.S. government s Accelerat ed St rat egic
Comput ing Init iat ive, was t he worlds fast est supercomput er when it was int roduced in 1996. It
cost $55 million t o develop and it s one hundred cabinet s occupied nearly 1,600 square feet of
floor space (80 percent of a t ennis court ) at Sandia Nat ional Laborat ories in New Mexico.
10
Designed for calculat ion-int ensive t asks like simulat ing nuclear t est s, ASCI Red was t he first
comput er t o score above one t eraflopone t rillion float ing point operat ions* per secondon
t he st andard benchmark t est for comput er speed. To reach t his speed it used eight hundred
kilowat t s per hour, about as much as eight hundred homes would. By 1997, it had reached 1.8
t eraflops.
Nine years lat er anot her comput er hit 1.8 t eraflops. But inst ead of simulat ing nuclear
explosions, it was devot ed t o drawing t hem and ot her complex graphics in all t heir realist ic,
real-t ime, t hree-dimensional glory. It did t his not for physicist s, but for video game players. This
comput er was t he Sony PlaySt at ion 3, which mat ched t he ASCI Red in performance, yet cost
about five hundred dollars, t ook up less t han a t ent h of a square met er, and drew about t wo
hundred wat t s.
11
In less t han t en years exponent ial digit al progress brought t eraflop calculat ing
power from a single government lab t o living rooms and college dorms all around t he world. The
PlaySt at ion 3 sold approximat ely 64 million unit s. The ASCI Red was t aken out of service in
2006.
Exponent ial progress has made possible many of t he advances discussed in t he previous
chapt er. IBMs Wat son draws on a plet hora of clever algorit hms, but it would be uncompet it ive
wit hout comput er hardware t hat is about one hundred t imes more powerful t han Deep Blue, it s
chess-playing predecessor t hat beat t he human world champion, Garry Kasparov, in a 1997
mat ch. Speech recognit ion applicat ions like Siri require lot s of comput ing power, which became
available on mobile phones like Apples iPhone 4S (t he first phone t hat came wit h Siri inst alled).
The iPhone 4S was about as powerful, in fact , as Apples t op-of-t he-line Powerbook G4 lapt op
had been a decade earlier. As all of t hese innovat ions show, exponent ial progress allows
t echnology t o keep racing ahead and makes science fict ion realit y in t he second half of t he
chessboard.
Not Just for Computers Anymore: The Spread of Moores Law
Anot her comparison across comput er generat ions highlight s not only t he power of Moores
Law but also it s wide reach. As is t he case wit h t he ASCI Red and t he PlaySt at ion 3, t he Cray-
2 supercomput er (int roduced in 1985) and iPad 2 t ablet (int roduced in 2011) had almost
ident ical peak calculat ion speeds. But t he iPad also had a speaker, microphone, and
headphone jack. It had t wo cameras; t he one on t he front of t he device was Video Graphics
Array (VGA) qualit y, while t he one on t he back could capt ure high-definit ion video. Bot h could
also t ake st ill phot ographs, and t he back camera had a 5x digit al zoom. The t ablet had
receivers t hat allowed it t o part icipat e in bot h wireless t elephone and Wi-Fi net works. It also
had a GPS receiver, digit al compass, acceleromet er, gyroscope, and light sensor. It had no built -
in keyboard, relying inst ead on a high-definit ion t ouch screen t hat could t rack up t o eleven
point s of cont act simult aneously.
12
It fit all of t his capabilit y int o a device t hat cost much less
t han $1,000 and was smaller, t hinner, and light er t han many magazines. The Cray-2, which
cost more t han $35 million (in 2011 dollars), was by comparison deaf, dumb, blind, and
immobile.
13
Apple was able t o cram all of t his funct ionalit y in t he iPad 2 because a broad shift has t aken
place in recent decades: sensors like microphones, cameras, and acceleromet ers have moved
from t he analog world t o t he digit al one. They became, in essence, comput er chips. As t hey did
so, t hey became subject t o t he exponent ial improvement t raject ories of Moores Law.
Digit al gear for recording sounds was in use by t he 1960s, and an East man Kodak engineer
built t he first modern digit al camera in 1975.
14
Early devices were expensive and clunky, but
qualit y quickly improved and prices dropped. Kodaks first digit al single-lens reflex camera, t he
DCS 100, cost about $13,000 when it was int roduced in 1991; it had a maximum resolut ion of
1.3 megapixels and st ored it s images in a separat e, t en-pound hard drive t hat users slung over
t heir shoulders. However, t he pixels per dollar available from digit al cameras doubled about
every year (a phenomenon known as Hendys Law aft er Kodak Aust ralia employee Barry
Hendy, who document ed it ), and all relat ed gear got exponent ially smaller, light er, cheaper, and
bet t er over t ime.
15
Accumulat ed improvement in digit al sensors meant t hat t went y years aft er
t he DCS 100, Apple could include t wo t iny cameras, capable of bot h st ill and video
phot ography, on t he iPad 2. And when it int roduced a new iPad t he following year, t he rear
cameras resolut ion had improved by a fact or of more t han seven.
Machine Eyes
As Moores Law works over t ime on processors, memory, sensors, and many ot her element s of
comput er hardware (a not able except ion is bat t eries, which havent improved t heir
performance at an exponent ial rat e because t heyre essent ially chemical devices, not digit al
ones), it does more t han just make comput ing devices fast er, cheaper, smaller, and light er. It
also allows t hem t o do t hings t hat previously seemed out of reach.
Researchers in art ificial int elligence have long been fascinat ed (some would say obsessed)
wit h t he problem of simult aneous localizat ion and mapping, which t hey refer t o as SLAM. SLAM
is t he process of building up a map of an unfamiliar building as youre navigat ing t hrough it
where are t he doors? where are st airs? what are all t he t hings I might t rip over?and also
keeping t rack of where you are wit hin it (so you can find your way back downst airs and out t he
front door). For t he great majorit y of humans, SLAM happens wit h minimal conscious t hought .
But t eaching machines t o do it has been a huge challenge.
Researchers t hought a great deal about which sensors t o give a robot (cameras? lasers?
sonar?) and how t o int erpret t he reams of dat a t hey provide, but progress was slow. As a 2008
review of t he t opic summarized, SLAM is one of t he fundament al challenges of robot ics . . .
[but it ] seems t hat almost all t he current approaches can not perform consist ent maps for
large areas, mainly due t o t he increase of t he comput at ional cost and due t o t he uncert aint ies
t hat become prohibit ive when t he scenario becomes larger.
16
In short , sensing a sizable area
and immediat ely crunching all t he result ing dat a were t horny problems prevent ing real progress
wit h SLAM. Unt il, t hat is, a $150 video-game accessory came along just t wo years aft er t he
sent ences above were published.
In November 2010 Microsoft first offered t he Kinect sensing device as an addit ion t o it s Xbox
gaming plat form. The Kinect could keep t rack of t wo act ive players, monit oring as many as
t went y joint s on each. If one player moved in front of t he ot her, t he device made a best guess
about t he obscured persons movement s, t hen seamlessly picked up all joint s once he or she
came back int o view. Kinect could also recognize players faces, voices, and gest ures and do
so across a wide range of light ing and noise condit ions. It accomplished t his wit h digit al
sensors including a microphone array (which pinpoint ed t he source of sound bet t er t han a
single microphone could), a st andard video camera, and a dept h percept ion syst em t hat bot h
project ed and det ect ed infrared light . Several onboard processors and a great deal of
propriet ary soft ware convert ed t he out put of t hese sensors int o informat ion t hat game
designers could use.
17
At launch, all of t his capabilit y was packed int o a four-inch-t all device
less t han a foot wide t hat ret ailed for $149.99.
The Kinect sold more t han eight million unit s in t he sixt y days aft er it s release (more t han
eit her t he iPhone or iPad) and current ly holds t he Guinness World Record for t he fast est -
selling consumer elect ronics device of all t ime.
18
The init ial family of Kinect -specific games let
players play dart s, exercise, brawl in t he st reet s, and cast spells la Harry Pot t er.
19
These,
however, did not come close t o exhaust ing t he syst ems possibilit ies. In August of 2011 at t he
SIGGRAPH (short for t he Associat ion of Comput ing Machinerys Special Int erest Group on
Graphics and Int eract ive Techniques) conference in Vancouver, Brit ish Columbia, a t eam of
Microsoft employees and academics used Kinect t o SLAM t he door shut on a long-st anding
challenge in robot ics.
SIGGRAPH is t he largest and most prest igious gat hering devot ed t o research and pract ice
on digit al graphics, at t ended by researchers, game designers, journalist s, ent repreneurs, and
most ot hers int erest ed in t he field. This made it an appropriat e place for Microsoft t o unveil
what t he Creat ors Project websit e called The Self-Hack That Could Change Everyt hing.*
20
This was t he Kinect Fusion, a project t hat used t he Kinect t o t ackle t he SLAM problem.
In a video shown at SIGGRAPH 2011, a person picks up a Kinect and point s it around a
t ypical office cont aining chairs, a pot t ed plant , and a deskt op comput er and monit or.
21
As he
does, t he video split s int o mult iple screens t hat show what t he Kinect is able t o sense. It
immediat ely becomes clear t hat if t he Kinect is not complet ely solving t he SLAM problem for
t he room, it s coming close. In real t ime, Kinect draws a t hree-dimensional map of t he room and
all t he object s in it , including a coworker. It picks up t he word DELL pressed int o t he plast ic on
t he back of t he comput er monit or, even t hough t he let t ers are not colored and only one
millimet er deeper t hat t he rest of t he monit ors surface. The device knows where it is in t he
room at all t imes, and even knows how virt ual ping-pong balls would bounce around if t hey
were dropped int o t he scene. As t he t echnology blog Engadget put it in a post -SIGGRAPH
ent ry, The Kinect t ook 3D sensing t o t he mainst ream, and moreover, allowed researchers t o
pick up a commodit y product and go absolut ely nut s.
22
In June of 2011, short ly before SIGGRAPH, Microsoft had made available a Kinect soft ware
development kit (SDK) giving programmers everyt hing t hey needed t o st art writ ing PC
soft ware t hat made use of t he device. Aft er t he conference t here was a great deal of int erest
in using t he Kinect for SLAM, and many t eams in robot ics and AI research downloaded t he SDK
and went t o work.
In less t han a year, a t eam of Irish and American researchers led by our colleague John
Leonard of MITs Comput er Science and Art ificial Int elligence Lab announced Kint inuous, a
spat ially ext ended version of Kinect Fusion. Wit h Kint inuous, users could use a Kinect t o scan
large indoor volumes like apart ment buildings and even out door environment s (which t he t eam
scanned by holding a Kinect out side a car window during a night t ime drive). At t he end of t he
paper describing t heir work, t he Kint inuous researchers wrot e, In t he fut ure we will ext end t he
syst em t o implement a full SLAM approach.
23
We dont t hink it will be long unt il t hey announce
success. When given t o capable t echnologist s, t he exponent ial power of Moores Law
event ually makes even t he t oughest problems t ract able.
Cheap and powerful digit al sensors are essent ial component s of some of t he science-fict ion
t echnologies discussed in t he previous chapt er. The Baxt er robot has mult iple digit al cameras
and an array of force and posit ion det ect ors. All of t hese would have been unworkably
expensive, clunky, and imprecise just a short t ime ago. A Google aut onomous car incorporat es
several sensing t echnologies, but it s most import ant eye is a Cyclopean LIDAR (a combinat ion
of LIght and raDAR) assembly mount ed on t he roof. This rig, manufact ured by Velodyne,
cont ains sixt y-four separat e laser beams and an equal number of det ect ors, all mount ed in a
housing t hat rot at es t en t imes a second. It generat es about 1.3 million dat a point s per second,
which can be assembled by onboard comput ers int o a real-t ime 3D pict ure ext ending one
hundred met ers in all direct ions. Some early commercial LIDAR syst ems available around t he
year 2000 cost up t o $35 million, but in mid-2013 Velodynes assembly for self-navigat ing
vehicles was priced at approximat ely $80,000, a figure t hat will fall much furt her in t he fut ure.
David Hall, t he companys founder and CEO, est imat es t hat mass product ion would allow his
product s price t o drop t o t he level of a camera, a few hundred dollars.
24
All t hese examples illust rat e t he first element of our t hree-part explanat ion of why were now
in t he second machine age: st eady exponent ial improvement has brought us int o t he second
half of t he chessboardint o a t ime when what s come before is no longer a part icularly reliable
guide t o what will happen next . The accumulat ed doubling of Moores Law, and t he ample
doubling st ill t o come, gives us a world where supercomput er power becomes available t o t oys
in just a few years, where ever-cheaper sensors enable inexpensive solut ions t o previously
int ract able problems, and where science fict ion keeps becoming realit y.
Somet imes a difference in degree (in ot her words, more of t he same) becomes a difference
in kind (in ot her words, different t han anyt hing else). The st ory of t he second half of t he
chessboard alert s us t hat we should be aware t hat enough exponent ial progress can t ake us
t o ast onishing places. Mult iple recent examples convince us t hat were already t here.
* Since 2
9
= 512
* Multiplying 62.34 by 24358.9274 is an example of a floating point operation. The decimal point in such operations is
allowed to float instead of being fixed in the same place for both numbers.
* In this context, a hack is an effort to get inside the guts of a piece of digital gear and use it for an unorthodox purpose.
A self-hack is one carried out by the company that made the gear in the first place.
When you can measure what you are speaking about, and express it in numbers, you know something about it; but
when you cannot express it in numbers, your knowledge is of a meagre and unsatisfactory kind.
Lord Kelvin
HEY, HAVE YOU HEARD about . . . ?
Youve got t o check out . . .
Quest ions and recommendat ions like t hese are t he st uff of everyday life. Theyre how we
learn about new t hings from our friends, family, and colleagues, and how we spread t he word
about excit ing t hings weve come across. Tradit ionally, such cool hunt ing ended wit h t he name
of a band, rest aurant , place t o visit , TV show, book, or movie.
In t he digit al age, sent ences like t hese frequent ly end wit h t he name of a websit e or a
gadget . And right now, t heyre oft en about a smart phone applicat ion. Bot h of t he major
t echnology plat forms in t his market Apples iOS and Googles Androidhave more t han five
hundred t housand applicat ions available.
1
There are plent y of Top 10 and Best of list s
available t o help users find t he cream of t he smart phone app crop, but t radit ional word of
mout h has ret ained it s power.
Not long ago Mat t Beane, a doct oral st udent at t he MIT Sloan School of Management and a
member of our Digit al Front ier t eam, gave us a t ip. Youve got t o check out Waze; it s
amazing. But when we found out it was a GPS-based app t hat provided driving direct ions, we
werent immediat ely impressed. Our cars have navigat ion syst ems and our iPhones can give
driving direct ions t hrough t he Maps applicat ion. We could not see a need for yet anot her how-
do-I-get -t here t echnology.
As Mat t pat ient ly explained, using Waze is like bringing a Ducat i t o a drag race against an
oxcart . Unlike t radit ional GPS navigat ion, Waze doesnt t ell you what rout e t o your dest inat ion
is best in general; it t ells you what rout e is best right now. As t he company websit e explains:
The idea for Waze originated years ago, when Ehud Shabtai . . . was given a PDA with an external GPS device pre-
installed with navigation software. Ehuds initial excitement quickly gave way to disappointmentthe product didnt
reflect the dynamic changes that characterize real conditions on the road. . . .
Ehud took matters into his own hands. . . . His goal? To accurately reflect the road system, state of traffic and all
the information relevant to drivers at any given moment.
2
Anyone who has used a t radit ional GPS syst em will recognize Shabt ais frust rat ion. Yes, t hey
know your precise locat ion t hanks t o a net work of t went y-four geosynchronous GPS sat ellit es
built and maint ained by t he U.S. government . They also know about roadswhich ones are
highways, one-way st reet s, and so onbecause t hey have access t o a dat abase wit h t his
informat ion. But t hat s about it . The t hings a driver really want s t o know about t raffic jams,
accident s, road closures, and ot her fact ors t hat affect t ravel t imeescape a t radit ional
syst em. When asked, for example, t o calculat e t he best rout e from Andys house t o Eriks, it
simply t akes t he st art ing point (Andys cars current locat ion) and t he ending point (Eriks
house) and consult s it s road dat abase t o calculat e t he t heoret ically quickest rout e bet ween
t he t wo. This rout e will include major roads and highways, since t hey have t he highest speed
limit s.
If it s rush hour, however, t his t heoret ically quickest rout e will not act ually be t he quickest
one; wit h t housands of cars squeezing ont o t he major roads and highways, t raffic speed will
not approach, let alone eclipse, t he speed limit . Andy should inst ead seek out all t he sneaky
lit t le back roads t hat longt ime commut ers know about . Andys GPS knows t hat t hese roads
exist (if it s up-t o-dat e, it knows about all roads), but doesnt know t hat t heyre t he best opt ion
at eight fort y-five on a Tuesday morning. Even if he st art s out on back roads, his well-meaning
GPS will keep rerout ing him ont o t he highway.
Shabt ai recognized t hat a t ruly useful GPS syst em needed t o know more t han where t he
car was on t he road. It also needed t o know where other cars were and how fast t hey were
moving. When t he first smart phones appeared he saw an opport unit y, founding Waze in 2008
along wit h Uri Levine and Amir Shinar. The soft wares genius is t o t urn all t he smart phones
running it int o sensors t hat upload const ant ly t o t he companys servers t heir locat ion and
speed informat ion. As more and more smart phones run t he applicat ion, t herefore, Waze get s a
more and more complet e sense of how t raffic is flowing t hroughout a given area. Inst ead of
just a st at ic map of roads, it also has always current updat es on t raffic condit ions. It s servers
use t he map, t hese updat es, and a set of sophist icat ed algorit hms t o generat e driving
direct ions. If Andy want s t o drive t o Eriks at 8:45 a.m. on a Tuesday, Waze is not going t o put
him on t he highway. It s going t o keep him on surface st reet s where t raffic is comparat ively
light at t hat hour.
That Waze get s more useful t o all of it s members as it get s more members is a classic
example of what economist s call a network effecta sit uat ion where t he value of a resource
for each of it s users increases wit h each addit ional user. And t he number of Wazers, as t heyre
called, is increasing quickly. In July of 2012 t he company report ed t hat it had doubled it s user
base t o t went y million people in t he previous six mont hs.
3
This communit y had collect ively
driven more t han 3.2 billion miles and had t yped in many t housands of updat es about
accident s, sudden t raffic jams, police speed t raps, road closings, new freeway exit s and
ent rances, cheap gas, and ot her it ems of int erest t o t heir fellow drivers.
Waze makes GPS what it should be for drivers: a syst em for get t ing where you want t o go
as quickly and easily as possible, regardless of how much you know about local roads and
condit ions. It inst ant ly t urns you int o t he most knowledgeable driver in t own.
The Economics of Bits
Waze is possible in no small part because of Moores Law and exponent ial t echnological
progress, t he subject s of t he previous chapt er. The service relies on vast numbers of powerful
but cheap devices (t he smart phones of it s users), each of t hem equipped wit h an array of
processors, sensors, and t ransmit t ers. Such t echnology simply didnt exist a decade ago, and
so neit her did Waze. It only became feasible in t he past few years because of accumulat ed
digit al power increases and cost declines. As we saw in chapt er 3, exponent ial improvement in
comput er gear is one of t he t hree fundament al forces enabling t he second machine age.
Waze also depends crit ically on t he second of t hese t hree forces: digit izat ion. In t heir
landmark 1998 book Information Rules, economist s Carl Shapiro and Hal Varian define t his
phenomenon as encod[ing informat ion] as a st ream of bit s.
4
Digit izat ion, in ot her words, is t he
work of t urning all kinds of informat ion and mediat ext , sounds, phot os, video, dat a from
inst rument s and sensors, and so onint o t he ones and zeroes t hat are t he nat ive language of
comput ers and t heir kin. Waze, for example, uses several st reams of informat ion: digit ized
st reet maps, locat ion coordinat es for cars broadcast by t he app, and alert s about t raffic jams,
among ot hers. It s Wazes abilit y t o bring t hese st reams t oget her and make t hem useful for it s
users t hat causes t he service t o be so popular.
We t hought we underst ood digit izat ion pret t y well based on t he work of Shapiro, Varian, and
ot hers, and based on our almost const ant exposure t o online cont ent , but in t he past few
years t he phenomenon has evolved in some unexpect ed direct ions. It has also exploded in
volume, velocit y, and variet y. This surge in digit izat ion has had t wo profound consequences:
new ways of acquiring knowledge (in ot her words, of doing science) and higher rat es of
innovat ion. This chapt er will explore t he fascinat ing recent hist ory of digit izat ion.
Like so many ot her modern online services, Waze exploit s t wo of t he well-underst ood and
unique economic propert ies of digit al informat ion: such informat ion is non-rival, and it has close
to zero marginal cost of reproduction. In everyday language, we might say t hat digit al
informat ion is not used up when it get s used, and it is ext remely cheap t o make anot her copy
of a digit ized resource. Let s look at each of t hese propert ies in a bit more det ail.
Rival goods, which we encount er every day, can only be consumed by one person or t hing at
a t ime. If t he t wo of us fly from Bost on t o California, t he plane t hat t akes off aft er us cannot
use our fuel. Andy cant also have t he seat t hat Erik is sit t ing in (airline rules prohibit such
sharing, even if we were up for it ) and cant use his colleagues headphones if Erik has already
put t hem on t o list en t o music on his smart phone. The digit ized music it self, however, is non-
rival. Eriks list ening t o it doesnt keep anyone else from doing so, at t he same t ime or lat er.
If Andy buys and reads an old hardcover copy of t he collect ed works of science-fict ion writ er
Jules Verne, he doesnt use it up; he can pass it on t o Erik once hes done. But if t he t wo of
us want t o dip int o Twenty Thousand Leagues Under the Sea at t he same t ime, we eit her
have t o find anot her copy or Andy has t o make a copy of t he book he owns. He might be
legally ent it led t o do t his because it s not under copyright , but hed st ill have t o spend a lot of
t ime at t he phot ocopier or pay someone else t o do so. In eit her case, making t hat copy would
not be cheap.
5
In addit ion, a phot ocopy of a phot ocopy of a phot ocopy st art s t o get hard t o
read.
But if Andy has acquired a digit al copy of t he book, wit h a couple keyst rokes or mouse clicks
he can creat e a duplicat e, save it t o a physical disk, and give t he copy t o Erik. Unlike
phot ocopies, bit s cloned from bit s are usually exact ly ident ical t o t he original. Copying bit s is
also ext remely cheap, fast , and easy t o do. While t he very first copy of a book or movie might
cost a lot t o creat e, making addit ional copies cost almost not hing. This is what is meant by
zero marginal cost of reproduct ion.
These days, of course, inst ead of handing Erik a disk, Andy is more likely t o at t ach t he file t o
an e-mail message or share it t hrough a cloud service like Dropbox. One way or anot her,
t hough, hes going t o use t he Int ernet . Hell t ake t his approach because it s fast er, more
convenient , and, in an import ant sense, essent ially free. Like most people, we pay a flat fee for
Int ernet access at home and on our mobile devices (MIT pays for our access at work). If we
exceed a cert ain dat a limit , our Int ernet Service Provider might st art charging us ext ra, but unt il
t hat point we dont pay by t he bit ; we pay t he same no mat t er how many bit s we upload or
download. As such, t heres no addit ional cost for sending or receiving one more chunk of dat a
over t he Net . Unlike goods made of at oms, goods made of bit s can be replicat ed perfect ly and
sent across t he room or across t he planet almost inst ant aneously and almost cost lessly.
Making t hings free, perfect , and inst ant might seem like unreasonable expect at ions for most
product s, but as more informat ion is digit ized, more product s will fall int o t hese cat egories.
Business Models When the First Copy is Still Expensive
Shapiro and Varian elegant ly summarize t hese at t ribut es by st at ing t hat in an age of
comput ers and net works, Informat ion is cost ly t o produce but cheap t o reproduce.
6
Inst ant aneous online t ranslat ion services, one of t he science-fict ion-int o-realit y t echnologies
discussed in chapt er 2, t ake advant age of t his fact . They make use of paired set s of
document s t hat were t ranslat ed, oft en at considerable expense, by a human from one
language int o anot her. For example, t he European Union and it s predecessor bodies have
since 1957 issued all official document s in all t he main languages of it s member count ries, and
t he Unit ed Nat ions has been similarly prolific in writ ing t ext s in all six of it s official languages.
This huge body of informat ion was not cheap t o generat e, but once it s digit ized it s very
cheap t o replicat e, chop up, and share widely and repeat edly. This is exact ly what a service like
Google Translat e does. When it get s an English sent ence and a request for it s German
equivalent , it essent ially scans all t he document s it knows about in bot h English and German,
looking for a close mat ch (or a few fragment s t hat add up t o a close mat ch), t hen ret urns t he
corresponding German t ext . Todays most advanced aut omat ic t ranslat ion services, t hen, are
not t he result of any recent insight about how t o t each comput ers all t he rules of human
languages and how t o apply t hem. Inst ead, t heyre applicat ions t hat do st at ist ical pat t ern
mat ching over huge pools of digit al cont ent t hat was cost ly t o produce, but cheap t o
reproduce.
What Happens When the Content Comes Freely?
But what would happen t o t he digit al world if informat ion were no longer cost ly t o produce?
What would happen if it were free right from t he st art ? Weve been learning t he answers t o
t hese quest ions in t he years since Information Rules came out , and t heyre highly encouraging.
The old business saying is t hat t ime is money, but what s amazing about t he modern
Int ernet is how many people are willing t o devot e t heir t ime t o producing online cont ent
wit hout seeking any money in ret urn. Wikipedias cont ent , for example, is generat ed for free by
volunt eers all around t he world. It s by far t he worlds largest and most consult ed reference
work, but no one get s paid t o writ e or edit it s art icles. The same is t rue for count less websit es,
blogs, discussion boards, forums, and ot her sources of online informat ion. Their creat ors expect
no direct monet ary reward and offer t he informat ion free of charge.
When Shapiro and Varian published Information Rules in 1998, t he rise of such user-
generat ed cont ent , much of which is creat ed wit hout money changing hands, had yet t o occur.
Blogger, one of t he first weblog services, debut ed in August 1999, Wikipedia in January 2001,
and Friendst er, an early social net working sit e, in 2002. Friendst er was soon eclipsed by
Facebook, which was founded in 2004 and has since grown int o t he most popular Int ernet sit e
in t he world.
7
In fact , six of t he t en most popular cont ent sit es t hroughout t he world are
primarily user-generat ed, as are six of t he t op t en in t he Unit ed St at es.
8
All t his user-generat ed cont ent isnt just making us feel good by let t ing us express ourselves
and communicat e wit h one anot her; it s also cont ribut ing t o some of t he recent science-fict ion-
int o-realit y t echnologies weve seen. Siri, for example, improves it self over t ime by analyzing
t he ever-larger collect ion of sound files it s users generat e when int eract ing wit h t he voice
recognit ion syst em. And Wat sons dat abase, which consist ed of approximat ely t wo hundred
million pages of document s t aking up four t erabyt es of disk space, included an ent ire copy of
Wikipedia.
9
For a while it also included t he salt y languagefilled Urban Dict ionary, but t his
archive of user-generat ed cont ent was removed aft er, t o t he dismay of it s creat ors, Wat son
st art ed t o include curse words in it s responses.
10
Perhaps we shouldnt be t oo surprised by t he growt h and popularit y of user-generat ed
cont ent on t he Int ernet . Aft er all, we humans like t o share and int eract . What s a bit more
surprising is how much our machines also apparent ly like t alking t o each ot her.
Machine-t o-machine (M2M) communicat ion is a cat ch-all t erm for devices sharing dat a wit h
one anot her over net works like t he Int ernet . Waze makes use of M2M; when t he app is act ive
on a smart phone, it const ant ly sends informat ion t o Wazes servers wit hout any human
involvement . Similarly, when you search t he popular t ravel sit e Kayak for cheap airfares,
Kayaks servers immediat ely send request s t o t heir count erpart s at various airlines, which writ e
back in real t ime wit hout any human involvement . ATMs ask t heir banks how much money we
have in our account s before let t ing us wit hdraw cash; digit al t hermomet ers in refrigerat ed
t rucks const ant ly reassure supermarket s t hat t he produce isnt get t ing t oo hot in t ransit ;
sensors in semiconduct or fact ories let headquart ers know every t ime a defect occurs; and
count less ot her M2M communicat ions t ake place in real t ime, all t he t ime. According t o a July
2012 st ory in t he New York Times, The combined level of robot ic chat t er on t he worlds
wireless net works . . . is likely soon t o exceed t hat generat ed by t he sum of all human voice
conversat ions t aking place on wireless grids.
11
Running Out of Metric System: The Data Explosion
The digit izat ion of just about everyt hingdocument s, news, music, phot os, video, maps,
personal updat es, social net works, request s for informat ion and responses t o t hose request s,
dat a from all kinds of sensors, and so onis one of t he most import ant phenomena of recent
years. As we move deeper int o t he second machine age, digit izat ion cont inues t o spread and
accelerat e, yielding some jaw-dropping st at ist ics. According t o Cisco Syst ems, worldwide
Int ernet t raffic increased by a fact or of t welve in just t he five years bet ween 2006 and 2011,
reaching 23.9 exabyt es per mont h.
12
An exabyte is a ridiculously big number, t he equivalent of more t han t wo hundred t housand
of Wat sons ent ire dat abase. However, even t his is not enough t o capt ure t he magnit ude of
current and fut ure digit izat ion. Technology research firm IDC est imat es t hat t here were 2.7
zet t abyt es, or 2.7 sext illion byt es, of digit al dat a in t he world in 2012, almost half as much again
as exist ed in 2011. And t his dat a wont just sit on disk drives; it ll also move around. Cisco
predict s t hat global Int ernet Prot ocol t raffic will reach 1.3 zet t abyt es by 2016.
13
That s over 250
billion DVDs of informat ion.
14
As t hese figures make clear, digit izat ion yields t ruly big dat a. In fact , if t his kind of growt h
keeps up for much longer were going t o run out of met ric syst em. When it s set of prefixes was
expanded in 1991 at t he ninet eent h General Conference on Weight s and Measures, t he
largest one was yotta, signifying one sept illion, or 10
24
.
15
Were only one prefix away from t hat in
t he zet t abyt e era.
Binary Science
The recent explosion of digit izat ion is clearly impressive, but is it import ant ? Are all of t hese
exa- and zet t abyt es of digit al dat a act ually useful?
Theyre incredibly useful. One of t he main reasons we cit e digit izat ion as a main force
shaping t he second machine age is t hat digit izat ion increases underst anding. It does t his by
making huge amount s of dat a readily accessible, and dat a are t he lifeblood of science. By
science here, we mean t he work of formulat ing t heories and hypot heses, t hen evaluat ing
t hem. Or, less formally, guessing how somet hing works, t hen checking t o see if t he guess is
right .
A while back Erik guessed t hat dat a about Int ernet searches might signal fut ure changes in
housing sales and prices around t he count ry. He reasoned t hat if a couple is going t o move t o
anot her cit y and buy a house, t hey are not going t o complet e t he process in just a few days.
Theyre going t o st art invest igat ing t he move and purchase mont hs in advance. These days
t hose init ial invest igat ions will t ake place over t he Int ernet and consist of t yping int o a search
engine phrases like Phoenix real est at e agent , Phoenix neighborhoods, and Phoenix t wo-
bedroom house prices.
To t est t his hypot hesis, Erik asked Google if he could access dat a about it s search t erms.
He was t old t hat he didnt have t o ask; t he company made t hese dat a freely available over t he
Web. Erik and his doct oral st udent Lynn Wu, neit her of whom was versed in t he economics of
housing, built a simple st at ist ical model t o look at t he dat a ut ilizing t he user-generat ed cont ent
of search t erms made available by Google. Their model linked changes in search-t erm volume
t o lat er housing sales and price changes, predict ing t hat if search t erms like t he ones above
were on t he increase t oday, t hen housing sales and prices in Phoenix would rise t hree mont hs
from now. They found t heir simple model worked. In fact , it predict ed sales 23.6 percent more
accurat ely t han predict ions published by t he expert s at t he Nat ional Associat ion of Realt ors.
Researchers have had similar success using newly available digit al dat a in ot her domains. A
t eam led by Rumi Chunara of Harvard Medical School found t hat t weet s were just as accurat e
as official report s when it came t o t racking t he spread of cholera aft er t he 2010 eart hquake in
Hait i; t hey were also at least t wo weeks fast er.
16
Sit aram Asur and Bernardo Huberman of HPs
Social Comput ing Lab found t hat t weet s could also be used t o predict movie box-office
revenue. They concluded t hat t his work shows how social media expresses a collect ive
wisdom which, when properly t apped, can yield an ext remely powerful and accurat e indicat or of
fut ure out comes.
17
Digit izat ion can also help us bet t er underst and t he past . As of March 2012 Google had
scanned more t han t went y million books published over several cent uries.
18
This huge pool of
digit al words and phrases forms a base for what s being called culturomics, or t he applicat ion
of high-t hroughput dat a collect ion and analysis t o t he st udy of human cult ure.
19
A
mult idisciplinary t eam led by Jean-Bapt ist e Michel and Erez Lieberman Aiden analyzed over
five million books published in English since 1800. Among ot her t hings, t hey found t hat t he
number of words in English increased by more t han 70 percent bet ween 1950 and 2000, t hat
fame now comes t o people more quickly t han in t he past but also fades fast er, and t hat in t he
t went iet h cent ury int erest in evolut ion was declining unt il Wat son and Crick discovered t he
st ruct ure of DNA.
20
All of t hese are examples of bet t er underst anding and predict ionin ot her words, of bet t er
sciencevia digit izat ion. Hal Varian, whos now Googles chief economist , has for years
enjoyed a front -row seat for t his phenomenon. He also has a way wit h words. One of our
favorit e quot es of his is, I keep saying t hat t he sexy job in t he next t en years will be
st at ist icians. And Im not kidding.
21
When we look at t he amount of digit al dat a being creat ed
and t hink about how much more insight t here is t o be gained, were pret t y sure hes not wrong,
eit her.
New Layers Yield New Recipes
Digit al informat ion isnt just t he lifeblood for new kinds of science; it s t he second fundament al
force (aft er exponent ial improvement ) shaping t he second machine age because of it s role in
fost ering innovat ion. Waze is a great example here. The service is built on mult iple layers and
generat ions of digit izat ion, none of which have decayed or been used up since digit al goods
are non-rival.
The first and oldest layer is digit al maps, which are at least as old as personal comput ers.
22
The second is GPS locat ion informat ion, which became much more useful for driving when t he
U.S. government increased it s GPS accuracy in 2000.
23
The t hird is social dat a; Waze users
help each ot her by providing informat ion on everyt hing from accident s t o police speed t raps t o
cheap gas; t hey can even use t he app t o chat wit h one anot her. And finally, Waze makes
ext ensive use of sensor dat a; in fact , it essent ially convert s every car using it int o a t raffic-
speed sensor and uses t hese dat a t o calculat e t he quickest rout es.
In-car navigat ion syst ems t hat use only t he first t wo generat ions of digit al dat amaps and
GPS locat ion informat ionhave been around for a while. They can be ext remely useful,
especially in unfamiliar cit ies, but as weve seen, t hey have serious short comings. The founders
of Waze realized t hat as digit izat ion advanced and spread t hey could overcome t he
short comings of t radit ional GPS navigat ion. These innovat ors made progress by adding social
and sensor dat a t o an exist ing syst em, great ly increasing it s power and usefulness. As well
see in t he next chapt er, t his st yle of innovat ion is one of t he hallmarks of our current t ime. It s
so import ant , in fact , t hat it s t he t hird and last of t he forces shaping t he second machine age.
The next chapt er explains why t his is.
If you want to have good ideas you must have many ideas.
Linus Pauling
EVERYONE AGREES THAT I T would be t roubling news if Americas rat e of innovat ion were t o decrease.
But we cant seem t o agree at all about whet her t his is act ually happening.
We care about innovat ion so much not simply because we like new st uff, alt hough we
cert ainly do. As t he novelist William Makepeace Thackeray observed, Novelt y has charms t hat
our mind can hardly wit hst and.
1
Some of us can hardly wit hst and t he allure of new gadget s;
ot hers are charmed by t he lat est fashion st yles or places t o see and be seen. From an
economist s perspect ive, sat isfying t hese desires is great t aking care of consumer demand is
usually seen as a good t hing. But innovat ion is also t he most import ant force t hat makes our
societ y wealt hier.
Why Innovation is (Almost) Everything
Paul Krugman speaks for many, if not most , economist s when he says, Product ivit y isnt
everyt hing, but in t he long run it is almost everyt hing. Why? Because, he explains, A count rys
abilit y t o improve it s st andard of living over t ime depends almost ent irely on it s abilit y t o raise
it s out put per workerin ot her words, t he number of hours of labor it t akes t o produce
everyt hing, from aut omobiles t o zippers, t hat we produce.
2
Most count ries dont have
ext ensive mineral wealt h or oil reserves, and t hus cant get rich by export ing t hem.* So t he only
viable way for societ ies t o become wealt hiert o improve t he st andard of living available t o it s
peopleis for t heir companies and workers t o keep get t ing more out put from t he same
number of input s, in ot her words more goods and services from t he same number of people.
Innovat ion is how t his product ivit y growt h happens. Economist s love t o argue wit h one
anot her, but t heres great consensus among t hem about t he fundament al import ance of
innovat ion for growt h and prosperit y. Most in t he profession would agree wit h Joseph
Schumpet er, t he t opics great scholar, who wrot e t hat , Innovat ion is t he out st anding fact in
t he economic hist ory of capit alist societ y . . . and also it is largely responsible for most of what
we would at first sight at t ribut e t o ot her fact ors.
3
It is here t hat t he consensus ends. How
much of t his out st anding fact is t aking place right now, and whet her it s on an upward or
downward t rend, is a mat t er of great disput e.
Why We Should Be Worried: Innovations Get Used Up
Economist Bob Gordon, one of t he most t hought ful, t horough, and widely respect ed
researchers of product ivit y and economic growt h, recent ly complet ed a major st udy of how t he
American st andard of living has changed over t he past 150 years. His work left him convinced
t hat innovat ion is slowing down.
Gordon emphasizesas do wet he role of new t echnologies in driving economic growt h.
And like us, hes impressed by t he product ive power unleashed by t he st eam engine and t he
ot her t echnologies of t he Indust rial Revolut ion. According t o Gordon, it was t he first t ruly
significant event in t he economic hist ory of t he world. As he writ es, t here was almost no
economic growt h for four cent uries and probably for t he previous millennium prior t o 1750, or
roughly when t he Indust rial Revolut ion st art ed.
4
As we saw in t he first chapt er, human
populat ion growt h and social development were very nearly flat unt il t he st eam engine came
along. Unsurprisingly, it t urns out t hat economic growt h was, t oo.
As Gordon shows, however, once t his growt h got st art ed it st ayed on a sharp upward
t raject ory for t wo hundred years. This was due not only t o t he original Indust rial Revolut ion, but
also t o a second one, it t oo reliant on t echnological innovat ion. Three novelt ies were cent ral
here: elect ricit y, t he int ernal combust ion engine, and indoor plumbing wit h running wat er, all of
which came ont o t he scene bet ween 1870 and 1900.
The great invent ions of t his second indust rial revolut ion, in Gordons est imat ion, were so
import ant and far-reaching t hat t hey t ook a full 100 years t o have t heir main effect . But once
t hat effect had been realized, a new problem emerged. Growt h st alled out , and even began t o
decline. At t he risk of being flippant , when t he st eam engine ran out of st eam, t he int ernal
combust ion engine was t here t o replace it . But once t he int ernal combust ion engine ran out of
fuel, we werent left wit h much. To use Gordons words,
The growth of productivity (output per hour) slowed markedly after 1970. While puzzling at the time, it seems
increasingly clear that the one-time-only benefits of the Great Inventions and their spin-offs had occurred and could
not happen again. . . . All that remained after 1970 were second-round improvements, such as developing short-
haul regional jets, extending the original interstate highway network with suburban ring roads, and converting
residential America from window unit air conditioners to central air conditioning.
5
Gordon is far from alone in t his view. In his 2011 book The Great Stagnation, economist Tyler
Cowen is definit ive about t he source of Americas economic woes:
We are failing to understand why we are failing. All of these problems have a single, little noticed root cause: We
have been living off low-hanging fruit for at least three hundred years. . . . Yet during the last forty years, that low-
hanging fruit started disappearing, and we started pretending it was still there. We have failed to recognize that we
are at a technological plateau and the trees are more bare than we would like to think.
6
General Purpose Technologies: The Ones That Really Matter
Clearly, Gordon and Cowen see t he invent ion of powerful t echnologies as cent ral t o economic
progress. Indeed, t heres broad agreement among economic hist orians t hat some t echnologies
are significant enough t o accelerat e t he normal march of economic progress. To do t his, t hey
have t o spread t hroughout many, if not most , indust ries; t hey cant remain in just one. The
cot t on gin, for example, was unquest ionably import ant wit hin t he t ext ile sect or at t he st art of
t he ninet eent h cent ury, but pret t y insignificant out side of it .*
The st eam engine and elect rical power, by cont rast , quickly spread just about everywhere.
The st eam engine didnt just massively increase t he amount of power available t o fact ories
and free t hem from t he need t o be locat ed near a st ream or river t o power t he wat er wheel; it
also revolut ionized land t ravel by enabling railroads and sea t ravel via t he st eamship. Elect ricit y
gave a furt her boost t o manufact uring by enabling individually powered machines. It also lit
fact ories, office buildings, and warehouses and led t o furt her innovat ions like air condit ioning,
which made previously swelt ering workplaces pleasant .
Wit h t heir t ypical verbal flair, economist s call innovat ions like st eam power and elect ricit y
general purpose technologies (GPTs). Economic hist orian Gavin Wright offers a concise
definit ion: deep new ideas or t echniques t hat have t he pot ent ial for import ant impact s on
many sect ors of t he economy.
7
Impact s here mean significant boost s t o out put due t o large
product ivit y gains. GPTs are import ant because t hey are economically significant t hey
int errupt and accelerat e t he normal march of economic progress.
In addit ion t o agreeing on t heir import ance, scholars have also come t o a consensus on how
t o recognize GPTs: t hey should be pervasive, improving over t ime, and able t o spawn new
innovat ions.
8
The preceding chapt ers have built a case t hat digit al t echnologies meet all t hree
of t hese requirement s. They improve along a Moores Law t raject ory, are used in every indust ry
in t he world, and lead t o innovat ions like aut onomous cars and nonhuman Jeopardy!
champions. Are we alone in t hinking t hat informat ion and communicat ion t echnology (ICT)
belongs in t he same cat egory as st eam and elect ricit y? Are we t he only ones who t hink, in
short , t hat ICT is a GPT?
Absolut ely not . Most economic hist orians concur wit h t he assessment t hat ICT meet s all of
t he crit eria given above, and so should join t he club of general purpose t echnologies. In fact , in
a list of all t he candidat es for t his classificat ion compiled by t he economist Alexander Field, only
st eam power got more vot es t han ICT, which was t ied wit h elect ricit y as t he second most
commonly accept ed GPT.
9
If we are all in agreement , t hen why t he debat e over whet her ICTs are ushering in a new
golden age of innovat ion and growt h? Because, t he argument goes, t heir economic benefit s
have already been capt ured and now most new innovat ion involves ent ert aining ourselves
inexpensively online. According t o Robert Gordon:
The first industrial robot was introduced by General Motors in 1961. Telephone operators went away in the 1960s. .
. . Airline reservations systems came in the 1970s, and by 1980 bar-code scanners and cash machines were
spreading through the retail and banking industries. . . . The first personal computers arrived in the early 1980s with
their word processing, word wrap, and spreadsheets. . . . More recent and thus more familiar was the rapid
development of the web and e-commerce after 1995, a process largely completed by 2005.
10
At present , says Cowen, The gains of t he Int ernet are very real and I am here t o praise t hem,
not damn t hem. . . . St ill, t he overall pict ure is t his: We are having more fun, in part because of
t he Int ernet . We are also having more cheap fun. [But ] we are coming up short on t he revenue
side, so it is harder t o pay our debt s, whet her individuals, businesses, or government s.
11
Twent y-first cent ury ICT, in short , is failing t he prime t est of being economically significant .
Why We Shouldnt Be Worried: Innovations Dont Get Used Up
For any good scient ist , of course, dat a are t he ult imat e decider of hypot heses. So what do t he
dat a say here? Do t he product ivit y numbers back up t his pessimist ic view of t he power of
digit izat ion? Well get t o t he dat a in chapt er 7. First , t hough, we want t o present a very
different view of how innovat ion worksan alt ernat ive t o t he not ion t hat innovat ions get used
up.
Gordon writ es t hat it is useful t o t hink of t he innovat ive process as a series of discret e
invent ions followed by increment al improvement s which ult imat ely t ap t he full pot ent ial of t he
init ial invent ion.
12
This seems sensible enough. An invent ion like t he st eam engine or comput er
comes along and we reap economic benefit s from it . Those benefit s st art small while t he
t echnology is immat ure and not widely used, grow t o be quit e big as t he GPT improves and
propagat es, t hen t aper off as t he improvement and especially t he propagat iondie down.
When mult iple GPTs appear at t he same t ime, or in a st eady sequence, we sust ain high rat es
of growt h over a long period. But if t heres a big gap bet ween major innovat ions, economic
growt h will event ually pet er out . Well call t his t he innovat ion-as-fruit view of t hings, in honor of
Tyler Cowens imagery of all t he low-hanging fruit being picked. In t his perspect ive, coming up
wit h an innovat ion is like growing fruit , and exploit ing an innovat ion is like eat ing t he fruit over
t ime.
Anot her school of t hought , t hough, holds t hat t he t rue work of innovat ion is not coming up
wit h somet hing big and new, but inst ead recombining t hings t hat already exist . And t he more
closely we look at how major st eps forward in our knowledge and abilit y t o accomplish t hings
have act ually occurred, t he more t his recombinant view makes sense. For example, it s exact ly
how at least one Nobel Prizewinning innovat ion came about .
Kary Mullis won t he 1993 Nobel Prize in Chemist ry for t he development of t he polymerase
chain react ion (PCR), a now ubiquit ous t echnique for replicat ing DNA sequences. When t he
idea first came t o him on a night t ime drive in California, t hough, he almost dismissed it out of
hand. As he recount ed in his Nobel Award speech, Somehow, I t hought , it had t o be an illusion.
. . . It was t oo easy. . . . There was not a single unknown in t he scheme. Every st ep involved had
been done already.
13
All Mullis did was recombine well-underst ood t echniques in
biochemist ry t o generat e a new one. And yet it s obvious Mulliss recombinat ion is an
enormously valuable one.
Aft er examining many examples of invent ion, innovat ion, and t echnological progress,
complexit y scholar Brian Art hur became convinced t hat st ories like t he invent ion of PCR are
t he rule, not t he except ion. As he summarizes in his book The Nature of Technology, To
invent somet hing is t o find it in what previously exist s.
14
Economist Paul Romer has argued
forcefully in favor of t his view, t he so-called new growt h t heory wit hin economics, in order t o
dist inguish it from perspect ives like Gordons. Romers inherent ly opt imist ic t heory st resses t he
import ance of recombinant innovat ion. As he writ es:
Economic growth occurs whenever people take resources and rearrange them in ways that make them more
valuable. . . . Every generation has perceived the limits to growth that finite resources and undesirable side effects
would pose if no new . . . ideas were discovered. And every generation has underestimated the potential for finding
new . . . ideas. We consistently fail to grasp how many ideas remain to be discovered. . . . Possibilities do not
merely add up; they multiply.
15
Romer also makes a vit al point about a part icularly import ant cat egory of idea, which he calls
met a-ideas:
Perhaps the most important ideas of all are meta-ideasideas about how to support the production and
transmission of other ideas. . . . There are . . . two safe predictions. First, the country that takes the lead in the twenty-
first century will be the one that implements an innovation that more effectively supports the production of new ideas
in the private sector. Second, new meta-ideas of this kind will be found.
16
Digital Technologies: The Most General Purpose of All
Gordon and Cowen are world-class economist s, but t heyre not giving digit al t echnologies t heir
due. The next great met a-idea, invoked by Romer, has already been found: it can be seen in
t he new communit ies of minds and machines made possible by net worked digit al devices
running an ast onishing variet y of soft ware. The GPT of ICT has given birt h t o radically new
ways t o combine and recombine ideas. Like language, print ing, t he library, or universal
educat ion, t he global digit al net work fost ers recombinant innovat ion. We can mix and remix
ideas, bot h old and recent , in ways we never could before. Let s look at a few examples.
Googles Chauffeur project gives new life t o an earlier GPT: t he int ernal combust ion engine.
When an everyday car is equipped wit h a fast comput er and a bunch of sensors (all of which
get cheaper according t o Moores Law) and a huge amount of map and st reet informat ion
(available t hanks t o t he digit izat ion of everyt hing) it becomes an aut opilot ed vehicle st raight
out of science fict ion. While we humans are st ill t he ones doing t he driving, innovat ions like
Waze will help us get around more quickly and ease t raffic jams. Waze is a recombinat ion of a
locat ion sensor, dat a t ransmission device (t hat is, a phone), GPS syst em, and social net work.
The t eam at Waze invent ed none of t hese t echnologies; t hey just put t hem t oget her in a new
way. Moores Law made all involved devices cheap enough, and digit izat ion made all necessary
dat a available t o facilit at e t he Waze syst em.
The Web it self is a pret t y st raight forward combinat ion of t he Int ernet s much older TCP/IP
dat a t ransmission net work; a markup language called HTML t hat specified how t ext , pict ures,
and so on should be laid out ; and a simple PC applicat ion called a browser t o display t he
result s. None of t hese element s was part icularly novel. Their combinat ion was revolut ionary.
Facebook has built on t he Web infrast ruct ure by allowing people t o digit ize t heir social
net work and put media online wit hout having t o learn HTML. Whet her or not t his was an
int ellect ually profound combinat ion of t echnological capabilit ies, it was a popular and
economically significant ly oneby July 2013, t he company was valued at over $60 billion.
17
When phot o sharing became one of t he most popular act ivit ies on Facebook, Kevin Syst rom
and Mike Krieger decided t o build a smart phone applicat ion t hat mimicked t his capabilit y,
combining it wit h t he opt ion t o modify a phot os appearance wit h digit al filt ers. This seems like
a minor innovat ion, especially since Facebook already had enabled mobile phot o sharing in
2010 when Syst rom and Krieger st art ed t heir project . However, t he applicat ion t hey built , called
Inst agram, at t ract ed more t han 30 million users by t he spring of 2012, users who had
collect ively uploaded more t han 100 million phot ographs. Facebook acquired Inst agram for
approximat ely $1 billion in April of 2012.
This progression drives home t he point t hat digit al innovat ion is recombinant innovat ion in
it s purest form. Each development becomes a building block for fut ure innovat ions. Progress
doesnt run out ; it accumulat es. And t he digit al world doesnt respect any boundaries. It
ext ends int o t he physical one, leading t o cars and planes t hat drive t hemselves, print ers t hat
make part s, and so on. Moores Law makes comput ing devices and sensors exponent ially
cheaper over t ime, enabling t hem t o be built economically int o more and more gear, from
doorknobs t o greet ing cards. Digit izat ion makes available massive bodies of dat a relevant t o
almost any sit uat ion, and t his informat ion can be infinit ely reproduced and reused because it is
non-rival. As a result of t hese t wo forces, t he number of pot ent ially valuable building blocks is
exploding around t he world, and t he possibilit ies are mult iplying as never before. Well call t his
t he innovat ion-as-building-block view of t he world; it s t he one held by Art hur, Romer, and t he
t wo of us. From t his perspect ive, unlike in t he innovat ion-as-fruit view, building blocks dont
ever get eat en or ot herwise used up. In fact , t hey increase t he opport unit ies for fut ure
recombinat ions.
Limits to Recombinant Growth
If t his recombinant view of innovat ion is correct , t hen a problem looms: as t he number of
building blocks explodes, t he main difficult y is knowing which combinat ions of t hem will be
valuable. In his paper Recombinant Growt h, t he economist Mart in Weit zman developed a
mat hemat ical model of new growt h t heory in which t he fixed fact ors in an economymachine
t ools, t rucks, laborat ories, and so onare augment ed over t ime by pieces of knowledge t hat
he calls seed ideas, and knowledge it self increases over t ime as previous seed ideas are
recombined int o new ones.
18
This is an innovat ion-as-building-block view of t he world, where
bot h t he knowledge pieces and t he seed ideas can be combined and recombined over t ime.
This model has a fascinat ing result : because combinat orial possibilit ies explode so quickly
t here is soon a virt ually infinit e number of pot ent ially valuable recombinat ions of t he exist ing
knowledge pieces.* The const raint on t he economys growt h t hen becomes it s abilit y t o go
t hrough all t hese pot ent ial recombinat ions t o find t he t ruly valuable ones.
As Weit zman writ es,
In such a world the core of economic life could appear increasingly to be centered on the more and more intensive
processing of ever-greater numbers of new seed ideas into workable innovations. . . . In the early stages of
development, growth is constrained by number of potential new ideas, but later on it is constrained only by the
ability to process them.
19
Gordon asks t he provocat ive quest ion, Is growt h over? Well respond on behalf of
Weit zman, Romer, and t he ot her new growt h t heorist s wit h Not a chance. It s just being held
back by our inabilit y t o process all t he new ideas fast enough.
What This Problem Needs Are More Eyeballs and Bigger Computers
If t his response is at least somewhat accurat eif it capt ures somet hing about how innovat ion
and economic growt h work in t he real worldt hen t he best way t o accelerat e progress is t o
increase our capacit y t o t est out new combinat ions of ideas. One excellent way t o do t his is t o
involve more people in t his t est ing process, and digit al t echnologies are making it possible for
ever more people t o part icipat e. Were int erlinked by global ICT, and we have affordable access
t o masses of dat a and vast comput ing power. Todays digit al environment , in short , is a
playground for large-scale recombinat ion. The open source soft ware advocat e Eric Raymond
has an opt imist ic observat ion: Given enough eyeballs, all bugs are shallow.
20
The innovat ion
equivalent t o t his might be, Wit h more eyeballs, more powerful combinat ions will be found.
NASA experienced t his effect as it was t rying t o improve it s abilit y t o forecast solar flares, or
erupt ions on t he suns surface. Accuracy and plent y of advance warning are bot h import ant
here, since solar part icle event s (or SPEs, as flares are properly known) can bring harmful levels
of radiat ion t o unshielded gear and people in space. Despit e t hirt y-five years of research and
dat a on SPEs, however, NASA acknowledged t hat it had no met hod available t o predict t he
onset , int ensit y or durat ion of a solar part icle event .
21
The agency event ually post ed it s dat a and a descript ion of t he challenge of predict ing SPEs
on Innocent ive, an online clearinghouse for scient ific problems. Innocent ive is non-
credent ialist ; people dont have t o be PhDs or work in labs in order t o browse t he problems,
download dat a, or upload a solut ion. Anyone can work on problems from any discipline;
physicist s, for example, are not excluded from digging in on biology problems.
As it t urned out , t he person wit h t he insight and expert ise needed t o improve SPE predict ion
was not part of any recognizable ast rophysics communit y. He was Bruce Cragin, a ret ired radio
frequency engineer living in a small t own in New Hampshire. Cragin said t hat , Though I hadnt
worked in t he area of solar physics as such, I had t hought a lot about t he t heory of magnet ic
reconnect ion.
22
This was evident ly t he right t heory for t he job, because Cragins approach
enabled predict ion of SPEs eight hours in advance wit h 85 percent accuracy, and t went y-four
hours in advance wit h 75 percent accuracy. His recombinat ion of t heory and dat a earned him a
t hirt y-t housand-dollar reward from t he space agency.
In recent years, many organizat ions have adopt ed NASAs st rat egy of using t echnology t o
open up t heir innovat ion challenges and opport unit ies t o more eyeballs. This phenomenon
goes by several names, including open innovat ion and crowdsourcing, and it can be
remarkably effect ive. The innovat ion scholars Lars Bo Jeppesen and Karim Lakhani st udied
166 scient ific problems post ed t o Innocent ive, all of which had st umped t heir home
organizat ions. They found t hat t he crowd assembled around Innocent ive was able t o solve
fort y-nine of t hem, for a success rat e of nearly 30 percent . They also found t hat people whose
expert ise was far away from t he apparent domain of t he problem were more likely t o submit
winning solut ions. In ot her words, it seemed t o act ually help a solver t o be marginalt o have
educat ion, t raining, and experience t hat were not obviously relevant for t he problem. Jeppesen
and Lakhani provide vivid examples of t his:
[There were] different winning solutions to the same scientific challenge of identifying a food-grade polymer delivery
system by an aerospace physicist, a small agribusiness owner, a transdermal drug delivery specialist, and an
industrial scientist. . . . All four submissions successfully achieved the required challenge objectives with differing
scientific mechanisms. . . .
[Another case involved] an R&D lab that, even after consulting with internal and external specialists, did not
understand the toxicological significance of a particular pathology that had been observed in an ongoing research
program. . . . It was eventually solved, using methods common in her field, by a scientist with a Ph.D. in protein
crystallography who would not normally be exposed to toxicology problems or solve such problems on a routine
basis.
23
Like Innocent ive, t he online st art up Kaggle also assembles a diverse, non-credent ialist group of
people from around t he world t o work on t ough problems submit t ed by organizat ions. Inst ead
of scient ific challenges, Kaggle specializes in dat a-int ensive ones where t he goal is t o arrive at
a bet t er predict ion t han t he submit t ing organizat ions st art ing baseline predict ion. Here again,
t he result s are st riking in a couple of ways. For one t hing, improvement s over t he baseline are
usually subst ant ial. In one case, Allst at e submit t ed a dat aset of vehicle charact erist ics and
asked t he Kaggle communit y t o predict which of t hem would have lat er personal liabilit y claims
filed against t hem.
24
The cont est last ed approximat ely t hree mont hs and drew in more t han
one hundred cont est ant s. The winning predict ion was more t han 270 percent bet t er t han t he
insurance companys baseline.
Anot her int erest ing fact is t hat t he majorit y of Kaggle cont est s are won by people who are
marginal t o t he domain of t he challengewho, for example, made t he best predict ion about
hospit al readmission rat es despit e having no experience in healt h careand so would not
have been consult ed as part of any t radit ional search for solut ions. In many cases, t hese
demonst rably capable and successful dat a scient ist s acquired t heir expert ise in new and
decidedly digit al ways.
Bet ween February and Sept ember of 2012 Kaggle host ed t wo compet it ions about comput er
grading of st udent essays, which were sponsored by t he Hewlet t Foundat ion.* Kaggle and
Hewlet t worked wit h mult iple educat ion expert s t o set up t he compet it ions, and as t hey were
preparing t o launch many of t hese people were worried. The first cont est was t o consist of t wo
rounds. Eleven est ablished educat ional t est ing companies would compet e against one
anot her in t he first round, wit h members of Kaggles communit y of dat a scient ist s invit ed t o join
in, individually or in t eams, in t he second. The expert s were worried t hat t he Kaggle crowd
would simply not be compet it ive in t he second round. Aft er all, each of t he t est ing companies
had been working on aut omat ic grading for some t ime and had devot ed subst ant ial resources
t o t he problem. Their hundreds of person-years of accumulat ed experience and expert ise
seemed like an insurmount able advant age over a bunch of novices.
They neednt have worried. Many of t he novices drawn t o t he challenge out performed all of
t he t est ing companies in t he essay compet it ion. The surprises cont inued when Kaggle
invest igat ed who t he t op performers were. In bot h compet it ions, none of t he t op t hree finishers
had any previous significant experience wit h eit her essay grading or nat ural language
processing. And in t he second compet it ion, none of t he t op t hree finishers had any formal
t raining in art ificial int elligence beyond a free online course offered by St anford AI facult y and
open t o anyone in t he world who want ed t o t ake it . People all over t he world did, and evident ly
t hey learned a lot . The t op t hree individual finishers were from, respect ively, t he Unit ed St at es,
Slovenia, and Singapore.
Quirky, anot her Web-based st art up, enlist s people t o part icipat e in bot h phases of
Weit zmans recombinant innovat ionfirst generat ing new ideas, t hen filt ering t hem. It does
t his by harnessing t he power of many eyeballs not only t o come up wit h innovat ions but also
t o filt er t hem and get t hem ready for market . Quirky seeks ideas for new consumer product s
from it s crowd, and also relies on t he crowd t o vot e on submissions, conduct research, suggest
improvement s, figure out how t o name and brand t he product s, and drive sales. Quirky it self
makes t he final decisions about which product s t o launch and handles engineering,
manufact uring, and dist ribut ion. It keeps 70 percent of all revenue made t hrough it s websit e
and dist ribut es t he remaining 30 percent t o all crowd members involved in t he development
effort ; of t his 30 percent , t he person submit t ing t he original idea get s 42 percent , t hose who
help wit h pricing share 10 percent , t hose who cont ribut e t o naming share 5 percent , and so on.
By t he fall of 2012, Quirky had raised over $90 million in vent ure capit al financing and had
agreement s t o sell it s product s at several major ret ailers, including Target and Bed Bat h &
Beyond. One of it s most successful product s, a flexible elect rical power st rip called Pivot
Power, sold more t han 373 t housand unit s in less t han t wo years and earned t he crowd
responsible for it s development over $400,000.
Affinnova, yet anot her young company support ing recombinant innovat ion, helps it s
cust omers wit h t he second of Weit zmans t wo phases: sort ing t hrough t he possible
combinat ions of building blocks t o find t he most valuable ones. It does t his by combining
crowdsourcing wit h Nobel Prizewort hy algorit hms. When Carlsberg breweries want ed t o
updat e t he bot t le and label for Belgiums Grimbergen, t he worlds oldest cont inually produced
abbey beer, it knew it had t o proceed carefully. The company want ed t o updat e t he brand
wit hout sacrificing it s st rong reput at ion or downplaying it s nine hundred years of hist ory. It
knew t hat t he redesign would mean generat ing many candidat es for each of several at t ribut es
bot t le shape, embossment s, label color, label placement , cap design, and so ont hen
set t ling on t he right combinat ion of all of t hese. The right combinat ion from among t he
t housands of possibilit ies, however, was not obvious at t he out set .
The st andard approach t o t his kind of problem is for t he design t eam t o generat e a few
combinat ions t hat t hey t hink are good, t hen use focus groups or ot her small-scale met hods t o
finalize which is best . Affinnova offers a very different approach. It makes use of t he
mat hemat ics of choice modeling, an advance significant enough t o have earned a Nobel Prize
for it s int ellect ual godfat her, economist Daniel McFadden. Choice modeling quickly ident ifies
peoples preferencesdo t hey prefer a brown embossed bot t le wit h a small label, or a green
non-embossed one wit h a large label?by repeat edly present ing t hem wit h a small set of
opt ions and asking t hem t o select which t hey like best . Affinnova present s t hese opt ions via
t he Web and can find t he mat hemat ically opt imal set of opt ions (or at least come close t o it )
aft er involving only a few hundred people in t he evaluat ion process. For Grimbergen, t he design
t hat result ed from t his explicit ly recombinant process had an approval rat ing 3.5 t imes great er
t han t hat of t he previous bot t le.
25
When we adopt t he perspect ive of t he new growt h t heorist s and mat ch it against what we
see wit h Waze, Innocent ive, Kaggle, Quirky, Affinnova, and many ot hers, we become opt imist ic
about t he current and fut ure of innovat ion. And t hese digit al development s are not confined t o
t he high-t ech sect ort heyre not just making comput ers and net works bet t er and fast er.
Theyre helping us drive our cars bet t er (and may soon make it unnecessary for us t o drive at
all), allowing us t o arrive at bet t er predict ions of solar flares, solving problems in food science
and t oxicology, and giving us bet t er power st rips and beer bot t les. These and count less ot her
innovat ions will add up over t ime, and t heyll keep coming and keep adding up. Unlike some of
our colleagues, we are confident t hat innovat ion and product ivit y will cont inue t o grow at
healt hy rat es in t he fut ure. Plent y of building blocks are in place, and t heyre being recombined
in bet t er and bet t er ways all t he t ime.
* In reality, many of the countries that do have large amounts of mineral and commodity wealth are often crippled by the
twin terrors of the resource curse: low growth rates and lots of poverty.
* Some have tied the invention of the cotton gin to increased demand for slave labor in the American South and therefore
to the Civil War, but its direct economic effect outside the textile industry was minimal.
* Keep in mind that if there are only fifty-two seed ideas in such an economy, they have many more potential
combinations than there are atoms in our solar system.
* Improvements in this area are important because essays are better at capturing student leaning than multiple-choice
questions, but much more expensive to grade when human raters are used. Automatic grading of essays would both
improve the quality of education and lower its cost.
And here I am thinking of those astonishing electronic machines . . . by which our mental capacity to calculate and
combine is reinforced and multiplied by the process and to a degree that herald . . . astonishing advances.
Pierre Teilhard de Chardin
THE PREVI OUS FI VE CHAPTERS laid out t he out st anding feat ures of t he second machine age: sust ained
exponent ial improvement in most aspect s of comput ing, ext raordinarily large amount s of
digit ized informat ion, and recombinant innovat ion. These t hree forces are yielding
breakt hroughs t hat convert science fict ion int o everyday realit y, out st ripping even our recent
expect at ions and t heories. What s more, t heres no end in sight .
The advances weve seen in t he past few years, and in t he early sect ions of t his bookcars
t hat drive t hemselves, useful humanoid robot s, speech recognit ion and synt hesis syst ems, 3D
print ers, Jeopardy!-champion comput ersare not t he crowning achievement s of t he comput er
era. Theyre t he warm-up act s. As we move deeper int o t he second machine age well see
more and more such wonders, and t heyll become more and more impressive.
How can we be so sure? Because t he exponent ial, digit al, and recombinant powers of t he
second machine age have made it possible for humanit y t o creat e t wo of t he most import ant
one-t ime event s in our hist ory: t he emergence of real, useful art ificial int elligence (AI) and t he
connect ion of most of t he people on t he planet via a common digit al net work.
Eit her of t hese advances alone would fundament ally change our growt h prospect s. When
combined, t heyre more import ant t han anyt hing since t he Indust rial Revolut ion, which forever
t ransformed how physical work was done.
Thinking Machines, Available Now
Machines t hat can complet e cognit ive t asks are even more import ant t han machines t hat can
accomplish physical ones. And t hanks t o modern AI we now have t hem. Our digit al machines
have escaped t heir narrow confines and st art ed t o demonst rat e broad abilit ies in pat t ern
recognit ion, complex communicat ion, and ot her domains t hat used t o be exclusively human.
Weve also recent ly seen great progress in nat ural language processing, machine learning
(t he abilit y of a comput er t o aut omat ically refine it s met hods and improve it s result s as it get s
more dat a), comput er vision, simult aneous localizat ion and mapping, and many of t he ot her
fundament al challenges of t he discipline.
Were going t o see art ificial int elligence do more and more, and as t his happens cost s will go
down, out comes will improve, and our lives will get bet t er. Soon count less pieces of AI will be
working on our behalf, oft en in t he background. Theyll help us in areas ranging from t rivial t o
subst ant ive t o life changing. Trivial uses of AI include recognizing our friends faces in phot os
and recommending product s. More subst ant ive ones include aut omat ically driving cars on t he
road, guiding robot s in warehouses, and bet t er mat ching jobs and job seekers. But t hese
remarkable advances pale against t he life-changing pot ent ial of art ificial int elligence.
To t ake just one recent example, innovat ors at t he Israeli company OrCam have combined a
small but powerful comput er, digit al sensors, and excellent algorit hms t o give key aspect s of
sight t o t he visually impaired (a populat ion numbering more t han t went y million in t he Unit ed
St at es alone). A user of t he OrCam syst em, which was int roduced in 2013, clips ont o her
glasses a combinat ion of a t iny digit al camera and speaker t hat works by conduct ing sound
waves t hrough t he bones of t he head.
1
If she point s her finger at a source of t ext such as a
billboard, package of food, or newspaper art icle, t he comput er immediat ely analyzes t he
images t he camera sends t o it , t hen reads t he t ext t o her via t he speaker.
Reading t ext in t he wildin a variet y of font s, sizes, surfaces, and light ing condit ionshas
hist orically been yet anot her area where humans out paced even t he most advanced hardware
and soft ware. OrCam and similar innovat ions show t hat t his is no longer t he case, and t hat
here again t echnology is racing ahead. As it does, it will help millions of people lead fuller lives.
The OrCam cost s about $2,500t he price of a good hearing aidand is cert ain t o become
cheaper over t ime.
Digit al t echnologies are also rest oring hearing t o t he deaf via cochlear implant s and will
probably bring sight back t o t he fully blind; t he FDA recent ly approved a first -generat ion ret inal
implant .
2
AIs benefit s ext end even t o quadriplegics, since wheelchairs can now be cont rolled by
t hought s.
3
Considered object ively, t hese advances are somet hing close t o miraclesand
t heyre st ill in t heir infancy.
Art ificial int elligence will not just improve lives; it will also save t hem. Aft er winning Jeopardy!,
for example, Wat son enrolled in medical school. To be a bit more precise, IBM is applying t he
same innovat ions t hat allowed Wat son t o answer t ough quest ions correct ly t o t he t ask of
helping doct ors bet t er diagnose what s wrong wit h t heir pat ient s. Inst ead of volumes and
volumes of general knowledge, t he supercomput er is being t rained t o sit on t op of all of t he
worlds high-qualit y published medical informat ion; mat ch it against pat ient s sympt oms,
medical hist ories, and t est result s; and formulat e bot h a diagnosis and a t reat ment plan. The
huge amount s of informat ion involved in modern medicine make t his t ype of advance crit ically
import ant . IBM est imat es t hat it would t ake a human doct or 160 hours of reading each and
every week just t o keep up wit h relevant new lit erat ure.
4
IBM and part ners including Memorial Sloan-Ket t ering Cancer Cent er and t he Cleveland Clinic
are working t o build Dr. Wat son. The organizat ions involved in t his program are careful t o
st ress t hat t he AI t echnologies will be used t o augment physicians clinical expert ise and
judgment , not replace t hem. St ill, it is not implausible t hat Dr. Wat son might one day be t he
worlds best diagnost ician.
Were already seeing AI-aided diagnoses in some medical specialt ies. A t eam led by
pat hologist Andrew Beck developed t he C-Pat h (comput at ional pat hologist ) syst em t o
aut omat ically diagnose breast cancer and predict survival rat es by examining images of t issue,
just as human pat hologist s do.
5
Since t he 1920s, t hese humans have been t rained t o look at
t he same small set of cancer cell feat ures.
6
The C-Pat h t eam, in cont rast , had it s soft ware look
at images wit h a fresh eyewit hout any pre-programmed not ions about which feat ures were
associat ed wit h cancer severit y or pat ient prognosis. Not only was t his soft ware at least as
accurat e as humans, it also ident ified t hree feat ures of breast cancer t issue t hat t urned out t o
be good predict ors of survival rat es. Pat hologist s, however, had not been t rained t o look for
t hem.
As it races ahead, art ificial int elligence might bring wit h it some t roubles, which well discuss
in our conclusion. But fundament ally, t he development of t hinking machines is an incredibly
posit ive one.
Billions of Innovators, Coming Soon
In addit ion t o powerful and useful AI, t he ot her recent development t hat promises t o furt her
accelerat e t he second machine age is t he digit al int erconnect ion of t he planet s people. There
is no bet t er resource for improving t he world and bet t ering t he st at e of humanit y t han t he
worlds humansall 7.1 billion of us. Our good ideas and innovat ions will address t he
challenges t hat arise, improve t he qualit y of our lives, allow us t o live more light ly on t he planet ,
and help us t ake bet t er care of one anot her. It is a remarkable and unmist akable fact t hat , wit h
t he except ion of climat e change, virt ually all environment al, social, and individual indicat ors of
healt h have improved over t ime, even as human populat ion has increased.
This improvement is not a lucky coincidence; it is cause and effect . Things have got t en
bet t er because t here are more people, who in t ot al have more good ideas t hat improve our
overall lot . The economist Julian Simon was one of t he first t o make t his opt imist ic argument ,
and he advanced it repeat edly and forcefully t hroughout his career. He wrot e, It is your mind
t hat mat t ers economically, as much or more t han your mout h or hands. In t he long run, t he
most import ant economic effect of populat ion size and growt h is t he cont ribut ion of addit ional
people t o our st ock of useful knowledge. And t his cont ribut ion is large enough in t he long run
t o overcome all t he cost s of populat ion growt h.
7
Bot h t heory and dat a bear out Simons insight . The t heory of recombinant innovat ion
st resses how import ant it is t o have more eyeballs looking at challenges and more brains
t hinking about how exist ing building blocks can be rearranged t o meet t hem. This t heory
furt her holds t hat people also play t he vit al role of filt ering and improving t he innovat ions of
ot hers. And t he dat a on everyt hing from air qualit y t o commodit y prices t o levels of violence
show improvement over t ime. These dat a, in ot her words, show humanit ys remarkable abilit y
t o meet it s challenges.
We do have one quibble wit h Simon, however. He wrot e t hat , The main fuel t o speed t he
worlds progress is our st ock of knowledge, and t he brake is our lack of imaginat ion.
8
We agree
about t he fuel but disagree about t he brake. The main impediment t o progress has been t hat ,
unt il quit e recent ly, a sizable port ion of t he worlds people had no effect ive way t o access t he
worlds st ock of knowledge or t o add t o it .
In t he indust rialized West we have long been accust omed t o having libraries, t elephones,
and comput ers at our disposal, but t hese have been unimaginable luxuries t o t he people of t he
developing world. That sit uat ion is rapidly changing. In 2000, for example, t here were
approximat ely seven hundred million mobile phone subscript ions in t he world, fewer t han 30
percent of which were in developing count ries.
9
By 2012 t here were more t han six billion
subscript ions, over 75 percent of which were in t he developing world. The World Bank
est imat es t hat t hree-quart ers of t he people on t he planet now have access t o a mobile phone,
and t hat in some count ries mobile t elephony is more widespread t han elect ricit y or clean
wat er.
The first mobile phones bought and sold in t he developing world were capable of lit t le more
t han voice calls and t ext messages, yet even t hese simple devices could make a significant
difference. Bet ween 1997 and 2001 t he economist Robert Jensen st udied a set of coast al
villages in Kerala, India, where fishing was t he main indust ry.
10
Jensen gat hered dat a bot h
before and aft er mobile phone service was int roduced, and t he changes he document ed are
remarkable. Fish prices st abilized immediat ely aft er phones were int roduced, and even t hough
t hese prices dropped on average, fishermens profit s act ually increased because t hey were
able t o eliminat e t he wast e t hat occurred when t hey t ook t heir fish t o market s t hat already
had enough supply for t he day. The overall economic well-being of bot h buyers and sellers
improved, and Jensen was able t o t ie t hese gains direct ly t o t he phones t hemselves.
Now, of course, even t he most basic phones sold in t he developing world are more powerful
t han t he ones used by Keralas fisherman over a decade ago. Approximat ely 70 percent of all
phones sold worldwide in 2012 were feat ure phonesless capable t han t he Apple iPhone
and Samsung Galaxy smart phones of t he rich world, but st ill able t o t ake pict ures (and oft en
videos), browse t he Web, and run at least some applicat ions.
11
And cheap mobile devices keep
improving. Technology analysis firm IDC forecast s t hat smart phones will out sell feat ure phones
in t he near fut ure, and will make up about t wo-t hirds of all sales by 2017.
12
This shift is due t o cont inued simult aneous performance improvement s and cost declines in
bot h mobile phone devices and net works, and it has an import ant consequence: it will bring
billions of people int o t he communit y of pot ent ial knowledge creat ors, problem solvers, and
innovat ors.
Today, people wit h connect ed smart phones or t ablet s anywhere in t he world have access
t o many (if not most ) of t he same communicat ion resources and informat ion t hat we do while
sit t ing in our offices at MIT. They can search t he Web and browse Wikipedia. They can follow
online courses, some of t hem t aught by t he best in t he academic world. They can share t heir
insight s on blogs, Facebook, Twit t er, and many ot her services, most of which are free. They
can even conduct sophist icat ed dat a analyses using cloud resources such as Amazon Web
Services and R, an open source applicat ion for st at ist ics.
13
In short , t hey can be full cont ribut ors
in t he work of innovat ion and knowledge creat ion, t aking advant age of what Aut odesk CEO
Carl Bass calls infinit e comput ing.
14
Unt il quit e recent ly rapid communicat ion, informat ion acquisit ion, and knowledge sharing,
especially over long dist ances, were essent ially limit ed t o t he planet s elit e. Now t heyre much
more democrat ic and egalit arian, and get t ing more so all t he t ime. The journalist A. J. Liebling
famously remarked t hat , Freedom of t he press is limit ed t o t hose who own one. It is no
exaggerat ion t o say t hat billions of people will soon have a print ing press, reference library,
school, and comput er all at t heir fingert ips.
15
Those of us who believe in t he power of recombinant innovat ion believe t hat t his
development will boost human progress. We cant predict exact ly what new insight s, product s,
and solut ions will arrive in t he coming years, but we are fully confident t hat t heyll be
impressive. The second machine age will be charact erized by count less inst ances of machine
int elligence and billions of int erconnect ed brains working t oget her t o bet t er underst and and
improve our world. It will make mockery out of all t hat came before.
Most economic fallacies derive from the tendency to assume that there is a fixed pie, that one party can gain only at
the expense of another.
Milton Friedman
EACH DAY GOVERNMENT AGENCI ES, t hink t anks, NGOs, and academic researchers generat e more st at ist ics
t han any person could read, let alone absorb. On t elevision, in t he pages of t he business press,
and in t he blogosphere, a chorus of analyst s debat e and predict t rends in int erest rat es,
unemployment , st ock prices, deficit s and myriad ot her indicat ors. But when you zoom out and
consider t rends over t he past cent ury, one overwhelming fact looms above all ot hers: overall
living st andards have increased enormously in t he Unit ed St at es and worldwide. In t he Unit ed
St at es, t he rat e of GDP growt h per person has averaged 1.9 percent per year going back t o
t he early 1800s.
1
Applying t he rule of 70 (t he t ime t o double a value is roughly equal t o 70
divided by it s growt h rat e), we see t hat t his was enough t o double living st andards every
t hirt y-six years, quadrupling t hem over t he course of a t ypical lifet ime.*
This increase is import ant because economic growt h can help solve a host of ot her
challenges. If GDP of t he Unit ed St at es grows just 1 percent fast er each year t han current ly
project ed, Americans would be five t rillion dollars richer by 2033.
2
If GDP grows just 0.5 percent
fast er, t he U.S. budget problem would be solved wit hout any changes t o policy.
3
Of course,
slower growt h would make it significant ly harder t o close t he deficit , let alone increase
spending on any new init iat ives or cut t axes.
Productivity Growth
But what drives increases in GDP per person? Part of it comes from using more resources. But
most of it comes from increases in our abilit y t o get more out put from t he given level of input s
in ot her words, increases in product ivit y. (Most commonly, t his t erm is used as short hand for
labor product ivit y, which is out put per hour worked [or out put per worker].) * In t urn,
product ivit y growt h comes from innovat ions in t echnology and t echniques of product ion.
Simply working more hours does not increase product ivit y. Indeed, Americans once rout inely
worked fift y, sixt y, or even sevent y hours per week. While some st ill do, t he average workweek
is short er now (t hirt y-five hours per week), and yet living st andards are higher. Robert Solow
got his Nobel Prize in Economics for showing t hat increases in labor input and capit al input
could not explain most of t he increase in t he t ot al out put of t he economy. In fact , it would
t ake t he average American only eleven hours of labor per week t o produce as much as he or
she produced in fort y hours in 1950. That rat e of improvement is comparable for workers in
Europe and Japan, and even higher in some developing nat ions.*
FI GURE 7. 1 Labor Produc t i vi t y
Product ivit y improvement was part icularly rapid in t he middle part of t he t went iet h cent ury,
especially t he 1940s, 50s, and 60s, as t he t echnologies of t he first machine age, from elect ricit y
t o t he int ernal combust ion engine, st art ed firing on all cylinders. However, in 1973 product ivit y
growt h slowed down (see figure 7.1).
In 1987, Bob Solow himself not ed t hat t he slowdown seemed t o coincide wit h t he early days
of t he comput er revolut ion, famously remarking, We see t he comput er age everywhere,
except in t he product ivit y st at ist ics.
4
In 1993, Erik published an art icle evaluat ing t he
Product ivit y Paradox t hat not ed t he comput ers were st ill a small share of t he economy and
t hat complement ary innovat ions were t ypically needed before general purpose t echnologies
like IT had t heir real impact .
5
Lat er work t aking int o account more det ailed dat a on product ivit y
and IT use among individual firms revealed a st rong and significant correlat ion: t he heaviest IT
users were dramat ically more product ive t han t heir compet it ors.
6
By t he mid-1990s, t hese
benefit s were big enough t o become visible in t he overall U.S. economy, which experienced a
general product ivit y surge. While t his rise had a number of causes, economist s now at t ribut e
general product ivit y surge. While t his rise had a number of causes, economist s now at t ribut e
t he lions share of t hose gains t o t he power of IT.
7
The product ivit y slowdown in t he 1970s, and t he subsequent speed-up t went y years lat er,
had an int erest ing precedent . In t he lat e 1890s, elect ricit y was being int roduced t o American
fact ories. But t he product ivit y paradox of t hat era was t hat labor product ivit y growt h did not
t ake off for over t went y years. While t he t echnologies involved were very different , many of t he
underlying dynamics were quit e similar.
Universit y of Chicago economist Chad Syverson looked closely at t he underlying product ivit y
dat a and showed how eerily close t his analogy is.
8
As shown in figure 7.2, t he slow st art and
subsequent accelerat ion of product ivit y growt h in t he elect ricit y era mat ches well wit h t he
speed-up t hat began in t he 1990s. The key t o underst anding t his pat t ern is t he realizat ion
t hat , as discussed in chapt er 5, GPTs always need complement s. Coming up wit h t hose can
t ake years, or even decades, and t his creat es lags bet ween t he int roduct ion of a t echnology
and t he product ivit y benefit s. Weve clearly seen t his wit h bot h elect rificat ion and
comput erizat ion.
FI GURE 7. 2 Labor Produc t i vi t y i n Two Eras
Perhaps t he most import ant complement ary innovat ions are t he business process changes
and organizat ional coinvent ions t hat new t echnologies make possible. Paul David, an
economic hist orian at St anford Universit y and t he Universit y of Oxford, examined t he records
of American fact ories when t hey first elect rified and found t hat t hey oft en ret ained a similar
layout and organizat ion t o t hose t hat were powered by st eam engines.
9
In a st eam engine
driven plant , power was t ransmit t ed via a large cent ral axle, which in t urn drove a series of
pulleys, gears, and smaller crankshaft s. If t he axle was t oo long t he t orsion involved would
break it , so machines needed t o be clust ered near t he main power source, wit h t hose requiring
t he most power posit ioned closest . Exploit ing all t hree dimensions, indust rial engineers put
equipment on floors above and below t he cent ral st eam engines t o minimize t he dist ances
involved.
Years lat er, when t hat hallowed GPT elect ricit y replaced t he st eam engine, engineers simply
bought t he largest elect ric mot ors t hey could find and st uck t hem where t he st eam engines
used t o be. Even when brand-new fact ories were built , t hey followed t he same design. Perhaps
unsurprisingly, records show t hat t he elect ric mot ors did not lead t o much of an improvement in
performance. There might have been less smoke and a lit t le less noise, but t he new
t echnology was not always reliable. Overall, product ivit y barely budged.
Only aft er t hirt y yearslong enough for t he original managers t o ret ire and be replaced by a
new generat iondid fact ory layout s change. The new fact ories looked much like t hose we see
t oday: a single st ory spread out over an acre or more. Inst ead of a single massive engine, each
piece of equipment had it s own small elect ric mot or. Inst ead of put t ing t he machines needing
t he most power closest t o t he power source, t he layout was based on a simple and powerful
new principle: t he nat ural workflow of mat erials.
Product ivit y didnt merely inch upward on t he result ing assembly lines; it doubled or even
t ripled. What s more, for most of t he subsequent cent ury, addit ional complement ary
innovat ions, from lean manufact uring and st eel minimills t o Tot al Qualit y Management and Six
Sigma principles, cont inued t o boost manufact uring product ivit y.
As wit h earlier GPTs, significant organizat ional innovat ion is required t o capt ure t he full
benefit of second machine age t echnologies. Tim Berners-Lees invent ion of t he World Wide
Web in 1989, t o t ake an obvious example, init ially benefit ed only a small group of part icle
physicist s. But due in part t o t he power of digit izat ion and net works t o speed t he diffusion of
ideas, complement ary innovat ions are happening fast er t han t hey did in t he first machine age.
Less t han t en years aft er it s int roduct ion, ent repreneurs were finding ways t o use t he Web t o
reinvent publishing and ret ailing.
While less visible, t he large ent erprise-wide IT syst ems t hat companies rolled out in t he
While less visible, t he large ent erprise-wide IT syst ems t hat companies rolled out in t he
1990s have had an even bigger impact on product ivit y.
10
They did t his mainly by making
possible a wave of business process redesign. For example, Walmart drove remarkable
efficiencies in ret ailing by int roducing syst ems t hat shared point -of-sale dat a wit h t heir
suppliers. The real key was t he int roduct ion of complement ary process innovat ions like vendor
managed invent ory, cross-docking, and efficient consumer response t hat have become st aple
business-school case st udies. They not only made it possible t o increase sales from $1 billion a
week in 1993 t o $1 billion every t hirt y-six hours in 2001, but also helped drive dramat ic
increases in t he ent ire ret ailing and dist ribut ion indust ries, account ing for much of t he
addit ional product ivit y growt h nat ionwide during t his period.
11
IT invest ment soared in t he 1990s, peaking wit h a surge of invest ment in t he lat t er half of
t he decade as many companies upgraded t heir syst ems t o t ake advant age of t he Int ernet ,
implement large ent erprise syst ems, and avoid t he much-hyped Y2K bug. At t he same t ime,
innovat ion in semiconduct ors t ook gigant ic leaps, so t he surging spending on IT delivered even
more rapidly increasing levels of comput er power. A decade aft er t he comput er product ivit y
paradox was popularized, Harvards Dale Jorgenson, working wit h Kevin St iroh at t he New York
Federal Reserve Bank did a careful growt h account ing and concluded, A consensus has
emerged t hat a large port ion of t he accelerat ion t hrough 2000 can be t raced t o t he sect ors of
t he economy t hat produce informat ion t echnology or use IT equipment and soft ware most
int ensively.
12
But it s not just t he comput er-producing sect ors t hat are doing well. Kevin St iroh
of t he New York Federal Reserve Bank found t hat indust ries t hat were heavier users of IT
t ended t o be more product ive t hroughout t he 1990s. This pat t ern was even more evident in
recent years, according t o a careful st udy by Harvards Dale Jorgenson and t wo coaut hors.
They found t hat t ot al fact or product ivit y growt h increased more bet ween t he 1990s and
2000s in IT-using indust ries, while it fell slight ly in t hose sect ors of t he economy t hat did not
use IT ext ensively.
13
It s import ant t o not e t hat t he correlat ion bet ween comput ers and product ivit y is not just
evident at t he indust ry level; it occurs at t he level of individual firms as well. In work Erik did wit h
Lorin Hit t of t he Universit y of Pennsylvania Whart on School, he found t hat firms t hat use more
IT t end t o have higher levels of product ivit y and fast er product ivit y growt h t han t heir indust ry
compet it ors.
14
The first five years of t he t went y-first cent ury saw a renewed wave of innovat ion and
invest ment , t his t ime less focused on comput er hardware and more focused on a diversified
set of applicat ions and process innovat ions. For inst ance, as Andy described in a case st udy
he did for Harvard Business School, CVS found t hat t heir prescript ion drug ordering process
was a source of cust omer frust rat ion, so t hey redesigned and simplified it .
15
By embedding t he
st eps in an ent erprise-wide soft ware syst em, t hey were able t o replicat e t he drug ordering
process in over four t housand locat ions, dramat ically boost ing cust omer sat isfact ion and
ult imat ely profit s. CVS was not at ypical. In a st at ist ical analysis of over six hundred firms t hat
Erik did wit h Lorin Hit t , he found it t akes an average five t o seven years before full product ivit y
benefit s of comput ers are visible in t he product ivit y of t he firms making t he invest ment s. This
reflect s t he t ime and effort required t o make t he ot her complement ary invest ment s t hat bring
a comput erizat ion effort success. In fact , for every dollar of invest ment in comput er hardware,
companies need t o invest up t o anot her nine dollars in soft ware, t raining, and business process
redesign.
16
The effect s of organizat ional changes like t hese became increasingly visible in t he indust ry-
level product ivit y st at ist ics.
17
The product ivit y surge in t he 1990s was most visible in comput er-
producing indust ries, but overall product ivit y grew even fast er in t he early years of t he t went y-
first cent ury, when a much broader set of indust ries saw significant product ivit y gains. Like
earlier GPTs, t he power of comput ers was t heir abilit y t o affect product ivit y far from t heir
home indust ry.
Overall, American product ivit y growt h in t he decade following t he year 2000 exceeded even
t he high growt h rat es of t he roaring 1990s, which in t urn was higher t han 1970s or 1980s
growt h rat es had been.
18
Today American workers are more product ive t han t heyve ever been, but a closer look at
recent numbers t ells a more nuanced st ory. The good performance since t he year 2000 was
clust ered in t he early years of t he decade. Since 2005, product ivit y growt h has not been as
st rong. As not ed in chapt er 5, t his has led t o a new wave of worries about t he end of growt h
by economist s, journalist s, and bloggers. We are not convinced by t he pessimist s. The
product ivit y lull aft er t he int roduct ion of elect ricit y did not mean t he end of growt h, nor did t he
lull in t he 1970s.
Part of t he recent slowdown simply reflect s t he Great Recession and it s aft ermat h.
Recessions are always t imes of pessimism, which is underst andable, and t he pessimism
invariably spills over int o predict ions about t echnology and t he fut ure. The financial crisis and
burst of t he housing bubble led t o a collapse of consumer confidence and wealt h, which
t ranslat ed int o dramat ically lower demand and GDP. While t he recession t echnically ended in
June 2009, as we writ e t his in 2013 t he U.S. economy is st ill operat ing well below it s pot ent ial,
wit h unemployment at 7.6 percent and capacit y ut ilizat ion at 78 percent . During such a slump,
any met ric t hat includes out put in t he numerat or, such as labor product ivit y, will oft en be at
least t emporarily depressed. In fact , when you look at hist ory, you see t hat in t he early years of
t he Great Depression, in t he 1930s, product ivit y didnt just slow but act ually fell for t wo years in
a rowsomet hing it never did in t he recent slump. Growt h pessimist s had even more company
in t he 1930s t han t hey do t oday, but t he following t hree decades proved t o be t he best ones
of t he t went iet h cent ury. Go back t o figure 7.2 and look most closely at t he dashed line
chart ing t he years following t he dip in product ivit y in t he early 1930s. Youll see t he biggest
wave of growt h and bount y t hat t he first machine age ever delivered.
The explanat ion for t his product ivit y surge is in t he lags t hat we always see when GPTs are
inst alled. The benefit s of elect rificat ion st ret ched for nearly a cent ury as more and more
complement ary innovat ions were implement ed. The digit al GPTs of t he second machine age
are no less profound. Even if Moores Law ground t o a halt t oday, we could expect decades of
complement ary innovat ions t o unfold and cont inue t o boost product ivit y. However, unlike t he
st eam engine or elect ricit y, second machine age t echnologies cont inue t o improve at a
remarkably rapid exponent ial pace, replicat ing t heir power wit h digit al perfect ion and creat ing
even more opport unit ies for combinat orial innovat ion. The pat h wont be smoot hfor one
t hing, we havent banished t he business cyclebut t he fundament als are in place for bount y
t hat vast ly exceeds anyt hing weve ever seen before.
* The Rule of 70 (or, more precisely, the rule of 69.3 percent) is based on the following equation: (1 + x)y = 2 where x is
the rate of growth and y is the number of years. Taking the natural logarithm of both sides gives y ln (1 + x) = ln 2. The ln
(2) is 0.693 and for small x, ln (1 + x) is roughly equal to x, so the equation simplifies to xy = 70 percent.
* One can also measure capital productivity, which is output per unit of capital input; or multifactor productivity, which is
output divided by a weighted average of both capital and labor inputs. Economists sometimes use another term for
multifactor productivity, the Solow Residual, which better reflects the fact that we dont necessarily know its origins.
Robert Solow himself noted that it was less a concrete measure of technological progress than a measure of our
ignorance.
Thats a good thing, because there are natural limits to how much we can increase inputs, especially labor. Theyre
subject to diminishing returnsno one is going to work more than twenty-four hours a day, or employ more than 100
percent of the labor force. In contrast, productivity growth reflects ability to innovateits limited only by our imaginations.
* Output divided by labor and physical capital inputs is often more ambitiously called total factor productivity. However,
that term can be a bit misleading, because there are other inputs to production. For instance, companies can make major
investments in intangible organizational capital. The more kinds of inputs we are able to measure, the better we can
account for overall output growth. As a result, the residual that we label productivity (not explained by growth of inputs)
will get smaller.
The Gross National Product does not include the beauty of our poetry or the intelligence of our public debate. It
measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our
devotion. It measures everything, in short, except that which makes life worthwhile.
Robert F. Kennedy
WHEN PRESI DENT HOOVER WAS t rying t o underst and what was happening during t he Great Depression
and design a program t o fight it , a comprehensive syst em of nat ional account s did not exist .
He had t o rely on scat t ered dat a like freight car loadings, commodit y prices, and st ock price
indexes t hat gave only an incomplet e and oft en unreliable view of economic act ivit y. The first
set of nat ional account s was present ed t o Congress in 1937 based on t he pioneering work of
Nobel Prize winner Simon Kuznet s, who worked wit h researchers at t he Nat ional Bureau of
Economic Research and a t eam at t he U.S. Depart ment of Commerce. The result ing set of
met rics have served as beacons t hat helped illuminat e many of t he dramat ic changes t hat
t ransformed t he economy t hroughout t he t went iet h cent ury.
But as t he economy has changed so, t oo, must our met rics. More and more what we care
about in t he second machine age are ideas, not t hingsmind, not mat t er; bit s, not at oms; and
int eract ions, not t ransact ions. The great irony of t his informat ion age is t hat , in many ways, we
act ually know less about t he sources of value in t he economy t han we did fift y years ago. In
fact , much of t he change has been invisible for a long t ime simply because we did not know
what t o look for. Theres a huge layer of t he economy unseen in t he official dat a and, for t hat
mat t er, unaccount ed for on t he income st at ement s and balance sheet s of most companies.
Free digit al goods, t he sharing economy, int angibles and changes in our relat ionships have
already had big effect s on our well-being. They also call for new organizat ional st ruct ures, new
skills, new inst it ut ions, and perhaps even a reassessment of some of our values.
Music to Your Ears
The st ory of musics move from physical media t o comput er files has been t old oft en and well,
but one of t hat t ransit ions most int erest ing aspect s is less discussed. Music is hiding it self
from our t radit ional economic st at ist ics. Sales of music on physical media declined from 800
million unit s in 2004 t o less t han 400 million unit s in 2008. Yet over t he same t ime period t ot al
unit s of music purchased st ill grew, reflect ing an even fast er increase in t he purchases of
digit al downloads. Digit al st reams such as iTunes, Spot ify, or Pandora also came t o
prominence, and, of course, t he purchase dat a dont reflect t he even larger number of songs
t hat were shared, st reamed, or downloaded for free, oft en via piracy. Before t he rise of t he
MP3, even t he most fanat ical music fan, wit h a basement st acked high wit h LPs, t apes, and
CDs, wouldnt have had a fract ion of t he t went y million songs available on a childs smart phone
via services like Spot ify or Rhapsody. What s more, clever research by Joel Waldfogel at t he
Universit y of Minnesot a finds quant it at ive evidence t hat t he overall qualit y of music has not
declined over t he past decade and is, if anyt hing, higher t han ever.
1
If youre like most people,
you are list ening t o more and bet t er music t han ever before.
So how did music disappear? The value of music has not changed, only t he price. From 2004
t o 2008, t he combined revenue from sales of music dropped from $12.3 billion t o $7.4 billion
t hat s a decline of 40 percent . Even when we include all digit al sales, t hrowing in ringt ones on
mobile phones for good measure, t he t ot al revenues t o t he record companies are st ill down 30
percent .
Similar economics apply when you read t he New York Times, Bloomberg Businessweek, or
MIT Sloan Management Review online at a reduced price or for free inst ead of buying a
physical copy at t he newsst and, or when you use Craigslist inst ead of t he classified ads, or
when you share phot os via Facebook inst ead of mailing print s around t o friends and relat ives.
Analog dollars are becoming digit al pennies.
By now, t he number of pages of digit al t ext and images on t he Web is est imat ed t o exceed
one t rillion.
2
As discussed in chapt er 4, bit s are creat ed at virt ually zero cost and t ransmit t ed
almost inst ant aneously worldwide. What s more, a copy of a digit al good is exact ly ident ical t o
t he original. This leads t o some very different economics and some special measurement
problems. When a business t raveler calls home t o t alk t o her children via Skype, t hat may add
zero t o GDP, but it s hardly wort hless. Even t he wealt hiest robber baron would have been
unable t o buy t his service. How do we measure t he benefit s of free goods or services t hat
were unavailable at any price in previous eras?
What GDP Leaves Out
Despit e all t he at t ent ion it get s from economist s, pundit s, journalist , and polit icians, GDP, even
if it were perfect ly measured, does not quant ify our welfare. The t rends in GDP growt h and
product ivit y growt h covered in chapt er 7 are import ant , but t hey are not sufficient measures of
our overall well-being, or even our economic well-being. Robert Kennedy put t his poet ically in
his quot e at t he beginning of t his chapt er.
While it would be unrealist ic t o put a dollar value on st irring orat ory like RFKs, we can do a
bet t er job of underst anding our basic economic progress by considering some of t he changes
in t he goods and services t hat we are able t o consume. It soon becomes clear t hat t he t rends
in t he official st at ist ics not only underest imat e our bount y, but in t he second machine age t hey
have also become increasingly misleading.
In addit ion t o t heir vast library of music, children wit h smart phones t oday have access t o
more informat ion in real t ime via t he mobile web t han t he president of t he Unit ed St at es had
t went y years ago. Wikipedia alone claims t o have over fift y t imes as much informat ion as
Encyclopaedia Britannica, t he premier compilat ion of knowledge for most of t he t went iet h
cent ury.
3
Like Wikipedia but unlike Britannica, much of t he informat ion and ent ert ainment
available t oday is free, as are over one million apps on smart phones.
4
Because t hey have zero price, t hese services are virt ually invisible in t he official st at ist ics.
They add value t o t he economy, but not dollars t o GDP. And because our product ivit y dat a
are, in t urn, based on GDP met rics, t he burgeoning availabilit y of free goods does not move t he
product ivit y dial. Theres lit t le doubt , however, t hat t hey have real value. When a girl clicks on a
YouTube video inst ead of going t o t he movies, shes saying t hat she get s more net value from
YouTube t han t radit ional cinema. When her brot her downloads a free gaming app on his iPad
inst ead of buying a new video game, hes making a similar st at ement .
Free: Good for Well-Being, Bad for GDP
In some ways, t he proliferat ion of free product s even pushes GDP downward. If t he cost of
creat ing and delivering an encyclopedia t o your deskt op is a few pennies inst ead of t housands
of dollars, t hen youre cert ainly bet t er off. But t his decrease in cost s lowers GDP even as our
personal well-being increases, leaving GDP t o t ravel in t he opposit e direct ion of our t rue well-
being. A simple swit ch t o using a free t ext ing service like Apples iChat inst ead of SMS, free
classifieds like Craigslist inst ead of newspaper ads, or free calls like Skype inst ead of a
t radit ional t elephone service can make billions of dollars disappear from companies revenues
and t he GDP st at ist ics.
5
As t hese examples show, our economic welfare is only loosely relat ed t o GDP. Unfort unat ely
many economist s, journalist s, and much of t he general public st ill use GDP growt h as a
synonym for economic growt h. For much of t he t went iet h cent ury, t his was a fair comparison.
If one assumes t hat each addit ional unit of product ion creat ed a similar increment in well-being,
t hen count ing up how many unit s were produced, as GDP does, would be a fine approximat ion
of welfare. A nat ion t hat sells more cars, more bushels of wheat , and more t ons of st eel
probably corresponds t o a nat ion whose people are bet t er off.
Wit h a great er volume of digit al goods int roduced each year t hat do not have a dollar price,
t his t radit ional GDP heurist ic is becoming less useful. As we discussed in chapt er 4, t he second
machine age is oft en described as an informat ion economy, and wit h good reason. More
people t han ever are using Wikipedia, Facebook, Craigslist , Pandora, Hulu, and Google, wit h
t housands of new digit al goods int roduced each year.
The U.S. Bureau of Economic Analysis defines t he informat ion sect ors cont ribut ion t o t he
economy as t he sum of t he sales of soft ware, publishing, mot ion pict ures, sound recording,
broadcast ing, t elecommunicat ions, and informat ion and dat a processing services. According t o
t he official measures, t hese account for just 4 percent of our GDP t oday, almost precisely t he
same share of GDP as in t he lat e 1980s, before t he World Wide Web was even invent ed. But
clearly t his isnt right . The official st at ist ics are missing a growing share of t he real value
creat ed in our economy.
Measuring Growth with a Time Machine: Would You Rather . . . ?
Can we improve on GDP as a measure of well-being? Economist s somet imes use an alt ernat e
approach t hat resembles t he childrens game Would you rat her . . . ? The 1912 Sears
shopping cat alog had t housands of it ems for sale, from a Sears Mot or Car for $335 (page
1,213) t o dozens of pairs of womens shoes, some available for as lit t le as $1.50 (pages 371
79). Suppose I gave you an expanded version of t his cat alog t hat list ed all t he goods and
services available in 1912, not just from Sears, but from any seller in t he economy of 1912, and
all t he same prices as 1912.
6
Would you rat her shop exclusively in t hat old cat alog, wit h no
ot her choices, or would you rat her pay t odays prices for a full select ion of t odays goods and
services?
Or t o make t he comparison less difficult , pick t wo more recent cat alogs, like 1993 versus
2013. If you had fift y t housand dollars t o spend, would you rat her be able t o buy any 1993-
model car (it would be brand-new) and pay 1993 prices, or a 2013 car and pay 2013 prices?
Would you rat her be able t o buy t he bananas, cont act lenses, chicken wings, shirt s, chairs,
banking services, airline t icket s, movies, t elephone service, healt h care, housing services, light
bulbs, comput ers, gasoline, and ot her goods and services t hat were available in 1993 at 1993
prices? Or would you rat her buy t he equivalent 2013 basket of services at 2013 prices?
Bananas or a gallon of gasoline have not really changed qualit at ively since 1993, so t he only
difference t o consider is t heir price. If t hat were t he only difference, inflat ion would be easy t o
calculat e, and t he would you rat her comparison would be a lot easier, t oo. For ot her goods,
t hough, especially second machine age goods like online informat ion and mobile phone
capabilit ies, t here have been big changes in qualit y, so t he real qualit y-adjust ed price may have
fallen even if t he nominal st icker price has increased. What s more, t here are a lot of new goods
t hat didnt exist before, especially digit al goods. There are also some older goods and services
t hat have been discont inued or degraded. It s hard t o find a good horsehide razor st rop t hese
days,
7
or a 1993 vint age personal comput er, or a gas st at ion where t he at t endant s rout inely
wash your windshield for no charge, like t hey once did.
Once you pick which cat alog you like bet t er, t he next st ep asks how much money I would
have t o pay you t o make you indifferent bet ween t he t wo cat alogs. If I have t o pay you 20
percent more t o make you just as happy shopping from t he new cat alog as you would be
shopping from t he old cat alog, t hen t he overall price index has increased by 20 percent . And if
your income has not changed, t hen t hat erosion of purchasing power t ranslat es t o an
equivalent fall in your st andard of living. Similarly, if your income increases fast er t han t he price
index, t hen your st andard of living is increasing.
This approach makes sense concept ually, and it s t he basis for t he way most modern
government s calculat e changes in t he st andard of living. For inst ance, t he cost of living
adjust ment s used t o index Social Securit y payment s are based on t his kind of analysis.
8
But
t he dat a used for t hese calculat ions are almost always drawn, underst andably, from market
t ransact ions where money changes hands. The free economy is not fact ored in.
Consumer Surplus: How Much Would You Pay If You Had To?
An alt ernat ive approach measures t he consumer surplus generat ed by goods and services.
Consumer surplus compares t he amount a consumer would have been willing t o pay for
somet hing t o t he amount t hey act ually have t o pay. If you would happily pay one dollar t o read
t he morning newspaper but inst ead you get it for free, t hen youve just gained one dollar of
consumer surplus. However, as not ed above, replacing a paid newspaper wit h an equivalent
free new service would decrease GDP even t hough it increased consumer surplus.
9
In t his
case, consumer surplus would be a bet t er measure of our economic well-being. Yet as
appealing as consumer surplus is as a concept , it is also ext remely difficult t o measure.
The difficult y in measuring t he consumer surplus, however, has not st opped a number of
researchers from t rying t o eke out some est imat es. In 1993, Erik wrot e a paper calculat ing t hat
t he rapidly growing consumer surplus from price declines in comput ers increased economic
welfare by about $50 billion each year.*
10
Of course, when t he product being st udied is already free, looking at price declines doesnt
work. Recent research t hat Erik did wit h Joo Hee Oh, a post doct oral st udent at MIT, t ook a
different approach. They st art ed wit h t he observat ion t hat even when people dont pay wit h
money, t hey st ill give up somet hing valuable whenever t hey use t heir Int ernet : t heir t ime.
11
No
mat t er how rich or poor we are, each of us get s t went y-four hours in a day. In order t o
consume YouTube, Facebook, or e-mail, we must pay at t ent ion. In fact , Americans nearly
doubled t he amount of leisure t ime t hey spent on Int ernet bet ween 2000 and 2011. This
implies t hat t hey valued it more t han t he ot her ways t hey could spend t heir t ime. By
considering t he value of users t ime and comparing leisure t ime spent on t he Int ernet t o t ime
spent in ot her ways, Erik and Joo Hee est imat ed t hat t he Int ernet creat ed about $2,600 of
value per user each year. None of t his showed up in t he GDP st at ist ics but if it had, GDP
growt hand t hus product ivit y growt hwould have been about 0.3 percent higher each year.
In ot her words, inst ead of t he report ed 1.2 percent product ivit y growt h for 2012, it would have
been 1.5 percent .
In cont rast t o leisure, where more t ime is a good t hing, value at work is creat ed by saving
t ime. Hal Varian, t he chief economist at Google, looked specifically at t ime savings gained from
Google searches.
12
He and his t eam gat hered a random sample of Google queries, such as: In
making cookies, does t he use of but t er or margarine affect t he size of t he cookie? The t eam
t hen did t heir best job t o answer t he quest ions wit hout using Googleby looking answers up
in t he library, for inst ance. On average it t ook about t went y-t wo minut es t o answer a query
wit hout Google (not count ing t ravel t ime t o t he library!) but only seven minut es t o answer t he
same query wit h Google. Google saved an average of fift een minut es per query. When you
mult iply t hat t ime difference out across all t he queries t hat t he average American makes using
t he average hourly wage of Americans ($22), t hat works out t o about $500 per adult worker
per year.
As anyone who has been caught up in t he pleasures of surfing t he Web (perhaps while
doing research for a book) can at t est , t hough, t he st rict dist inct ion bet ween work and play or
input and out put t hat economist s make is not always so clear. The billions of hours t hat people
spend uploading, t agging, and comment ing on phot os on social media sit es like Facebook
unquest ionably creat es value for t heir friends, family, and even st rangers. Yet at t he same t ime
t hese hours are uncompensat ed, so presumably t he people doing t his work find it more
int rinsically rewarding t han t he next best use of t heir t ime. To get a sense on t he scale of t his
effort , consider t hat last year users collect ively spent about 200 million hours each day just on
Facebook, much of it creat ing cont ent for ot her users t o consume.
13
That s t en t imes as many
person-hours as were needed t o build t he ent ire Panama Canal.
14
None of t his is count ed in our
GDP st at ist ics as eit her input or out put , but t hese kinds of zero-wage and zero-price act ivit ies
st ill cont ribut e t o welfare. Researchers like Luis von Ahn at Carnegie Mellon are working on
ways of mot ivat ing and organizing millions of people t o creat e value via collect ive project s on
t he Int ernet .
15
New Goods and Services
In t he early days of t he 1990s Int ernet boom, vent ure capit alist s used t o joke t hat t here were
only t wo numbers in t he new economy: infinit y and zero. Cert ainly, a big part of t he value in t he
new economy has come from t he reduct ion in t he price of many goods t o zero. But what about
t he ot her end of t hat spect rum, price drops from infinit y down t o some finit e number? Suppose
Warner Bros. makes a new movie and you can wat ch it for nine dollars. Has your welfare
increased? Before t he movie was conceived, cast , filmed, and dist ribut ed, you couldnt buy it at
any price, even infinit y. In a sense, paying just nine bucks is a pret t y large price reduct ion from
infinit y, or what ever t he maximum price was t hat you would have been willing t o pay. Similarly,
we now have access t o all sort s of new services t hat never exist ed before, some of which we
saw in earlier chapt ers. Much of t he increase in our welfare over t he past cent ury comes not
just from making exist ing goods more cheaply but from expanding t he range of goods and
services available.
Sevent y-seven percent of soft ware companies report t he int roduct ion of new product s each
year, and Int ernet ret ailing has vast ly expanded t he set of goods available t o most
consumers.
16
Wit h a few clicks, over t wo million books can be found and purchased at
Amazon.com. By cont rast , t he t ypical physical bookst ore has about 40,000 t it les and even t he
largest Barnes & Noble st ore in New York Cit y st ocks only 250,000 t it les. As document ed in a
research paper t hat Erik wrot e wit h Michael Smit h and Jeffrey Hu, t here have been similar
increases in t he online select ion for ot her cat egories such as videos, music, elect ronics, and
collect ibles. Every t ime a new product is made available, it increases consumer surplus.
One way t o t hink of t he value creat ed is t o imagine t hat t he new product always exist ed,
but only at such a high price t hat no one could buy it . Making it available is like lowering t he
price t o a more reasonable level. There have even been subst ant ial increases in t he number of
st ock keeping unit s (SKUs) in most physical st ores as comput erized invent ory management
syst ems, supply chains, and manufact uring have become more efficient and flexible. For t he
overall economy, t he official GDP numbers miss t he value of new goods and services added t o
t he t une of about 0.4 percent of addit ional growt h each year, according t o economist Robert
Gordon.* Remember t hat product ivit y growt h has been in t he neighborhood of 2 percent per
year for most of t he past cent ury, so cont ribut ion of new goods is not a t rivial port ion.
Reputations and Recommendations
Digit izat ion also brings a relat ed but subt ler benefit t o t he vast array of goods and services
t hat already exist in t he economy. Lower search and t ransact ion cost s mean fast er and easier
access and increased efficiency and convenience. For example, t he rat ing sit e Yelp collect s
millions of cust omer reviews t o help diners find nearby rest aurant s in t he qualit y and price
ranges t hey seek, even when t hey are visit ing new cit ies. The reservat ion service OpenTable
t hen let s t hem book a t able wit h just a few mouse clicks.
In aggregat e, digit al t ools like t hese make a large difference. In t he past , ignorance prot ect ed
inefficient or lower-qualit y sellers from being unmasked by unsuspect ing consumers, while
geography limit ed compet it ion from ot her sellers. Wit h t he int roduct ion of st ruct ured
comparison sit es like FindTheBest .com and Kayak, airline t ravel, banking, insurance, car sales,
mot ion pict ures, and many ot her indust ries are being t ransformed by consumers abilit y t o
search for and compare compet ing sellers. No longer can a seller of subst andard services
expect t o feed on a cont inuing st ream of na ve or ill-informed consumers. No longer can t he
seller expect t o be insulat ed from compet it ors in ot her locat ions who can deliver a bet t er
service for less. Research by Michael Luca of Harvard Business School has found t hat t he
increased t ransparency has helped smaller independent rest aurant s compet e wit h bigger
chains because cust omers can more quickly find qualit y food via rat ing services like Yelp,
reducing t heir reliance on brand names expensive market ing campaigns.
17
The int angible benefit s delivered by t he growing sharing economybet t er mat ches,
t imeliness, cust omer service, and increased convenienceare exact ly t he t ypes of benefit s
ident ified by t he 1996 Boskin Commission as being poorly measured in our official price and
GDP st at ist ics.
18
This is anot her way in which our t rue growt h is great er t han t he st andard dat a
suggest .
Intangible Assets
Just as free goods rat her t han physical product s are an increasingly import ant share of
consumpt ion, int angibles also make up a growing share of t he economys capit al asset s.
Product ion in t he second machine age depends less on physical equipment and st ruct ures and
more on t he four cat egories of int angible asset s: int ellect ual propert y, organizat ional capit al,
user-generat ed cont ent , and human capit al.
Int ellect ual propert y includes pat ent s and copyright s. The rat e of pat ent ing by American
invent ors has been increasing rapidly since t he 1980s,
19
and ot her t ypes of int ellect ual asset s
have also grown.
20
In addit ion, a lot of research and development (R&D) is never formalized as
int ellect ual propert y but is st ill very valuable.
The secondand even largercat egory of int angibles is organizat ional capit al like new
business processes, t echniques of product ion, organizat ional forms, and business models.
Effect ive uses of t he new t echnologies of t he second machine age almost invariably require
changes in t he organizat ion of work. For inst ance, when companies spend millions of dollars on
comput er hardware and soft ware for a new ent erprise resource planning syst em, t hey t ypically
also include process changes t hat are t hree t o five t imes as cost ly as t he original invest ment s
in hardware and soft ware. Yet , while t he hardware and soft ware spending generally shows up
as addit ions t o t he nat ions capit al st ock, t he new business processes, which oft en out last t he
hardware, are generally not count ed as capit al. Our research suggest s t hat a correct
account ing for comput er-relat ed int angible asset s would add over $2 t rillion t o t he official
est imat es of t he capit al asset s in t he Unit ed St at es economy.
21
User-generat ed cont ent is a smaller but rapidly growing t hird cat egory of int angible asset s.
Users of Facebook, YouTube, Twit t er, Inst agram, Pint erest , and ot her t ypes of online cont ent
not only consume t his free cont ent and gain t he consumer surplus discussed above but also
produce most of t he cont ent . There are 43,200 hours of new YouTube videos creat ed each
day,
22
as well as 250 million new phot os uploaded each day on Facebook.
23
Users also
cont ribut e valuable but unmeasured cont ent in t he form of reviews on sit es like Amazon,
TripAdvisor, and Yelp. In addit ion, user-generat ed cont ent includes t he simple binary
informat ion used t o sort reviews and present t he best cont ent first (e.g., when Amazon asks
Was t his review helpful t o you?). Hardware and soft ware companies now compet e t o
improve t he product ivit y of user-generat ed cont ent act ivit ies. For example, smart phones and
apps for smart phones now include easy or aut omat ic t ools for post ing phot os on Facebook.
This cont ent has value t o ot her users and can be t hought of as yet anot her t ype of int angible
capit al asset t hat is being added t o our collect ive wealt h.
The fourt h and biggest cat egory is t he value of human capit al. The many years t hat we all
spend in schools learning skills like reading, writ ing, and arit hmet icas well as t he addit ional
learning t hat happens on t he job and on our ownmakes us more product ive and, in some
cases, is int rinsically rewarding. It is also a cont ribut ion t o t he nat ions capit al st ock. According
t o Dale Jorgenson and Barbara Fraumeni, t he value of human capit al in t he Unit ed St at es is
five t o t en t imes larger t han t he value of all t he physical capit al in t he Unit ed St at es.
24
Human
capit al has not always been t his import ant t o t he economy. The great economist Adam Smit h
underst ood t hat one of t he great drawbacks of t he first machine age was t he way it forced
workers t o do repet it ive t asks. In 1776, he not ed, The man whose whole life is spent in
performing a few simple operat ions, of which t he effect s are perhaps always t he same, or very
nearly t he same, has no occasion t o exert his underst anding.
25
As well discuss furt her lat er in
t he book, invest ment s in human capit al will be increasingly import ant as rout ine t asks become
aut omat ed and t he need for human creat ivit y increases.
Import ant as t hese int angible asset s are, t he official GDP ignores t hem. User-generat ed
cont ent , for example, involves unmeasured labor creat ing an unmeasured asset t hat is
consumed in unmeasured ways t o creat e unmeasured consumer surplus. In recent years,
however, t here have been some effort s t o creat e experiment al sat ellit e account s. They t rack
some of t hese cat egories of int angible asset s in t he U.S. economy. For inst ance, t he new
sat ellit e account s creat ed by t he Bureau of Economic Analysis est imat e t hat invest ment in
R&D capit al account ed for about 2.9 percent of GDP and has increased economic growt h by
about 0.2 percent per year bet ween 1995 and 2004.
26
It s hard t o say exact ly how large t he bias is from miscount ing all t he t ypes of int angible
asset s, but we are reasonably confident t he official dat a underest imat e t heir cont ribut ion.*
New Metrics Are Needed for the Second Machine Age
It s a fundament al principle of management : what get s measured get s done. Modern GDP
account ing was cert ainly a huge st ep forward for economic progress. As Paul Samuelson and
Bill Nordhaus put it , While t he GDP and t he rest of t he nat ional income account s may seem t o
be arcane concept s, t hey are t ruly among t he great invent ions of t he t went iet h cent ury.
27
But t he rise in digit al business innovat ion means we need innovat ion in our economic
met rics. If we are looking at t he wrong gauges, we will make t he wrong decisions and get t he
wrong out put s. If we measure only t angibles, t hen we wont cat ch t he int angibles t hat will
make us bet t er off. If we dont measure pollut ion and innovat ion, t hen we will get t oo much
pollut ion and not enough innovat ion. Not everyt hing t hat count s can be count ed, and not
everyt hing t hat can be count ed, count s.
As Nobel Prize winner Joe St iglit z put it :
The fact that GDP may be a poor measure of well-being, or even of market activity, has, of course, long been
recognized. But changes in society and the economy may have heightened the problems, at the same time that
advances in economics and statistical techniques may have provided opportunities to improve our metrics.
28
The new met rics will differ bot h in concept ion and execut ion. We can build on some of t he
exist ing surveys and t echniques researchers have been using. For inst ance, t he human
development index uses healt h and educat ion st at ist ics t o fill in some of t he gaps in official
GDP st at ist ics
29
; t he mult idimensional povert y index uses t en different indicat orssuch as
nut rit ion, sanit at ion, and access t o wat ert o assess well-being in developing count ries.
30
Childhood deat h rat es and ot her healt h indicat ors are recorded in periodic household surveys
like t he Demographic and Healt h Surveys.
31
There are several promising project s in t his area. Joe St iglit z, Amart ya Sen, and Jean-Paul
Fit oussi have creat ed a det ailed guide for how we can do a comprehensive overhaul of our
economic st at ist ics.
32
Anot her promising project is t he Social Progress Index t hat Michael
Port er, Scot t St ern, Robert o Loria, and t heir colleagues are developing.
33
In Bhut an, t heyve
begun measuring Gross Nat ional Happiness. There is also a long-running poll behind t he
Gallup-Healt hways Well-Being Index.
34
These are all import ant improvement s, and we heart ily support t hem. But t he biggest
opport unit y is in using t he t ools of t he second machine age it self: t he ext raordinary volume,
variet y, and t imeliness of dat a available digit ally. The Int ernet , mobile phones, embedded
sensors in equipment , and a plet hora of ot her sources are delivering dat a cont inuously. For
inst ance, Robert o Rigobon and Albert o Cavallo measure online prices from around t he world on
a daily basis t o creat e an inflat ion index t hat is far t imelier and, in many cases, more reliable,
t han official dat a gat hered via mont hly surveys wit h much smaller samples.
35
Ot her economist s
are using sat ellit e mapping of night t ime art ificial light sources t o est imat e economic growt h in
different part s of t he world, and assessing t he frequency of Google searches t o underst and
changes in unemployment and housing.
36
Harnessing t his informat ion will produce a quant um
leap in our underst anding of t he economy, just as it has already changed market ing,
manufact uring, finance, ret ailing, and virt ually every ot her aspect of business decision-making.
As more dat a become available and as t he economy cont inues t o change, t he abilit y t o ask
t he right quest ions will become even more vit al. No mat t er how bright t he light is, you wont
find your keys by searching under a lamppost if t hat s not where you lost t hem. We must t hink
hard about what it is we really value, what we want more of, and what we want less of. GDP
and product ivit y growt h are import ant , but t hey are means t o an end, not ends in and of
t hemselves. Do we want t o increase consumer surplus? Then lower prices or more leisure
might be signs of progress, even if t hey result in a lower GDP. And, of course, many of our goals
are nonmonet ary. We shouldnt ignore t he economic met rics, but neit her should we let t hem
crowd out our ot her values simply because t hey are more measurable.
In t he meant ime, we need t o bear in mind t hat t he GDP and product ivit y st at ist ics overlook
much of what we value, even when using a narrow economic lens. What s more, t he gap
bet ween what we measure and what we value grows every t ime we gain access t o a new
good or service t hat never exist ed before, or when exist ing goods become free as t hey so
oft en do when t hey are digit ized.
* There have been a number of related findings since then. Last year, the economists Jeremy Greenwood and Karen
Kopecky applied a similar approach and found a similar growth contribution for personal computers alone. Shane
Greenstein and Ryan McDevitt, another pair of economists, asked how much consumer surplus was created by the
spread of broadband Internet access. They looked at how the real price of broadband had declined over time and how
adoption of the service had increased. From that, they estimate how much people would have been willing to pay
compared to what they actually paid, and thus arrive at the consumer surplus. A research team at McKinsey took a more
direct approach. The team asked 3,360 consumers what they would have been willing to pay for sixteen specific services
available via the Internet. The average willingness to pay added up to fifty dollars per month. Based on this, the team
estimated that Americans received over $35 billion worth of consumer surplus from the free Internet. The biggest single
category was e-mail, with social networks like Facebook close behind.
* Yes, our long-time friend, the same Robert J. Gordon we discussed in chapter 6. See http://faculty-
web.at.northwestern.edu/economics/gordon/p376_ipm_final_060313.pdf.
* Unlike unmeasured intangible consumption goods, the bad measures of intangible capital goods dont automatically
bias official productivity statistics. On one hand, like all intangibles, intangible capital goods make the output numbers
bigger. But at the same time, they are also used for production and thus make the input numbers bigger. In a steady state
where both the input and output numbers are growing at the same rate, these two effects cancel out, so there is no bias in
the productivity numbers, defined as output/input. Steady growth has been roughly true for some types of intangibles,
such as the human capital assets that are created by education. But other categorieslike computer-related
organizational capital or the user-generated capital on digital content sitesappears to have been growing rapidly. For
these categories of intangible assets, the official productivity numbers understate the true growth of the economy.
An imbalance between rich and poor is the oldest and most fatal ailment of all republics.
Plutarch
OF THE 3.5 TRI LLI ON phot os t hat have been snapped since t he first image of a busy Parisian st reet
in 1838, fully 10 percent were t aken in t he last year.
1
Unt il recent ly, most phot os were analog,
creat ed using silver halide and ot her chemicals. But analog phot ography peaked in 2000.
2
Today, over 2.5 billion people have digit al cameras and t he vast majorit y of phot os are digit al.
3
The effect s are ast onishing: it has been est imat ed t hat more phot os are now t aken every t wo
minut es t han in all of t he ninet eent h cent ury.
4
We now record t he people and event s of our
lives wit h unprecedent ed det ail and frequency, and share t hem more widely and easily t han
ever before.
While digit izat ion has obviously increased t he quant it y and convenience of phot ography, it
has also profoundly changed t he economics of phot ography product ion and dist ribut ion. A
t eam of just fift een people at Inst agram creat ed a simple app t hat over 130 million cust omers
use t o share some sixt een billion phot os (and count ing).
5
Wit hin fift een mont hs of it s founding,
t he company was sold for over $1 billion t o Facebook. In t urn, Facebook it self reached one
billion users in 2012. It had about 4,600 employees
6
including barely 1,000 engineers.
7
Cont rast t hese figures wit h pre-digit al behemot h Kodak, which also helped cust omers share
billions of phot os. Kodak employed 145,300 people at one point , one-t hird of t hem in
Rochest er, New York, while indirect ly employing t housands more via t he ext ensive supply
chain and ret ail dist ribut ion channels required by companies in t he first machine age. Kodak
made it s founder, George East man, a rich man, but it also provided middle-class jobs for
generat ions of people and creat ed a subst ant ial share of t he wealt h creat ed in t he cit y of
Rochest er aft er companys founding in 1880. But 132 years lat er, a few mont hs before
Inst agram was sold t o Facebook, Kodak filed for bankrupt cy.
8
Phot ography has never been
more popular. Today, sevent y billion phot os are uploaded t o Facebook each year, and many
t imes more are shared via ot her digit al services like Flickr at nearly zero cost . These phot os are
all digit al, so hundreds of t housands of people who used t o work making phot ography
chemicals and paper are no longer needed. In a digit al age, t hey need t o find some ot her way
t o support t hemselves.
The evolut ion of phot ography illust rat es the bounty of t he second machine age, t he first
great economic consequence of t he exponent ial, digit al, combinat orial progress t aking place at
present . The second one, spread, means t here are large and growing differences among
people in income, wealt h, and ot her import ant circumst ances of life. Weve creat ed a
cornucopia of images, sharing nearly four hundred billion Kodak moment s each year wit h a
few clicks of a mouse or t aps on a screen. But companies like Inst agram and Facebook employ
a t iny fract ion of t he people t hat were needed at Kodak. Nonet heless, Facebook has a market
value several t imes great er t han Kodak ever did and has creat ed at least seven billionaires so
far, each of whom has a net wort h t en t imes great er t han George East man did. The shift from
analog t o digit al has delivered a bount y of digit al phot os and ot her goods, but it has also
cont ribut ed t o an income dist ribut ion t hat is far more spread out t han before.
Phot ography is not an isolat ed example of t his shift . Similar st ories have been and will be
t old in music and media; in finance and publishing; in ret ailing, dist ribut ion, services, and
manufact uring. In almost every indust ry, t echnological progress will bring unprecedent ed
bount y. More wealt h will be creat ed wit h less work. But at least in our current economic
syst em, t his progress will also have enormous effect s on t he dist ribut ion income and wealt h. If
t he work a person produces in one hour can inst ead be produced by a machine for one dollar,
t hen a profit -maximizing employer wont offer a wage for t hat job of more t han one dollar. In a
free-market syst em, eit her t hat worker must accept a wage of one dollar an hour or find some
new way t o make a living. Conversely, if a person finds a new way t o leverage insight s, t alent s,
or skills across one million new cust omers using digit al t echnologies, t hen he or she might earn
one million t imes as much as would be possible ot herwise. Bot h t heory and dat a suggest t hat
t his combinat ion of bount y and spread is not a coincidence. Advances in t echnology, especially
digit al t echnologies, are driving an unprecedent ed reallocat ion of wealt h and income. Digit al
t echnologies can replicat e valuable ideas, insight s, and innovat ions at very low cost . This
creat es bount y for societ y and wealt h for innovat ors, but diminishes t he demand for previously
import ant t ypes of labor, which can leave many people wit h reduced incomes.
The combinat ion of bount y and spread challenges t wo common t hough cont radict ory
worldviews. One common view is t hat advances in t echnology always boost incomes. The
ot her is t hat aut omat ion hurt s workers wages as people are replaced by machines. Bot h of
t hese have a kernel of t rut h, but t he realit y is more subt le. Rapid advances in our digit al t ools
are creat ing unprecedent ed wealt h, but t here is no economic law t hat says all workers, or even
a majorit y of workers, will benefit from t hese advances.
For almost t wo hundred years, wages did increase alongside product ivit y. This creat ed a
sense of inevit abilit y t hat t echnology helped (almost ) everyone. But more recent ly, median
wages have st opped t racking product ivit y, underscoring t he fact t hat such a decoupling is not
only a t heoret ical possibilit y but also an empirical fact in our current economy.
Hows the Median Worker Doing?
Let s review some basic fact s.
A good place t o st art is median incomet he income of t he person at t he fift iet h percent ile
of t he t ot al dist ribut ion. The year 1999 was t he peak year for t he real (inflat ion-adjust ed)
income of t he median American household. It reached $54,932 t hat year, but t hen st art ed
falling. By 2011, it had fallen nearly 10 percent t o $50,054, even as overall GDP hit a record
high. In part icular, wages of unskilled workers in t he Unit ed St at es and ot her advanced
count ries have t rended downward.
Meanwhile, for t he first t ime since before t he Great Depression, over half t he t ot al income in
t he Unit ed St at es went t o t he t op 10 percent of Americans in 2012. The t op 1 percent earned
over 22 percent of income, more t han doubling t heir share since t he early 1980s. The share of
income going t o t he t op hundredt h of one percent of Americans, a few t housand people wit h
annual incomes over $11 million, is now at 5.5 percent , aft er increasing more bet ween 2011
and 2012 t han any year since 192728.
9
Several ot her met rics have also been increasingly unequal. For inst ance, while overall life
expect ancy cont inues t o rise, life expect ancies for some groups have st art ed t o fall. According
t o a st udy by S. Jay Olshansky and his colleagues published in Health Affairs, t he average
American whit e woman wit hout a high school diploma had a life expect ancy of 73.5 years in
2008, compared t o 78.5 years in 1990. Life expect ancy for whit e men wit hout a high school
educat ion fell by t hree years during t his period.
10
It s no wonder t hat prot est s broke out across America even as it was beginning t o recover
from t he Great Recession. The Tea Part y movement on t he right and t he Occupy movement
on t he left each channeled t he anger of t he millions of Americans who felt t he economy was
not working for t hem. One group emphasized government mismanagement and t he ot her
abuses in t he financial services sect or.
How Technology Is Changing Economics
While undoubt edly bot h of t hese problems are import ant , t he more fundament al challenge is
deep and st ruct ural, and is t he result of t he diffusion t o t he second machine age t echnologies
t hat increasingly drive t he economy.
Recent ly we overheard a businessman speaking loudly (and cheerfully) int o his mobile
phone: No way. I dont use an H&R Block t ax preparer anymore. Ive swit ched t o TurboTax
soft ware. It s only fort y-nine dollars, and it s much quicker and more accurat e. I love it ! The
businessman was bet t er off. He had a bet t er service at a lower price. Mult iplied by millions of
cust omers, TurboTax has creat ed a great deal of value for it s users, not all of which even
shows up in t he GDP st at ist ics. The creat ors of TurboTax are also bet t er offone is a
billionaire. But t ens of t housands of t ax preparers now find t heir jobs and incomes t hreat ened.
The businessmans experience holds a mirror t o t he broader changes in t he economy.
Consumers are bet t er off and enormous wealt h is creat ed, but a relat ively small group of
people oft en earns most of t he income from t he new product s or services. Like t he chemist s
who used silver halide t o creat e camera film in t he 1990s, human t ax preparers have a hard
t ime compet ing wit h machines. They can be made worse off by advances in t echnology, not
just relat ive t o t he winners, but also relat ive t o t heir income when t hey were working wit h t he
older t echnologies.
The crucial realit y from t he st andpoint of economics is t hat it t akes only a relat ively small
number of designers and engineers t o creat e and updat e a program like TurboTax. As we saw
in chapt er 4, once t he algorit hms are digit ized t hey can be replicat ed and delivered t o millions
of users at almost zero cost . As soft ware moves t o t he core of every indust ry, t his t ype of
product ion process and t his t ype of company increasingly populat es t he economy.
A Smaller Slice of a Bigger Pie
What happens when you scale up t hese t ypes of examples t o a whole economy? Is t here
somet hing bigger going on? The dat a say yes.
Bet ween 1983 and 2009, Americans became vast ly wealt hier overall as t he t ot al value of
t heir asset s increased. However, as not ed by economist s Ed Wolff and Sylvia Allegret t o, t he
bot t om 80 percent of t he income dist ribut ion act ually saw a net decrease in t heir wealt h.
11
Taken as a group, t he t op 20 percent got not 100 percent of t he increase, but more t han 100
percent . Their gains included not only t he t rillions of dollars of wealt h newly creat ed in t he
economy but also some addit ional wealt h t hat was shift ed in t heir direct ion from t he bot t om
80 percent . The dist ribut ion was also highly skewed even among relat ively wealt hy people.
The t op 5 percent got 80 percent of t he nat ions wealt h increase; t he t op 1 percent got over
half of t hat , and so on for ever-finer subdivisions of t he wealt h dist ribut ion. In an oft -cit ed
example, by 2010 t he six heirs of Sam Walt ons fort une, earned when he creat ed Walmart , had
more net wealt h t han t he bot t om 40 percent of t he income dist ribut ion in America.
12
In part ,
t his reflect s t he fact t hat t hirt een million families had a negat ive net wort h.
Along wit h wealt h, t he income dist ribut ion has also shift ed. The t op 1 percent increased
t heir earnings by 278 percent bet ween 1979 and 2007, compared t o an increase of just 35
percent for t hose in t he middle of t he income dist ribut ion. The t op 1 percent earned over 65
percent of income in t he Unit ed St at es bet ween 2002 and 2007. According t o Forbes, t he
collect ive net wort h of t he wealt hiest four hundred Americans reached a record t wo t rillion
dollars in 2013, more t han doubling since 2003.
13
IN SHORT, median income has increased very lit t le since 1979, and it has act ually fallen since 1999.
But t hat s not because growt h of overall income or product ivit y in America has st agnat ed; as
we saw in chapt er 7, GDP and product ivit y have been on impressive t raject ories. Inst ead, t he
t rend reflect s a significant reallocat ion of who is capt uring t he benefit s of t his growt h, and who
isnt .
This is perhaps easiest t o see if one compares average income wit h median income.
Normally, changes in t he average income (t ot al income divided by t he t ot al number of people)
are not very different from changes in median income (income of t he person exact ly in t he
middle of t he income dist ribut ionhalf earn more and half earn less). However, in recent years,
t he t rends have diverged significant ly, as shown in figure 9.1.
How is t his possible? Consider a simple example. Ten bank t ellers are drinking beers at a bar.
Each of t hem makes $30,000 a year, so bot h t he mean and median income of t his group is
$30,000. In walks t he CEO and orders a beer. Now t he average income of t he group has
skyrocket ed, but t he median hasnt changed at all. In general, t he more skewed t he incomes,
t he more t he mean t ends t o diverge from t he median. This is what has happened not only in
our hypot het ical bar but also in America as a whole.
Overall, bet ween 1973 and 2011, t he median hourly wage barely changed, growing by just
0.1 percent per year. In cont rast , as discussed in chapt er 7, product ivit y grew at an average of
1.56 percent per year during t his period, accelerat ing a bit t o 1.88 percent per year from 2000
t o 2011. Most of t he growt h in product ivit y direct ly t ranslat ed int o comparable growt h in
average income. The reason why median income growt h was so much lower was primarily
because of increases in inequalit y.
14
FI GURE 9. 1 Real GDP vs. Medi an I nc ome per Capi t a
The Three Pairs of Winners and Losers
In t he past couple of decades, weve seen changes in t ax policy, great er overseas compet it ion,
ongoing government wast e, and Wall St reet shenanigans. But when we look at t he dat a and
research, we conclude t hat none of t hese are t he primary driver of growing inequalit y. Inst ead,
t he main driver is exponent ial, digit al, and combinat orial change in t he t echnology t hat
undergirds our economic syst em. This conclusion is bolst ered by t he fact t hat similar t rends
are apparent in most advanced count ries. For inst ance, in Sweden, Finland, and Germany,
income inequalit y has act ually grown more quickly over t he past t went y t o t hirt y years t han in
t he Unit ed St at es.
15
Because t hese count ries st art ed wit h less inequalit y in t heir income
dist ribut ions, t hey cont inued t o be less unequal t han t he Unit ed St at es, but t he underlying
t rend is similar worldwide across somet imes markedly different inst it ut ions, government
policies, and cult ures.
As we discussed in our earlier book Race Against the Machine, t hese st ruct ural economic
changes have creat ed t hree overlapping pairs of winners and losers. As a result , not
everyones share of t he economic pie is growing. The first t wo set s of winners are t hose who
have accumulat ed significant quant it ies of t he right capit al asset s. These can be eit her
nonhuman capit al (such as equipment , st ruct ures, int ellect ual propert y, or financial asset s), or
human capit al (such as t raining, educat ion, experience, and skills). Like ot her forms of capit al,
human capit al is an asset t hat can generat e a st ream of income. A well-t rained plumber can
earn more each year t han an unskilled worker, even if t hey bot h work t he same number of
hours. The t hird group of winners is made up of t he superst ars among us who have special
t alent sor luck.
In each group, digit al t echnologies t end t o increase t he economic payoff t o winners while
ot hers become less essent ial, and hence less well rewarded. The overall gains t o t he winners
have been larger t han t ot al losses for everyone else. That simply reflect s t he fact we
discussed earlier: product ivit y and t ot al income have grown in t he overall economy. This good
news offers lit t le consolat ion t o t hose who are falling behind. In some cases t he gains, however
large, have been concent rat ed among a relat ively small group of winners, leaving t he majorit y
of people worse off t han before.
Skill-Biased Technical Change
The most basic model economist s use t o explain t echnologys impact t reat s it as a simple
mult iplier on everyt hing else, increasing overall product ivit y evenly for everyone.
16
This model
can be described in mat hemat ical equat ions. It is used in most int roduct ory economics classes
and provides t he foundat ion for t he commonand unt il recent ly, very sensibleint uit ion t hat
a rising t ide of t echnical progress will lift all boat s, t hat it will make all workers more product ive
and hence more valuable. Wit h t echnology as a mult iplier, an economy is able t o produce more
out put each year wit h t he same input s, including labor. And in t he basic model all labor is
affect ed equally by t echnology, meaning every hour worked produces more value t han it used
t o.
A slight ly more complex model allows for t he possibilit y t hat t echnology may not affect all
input s equally, but rat her may be biased t oward some and against ot hers. In part icular, in
recent years, t echnologies like payroll processing soft ware, fact ory aut omat ion, comput er-
cont rolled machines, aut omat ed invent ory cont rol, and word processing have been deployed
for rout ine work, substituting for workers in clerical t asks, on t he fact ory floor, and doing rot e
informat ion processing.
By cont rast , t echnologies like big dat a and analyt ics, high-speed communicat ions, and rapid
prot ot yping have augmented t he cont ribut ions made by more abst ract and dat a-driven
reasoning, and in t urn have increased t he value of people wit h t he right engineering, creat ive,
or design skills. The net effect has been t o decrease demand for less skilled labor while
increasing t he demand for skilled labor. Economist s including David Aut or, Lawrence Kat z and
Alan Krueger, Frank Levy and Richard Murnane, Daron Acemoglu, and many ot hers have
document ed t his t rend in dozens of careful st udies.
17
They call it skill-biased technical change.
By definit ion, skill-biased t echnical change favors people wit h more human capit al.
FI GURE 9. 2 Wages f or Ful l -Ti me, Ful l -Year Mal e U.S. Workers, 19632008
The effect s of skill-biased t echnical change can be vividly seen in figure 9.2, which is based
on dat a from a paper by MIT economist s Daron Acemoglu and David Aut or.
18
The lines t ell a
st ory about t he diverging pat hs of millions of workers over recent generat ions. Before 1973,
American workers all enjoyed brisk wage growt h. The rising t ide of product ivit y increased
everyones incomes, regardless of t heir educat ional levels. Then came t he massive oil shock
and recession of t he 1970s, which reversed t he gains for all groups. However, aft er t hat , we
began t o see a growing spread of incomes. By t he early 1980s, t hose wit h college degrees
st art ed t o see t heir wages growing again. Workers wit h graduat e degrees did part icularly well.
Meanwhile, workers wit hout college degrees were confront ed wit h a much less at t ract ive labor
market . Their wages st agnat ed or, if t hey were high school dropout s, act ually fell. It s not a
coincidence t hat t he personal comput er revolut ion st art ed in t he early 1980s; t he PC was
act ually Time magazines machine of t he year in 1982.
The economics of t he st ory become even more st riking when one considers t hat t he number
of college graduat es grew very rapidly during t his period. The number of people enrolled in
college more t han doubled bet ween 1960 and 1980, from 758,000 t o 1,589,000.
19
In ot her
words, t here was a large increase in t he supply of educat ed labor. Normally, great er supply
leads t o lower prices. In t his case, t he flood of graduat es from college and graduat e school
should have pushed down t heir relat ive wages, but it didnt .
The combinat ion of higher pay despit e growing supply can only mean t hat t he relat ive
demand for skilled labor increased even fast er t han supply. And at t he same t ime, t he demand
for t asks t hat could be complet ed by high school dropout s fell so rapidly t hat t here was a glut
of t his t ype of worker, even t hough t heir ranks were t hinning. The lack of demand for unskilled
workers meant ever-lower wages for t hose who cont inued t o compet e for low-skill jobs. And
because most of t he people wit h t he least educat ion already had t he lowest wages, t his
change increased overall income inequalit y.
Organizational Coinvention
While a one-for-one subst it ut ion of machines for people somet imes occurs, a broader
reorganizat ion in business cult ure may have been an even more import ant pat h for skill-biased
change. Work t hat Erik did wit h St anfords Tim Bresnahan, Whart ons Lorin Hit t , and MITs
Shinkyu Yang found t hat companies used digit al t echnologies t o reorganize decision-making
aut horit y, incent ives syst ems, informat ion flows, hiring syst ems, and ot her aspect s of t heir
management and organizat ional processes.
20
This coinvent ion of organizat ion and t echnology
not only significant ly increased product ivit y but t ended t o require more educat ed workers and
reduce demand for less-skilled workers. This reorganizat ion of product ion affect ed t hose who
worked direct ly wit h comput ers as well as workers who, at first glance, seemed t o be far from
t he t echnology. For inst ance, a designer wit h a knack for st yle might find herself in great er
demand at a company wit h flexible equipment in dist ant fact ories t hat can quickly adapt t o t he
lat est fashions, while an airport t icket agent might find himself replaced by an Int ernet websit e
he never knew exist ed, let alone worked wit h.
Among t he indust ries in t he st udy, each dollar of comput er capit al was oft en t he cat alyst for
more t han t en dollars of complement ary invest ment s in organizat ional capit al, or invest ment s
more t han t en dollars of complement ary invest ment s in organizat ional capit al, or invest ment s
in t raining, hiring, and business process redesign.
21
The reorganizat ion oft en eliminat es a lot of
rout ine work, such as repet it ive order ent ry, leaving behind a residual set of t asks t hat require
relat ively more judgment , skills, and t raining.
Companies wit h t he biggest IT invest ment s t ypically made t he biggest organizat ional
changes, usually wit h a lag of five t o seven years before seeing t he full performance benefit s.
22
These companies had t he biggest increase in t he demand for skilled work relat ive t o unskilled
work.
23
The lags reflect ed t he t ime t hat it t akes for managers and workers t o figure out new
ways t o use t he t echnology. As we saw in our earlier discussion of elect rificat ion and fact ory
design, businesses rarely get significant performance gains from simply paving t he cowpat hs
as opposed t o ret hinking how t he business can be redesigned t o t ake advant age of new
t echnologies.
24
Creat ivit y and organizat ional redesign are crucial t o invest ment s in digit al
t echnologies.*
This means t hat t he best way t o use new t echnologies is usually not t o make a lit eral
subst it ut ion of a machine for each human worker, but t o rest ruct ure t he process. Nonet heless,
some workers (usually t he less skilled ones) are st ill eliminat ed from t he product ion process
and ot hers are augment ed (usually t hose wit h more educat ion and t raining), wit h predict able
effect s on t he wage st ruct ure. Compared t o simply aut omat ing exist ing t asks, t his kind of
organizat ional coinvent ion requires more creat ivit y on t he part of ent repreneurs, managers,
and workers, and for t hat reason it t ends t o t ake t ime t o implement t he changes aft er t he
init ial invent ion and int roduct ion of new t echnologies. But once t he changes are in place, t hey
generat e t he lions share of product ivit y improvement s.
The Skill Set Affected by Computerization Is Evolving
If we look more closely at t he jobs eliminat ed as companies reorganized, skill-biased technical
change can be a bit of a misleading moniker. In part icular, it would be a mist ake t o assume t hat
all college-level t asks are hard t o aut omat e while kindergart en t asks are easy. In recent
years, low-skill t asks havent always been t he ones being aut omat ed; more oft en it has been
t asks t hat machines can do bet t er t han humans. Of course, t hat s a bit of a t aut ology, but a
useful t aut ology nonet heless. Repet it ive work on an assembly line is easier t o aut omat e t han
t he work of a janit or. Rout ine clerical work like processing payment s is easier t o aut omat e t han
handling cust omers quest ions. At present , machines are not very good at walking up st airs,
picking up a paperclip from t he floor, or reading t he emot ional cues of a frust rat ed cust omer.
To capt ure t hese dist inct ions, work by our MIT colleagues Daron Acemoglu and David Aut or
suggest s t hat work can be divided int o a t wo-by-t wo mat rix: cognit ive versus manual and
rout ine versus nonrout ine.
25
They found t hat t he demand for work has been falling most
dramat ically for rout ine t asks, regardless of whet her t hey are cognit ive or manual. This leads t o
job polarizat ion: a collapse in demand for middle-income jobs, while nonrout ine cognit ive jobs
(such as financial analysis) and nonrout ine manual jobs (like hairdressing) have held up
relat ively well.
Building on Acemoglu and Aut ors work, economist s Nir Jaimovich of Duke Universit y and
Henry Siu of t he Universit y of Brit ish Columbia found a link bet ween job polarizat ion and t he
jobless recoveries t hat have defined t he last t hree recessions. For most of t he ninet eent h and
t went iet h cent uries, employment usually rebounded st rongly aft er each recession, but since
t he 1990s employment didnt recover briskly aft er recessions. Again, it s not a coincidence t hat
as t he comput erizat ion of t he economy advanced, post -recession hiring pat t erns changed.
When Jaimovich and Siu compared t he 1980s, 1990s, and 2000s, t hey found t hat t he demand
for rout ine cognit ive t asks such as cashiers, mail clerks, and bank t ellers and rout ine manual
t asks such as machine operat ors, cement masons, and dressmakers was not only falling, but
falling at an accelerat ing rat e. These jobs fell by 5.6 percent bet ween 1981 and 1991, 6.6
percent bet ween 1991 and 2001, and 11 percent bet ween 2001 and 2011.
26
In cont rast , bot h
nonrout ine cognit ive work and nonrout ine manual work grew in all t hree decades.
CONVERSATI ONS WI TH senior execut ives help explain t his pat t ern in t he dat a. A few years ago, we had
a very candid discussion wit h one CEO, and he explained t hat he knew for over a decade t hat
advances in informat ion t echnology had rendered many rout ine informat ion-processing jobs
superfluous. At t he same t ime, when profit s and revenues are on t he rise, it can be hard t o
eliminat e jobs. When t he recession came, business as usual obviously was not sust ainable,
which made it easier t o implement a round of painful st reamlining and layoffs. As t he recession
ended and profit s and demand ret urned, t he jobs doing rout ine work were not rest ored. Like so
many ot her companies in recent years, his organizat ion found it could use t echnology t o scale
up wit hout t hese workers.
As we saw in chapt er 2, t his reflect s Moravacs paradox, t he insight t hat t he sensory and
mot or skills we use in our everyday lives require enormous comput at ion and sophist icat ion.
27
Over millions of years, evolut ion has endowed us wit h billions of neurons devot ed t o t he
subt let ies of recognizing a friends face, dist inguishing different t ypes of sounds, and using fine
mot or cont rol. In cont rast , t he abst ract reasoning t hat we associat e wit h higher t hought like
arit hmet ic or logic is a relat ively recent skill, developed over only a few t housand years. It oft en
requires simpler soft ware and less comput er power t o mimic or even exceed human
capabilit ies on t hese t ypes of t asks.
Of course, as weve seen t hroughout t his book, t he set of t asks machines can do is not
fixed. It is const ant ly evolving, just as our use of t he word comput er it self has evolved from
referring t o a job t hat humans do t o referring t o a piece of equipment .
In t he early 1950s, machines were t aught how t o play checkers and could soon beat
respect able amat eurs.
28
In January 1956, Herbert Simon ret urned t o t eaching his class and t old
his st udent s, Over Christ mas, Al Newell and I invent ed a t hinking machine. Three years lat er,
t hey creat ed a comput er program modest ly called t he General Problem Solver, which was
designed t o solve, in principle, any logic problem t hat could be described by a set of formal
rules. It worked well on simple problems like Tic-Tac-Toe or t he slight ly harder Tower of Hanoi
puzzle, alt hough it didnt scale up t o most real-world problems because of t he combinat orial
explosion of possible opt ions t o consider.
Cheered by t heir early successes and t hose of ot her art ificial int elligence pioneers like Marvin
Minsky, John McCart hy and Claude Shannon, and Simon and Newell were quit e opt imist ic
about how rapidly machines would mast er human skills, predict ing in 1958 t hat a digit al
comput er would be t he world chess champion by 1968.
29
In 1965, Simon went so far as t o
predict , machines will be capable, wit hin t went y years, of doing any work a man can do.
30
Simon won t he Nobel Prize in Economics in 1978, but he was wrong about chess, not t o
ment ion all t he ot her t asks t hat humans can do. His mist ake may have been more about t he
t iming t han t he ult imat e out come. Aft er Simon made his predict ion, comput er chess programs
improved by about fort y point s per year on t he official Elo chess rat ing syst em. On May 11,
1997, fort y years aft er Simons predict ion, an IBM comput er called Deep Blue beat t he world
chess champion, Gary Kasparov, aft er a six-game mat ch. Today, no human can beat even a
mid-t ier comput er chess program. In fact , soft ware and hardware have progressed so rapidly
t hat by 2009, chess programs running on ordinary personal comput ers, and even mobile
phones, have achieved grandmast er levels wit h Elo rat ings of 2,898 and have won
t ournament s against t he t op human players.
31
Labor and Capital
Technology is not only creat ing winners and losers among t hose wit h differing amount s of
human capit al, it is also changing t he way nat ional income is divided bet ween t he owners of
physical capit al and labor (people like fact ory owners and fact ory workers)t he t wo classical
input s t o product ion.
When Terry Gou, t he founder of Foxconn, purchased t hirt y t housand robot s t o work in t he
companys fact ories in China, he was subst it ut ing capit al for labor.
32
Similarly, when an
aut omat ed voice-response syst em usurps some of t he funct ions of human call cent er
operat ors, t he product ion process has more capit al and less labor. Ent repreneurs and
managers are const ant ly making t hese t ypes of decisions, weighing t he relat ive cost s of each
t ype of input , as well as t he effect s on t he qualit y, reliabilit y, and variet y of out put t hat can be
produced.
Rod Brooks est imat es t hat t he Baxt er robot we met in chapt er 2 works for t he equivalent of
about four dollars per hour, including all cost s.
33
As we discussed at t he st art of t his chapt er, t o
t he ext ent t hat a fact ory owner previously employed a human t o do t he same t ask t hat Baxt er
could do, t he economic incent ive would be t o subst it ut e capit al (Baxt er) for labor as long as
t he human was paid more t han four dollars per hour. If out put st ays t he same, and assuming
no new hires are made in engineering, management , or sales at t he company, it would increase
t he rat io of capit al t o labor input .*
Compensat ion of t he remaining workers could go up or down in t he wake of Baxt ers arrival.
If t heir work is a close subst it ut e for t he robot s, t hen t here will be downward pressure on
human wages. That will grow even worse if Moores Law and ot her advances allow fut ure
versions of Baxt er t o work for t wo dollars per hour, and t hen one dollar per hour, and so on,
while handling an increasing variet y and complexit y of t asks. However, economic t heory also
holds open t he possibilit y t hat t he remaining workers would see an increase in pay. In
part icular, if t heir work complement s t he t echnology, t hen demand for t heir services will
increase. In addit ion, as t echnical advances increase labor product ivit y, employers can afford t o
pay more for each worker. In some cases, t his is reflect ed direct ly in higher wages and benefit s.
In ot her cases, t he prices of product s and services fall, so t he real wage of workers increases
as t hey are able t o buy more wit h each dollar. As product ivit y improves, t ot al amount of out put
per person would increase but t he amount earned by human workers could eit her fall or rise,
wit h t he remainder going t o capit al owners.
Of course, almost every economy has been using t echnology t o subst it ut e capit al for labor
for decades, if not cent uries. Aut omat ic t hreshing machines replaced a full 30 percent of t he
agricult ural labor force in t he middle of t he ninet eent h cent ury, and indust rializat ion cont inued
at a brisk pace t hroughout t he t went iet h cent ury. Ninet eent h-cent ury economist s like Karl
Marx and David Ricardo predict ed t hat t he mechanizat ion of t he economy would worsen t he
fat e of workers, ult imat ely driving t hem t o a subsist ence wage.
34
What has act ually happened t o t he relat ive share of capit al and labor? Hist orically, despit e
changes in t he t echnology of product ion, t he share of overall GDP going t o labor has been
surprisingly st able, at least unt il recent ly. As a result , wages and living st andards have grown
dramat ically, roughly in line wit h t he dramat ic increases in product ivit y. In part , t his reflect s t he
increases in human capit al t hat have paralleled t he more visible increases in equipment and
buildings in t he economy. Dale Jorgenson and his colleagues have est imat ed t hat t he overall
magnit ude of t he human capit al in t he U.S. economy, as measured by it s economic value, is as
much as t en t imes t he value of t he physical capit al.
35
As a result , labor compensat ion has
grown along wit h payment s t o owners of physical capit al via profit s, dividends, and capit al
gains.
Figure 9.3 shows t hat in t he past decade, t he relat ively consist ent division bet ween t he
shares of income going t o labor and physical capit al seems t o be coming t o an end. As not ed
by Susan Fleck, John Glaser, and Shawn Sprague in t he Monthly Labor Review: Labor share
averaged 64.3 percent from 1947 t o 2000. In t he Unit ed St at es, t he share of GDP going t o
labor has declined over t he past decade, falling t o it s lowest point in t he t hird quart er of 2010,
57.8 percent .
36
What s more, t his is a global phenomenon. Economist s Loukas Karabarbounis
and Brent Neiman of t he Universit y of Chicago find t hat t he global labor share has significant ly
declined since t he early 1980s, wit h t he decline occurring wit hin t he large majorit y of count ries
and indust ries.
37
They argue t hat t his decline is likely due t o t he t echnologies of t he
informat ion age.
FI GURE 9. 3 Wage Share of GDP vs. Corporat e Prof i t Share of GDP
The fall in labors share is in part t he consequence of t wo t rends we have already not ed:
fewer people are working, and wages for t hose who are working are lower t han before. As a
result , while labor compensat ion and product ivit y in t he past rose in t andem, in recent years a
growing gap has opened.
If product ivit y is growing and labor as a whole isnt capt uring t he value, who is? Owners of
physical capit al, t o a large ext ent . While t he economy remained mired in a slump, profit s
reached hist oric highs last year, bot h in absolut e t erms ($1.6 t rillion) and as a share of GDP
(26.2 percent in 2010, up from t he 19602007 average of 20.5 percent ).
38
Meanwhile, real
spending on capit al equipment and soft ware has soared by 26 percent while payrolls have
remained essent ially flat , as not ed by Kat hleen Madigan.
39
What s more, t he collapse in t he share of GDP going t o labor act ually underst at es how t he
sit uat ion has det eriorat ed for t he t ypical worker. The official measure of labor compensat ion
includes soaring wages for a small number of superst ars in media, finance, sport s, and
corporat e posit ions. Furt hermore, it is debat able t hat all of t he compensat ion going t o CEOs
and ot her t op execut ives is solely due t o t heir labor income. It may also reflect t heir bargaining
power, as suggest ed by Harvard Law Professor Lucian Bebchuk and ot hers.
40
In t his sense, it
might make sense t o t hink of CEOs income as due t o t heir cont rol of capit al, not labor, at least
in part .
While t he share of nat ional income t o capit al has been growing at t he expense of labor,
economic t heory does not necessarily predict t hat t his will cont inue, even if robot s and ot her
machines t ake over more and more work. The t hreat t o capit als share comes not (just ) from
t he bargaining power of various t ypes of human labor, from CEOs or labor unions but , ironically,
from ot her capit al. In a free market , t he biggest premiums go t o t he scarcest input s needed for
product ion. In a world where capit al can be replicat ed at a relat ively low cost (t hink of comput er
chips or even soft ware), t he marginal value of capit al will t end t o fall, even if more capit al is
used overall. The value of exist ing capit al will act ually be driven down as new capit al is added
cheaply at t he margin. Thus, t he rewards earned by capit alist s may not aut omat ically grow
relat ive t o labor. Inst ead t he shares will depend on t he exact det ails of t he product ion,
dist ribut ion, and governance syst ems.
Most of all, t he payoff will depend on which input s t o product ion are scarcest . If digit al
t echnologies creat e cheap subst it ut es for labor, t hen it s not a good t ime t o be a laborer. But if
digit al t echnologies also can increasingly subst it ut e for capit al, t hen capit al owners shouldnt
expect t o earn high ret urns eit her. What will be t he scarcest , and hence t he most valuable,
resource in t he second machine age? This quest ion brings us t o our next set of winners and
losers: superst ars versus everyone else.
* This echoes the productivity effects of electricity discussed earlier. As with digital technologies, the biggest gains did not
occur until factories were redesigned, and even workers who didnt work directly with the new machines were significantly
affected.
* The effect on the economy overall would depend on how other companies reacted. Output would likely increase at
companies that design and build robots and, depending on how capital-intensive they are, the net ratio of capital to labor
in the overall economy could increase, decrease, or stay the same. Well discuss these effects in more detail in chapter
12.
One machine can do the work of fifty ordinary men. No machine can do the work of one extraordinary man.
Elbert Hubbard
WEVE SEEN THAT SKI LL-BI ASED t echnical change has increased t he relat ive demand for highly educat ed
workers while reducing demand for less educat ed workers whose jobs frequent ly involve
rout ine cognit ive and manual t asks. In addit ion, capit al-biased t echnological changes t hat
encourage subst it ut ion of physical capit al for labor have increased t he profit s earned by capit al
owners and reduced t he share of income going t o labor. In each case, hist oric amount s of
wealt h have been creat ed. In each case, we also have seen increases in t he earnings of t he
winners relat ive t o t he losers. But t he biggest changes of all are driven by a t hird gap bet ween
winners and losers: t he gap bet ween t he superst ars in a field and everyone else.
Mind the Gap
Call it t alent -biased t echnical change.* In many indust ries, t he difference in payout bet ween
number one and second-best has widened int o a canyon. As a cont roversial Nike ad not ed,
you dont win silver, you lose gold.
1
When winner-t ake-all market s become more import ant ,
income inequalit y will rise because pay at t he very t op pulls away from pay in t he middle.
2
The growing gaps in wages bet ween people wit h and wit hout college educat ion, and
bet ween capit al owners and workers, have been dwarfed by even bigger changes at t he very
t op. As not ed earlier, bet ween 2002 and 2007, t he t op 1 percent got t wo-t hirds of all t he
profit s from t he growt h in t he U.S. economy. But who are t he 1 percent ? They arent all on Wall
St reet . Universit y of Chicago economist St eve Kaplan found t hat most of t hem are in ot her
indust ries: in media and ent ert ainment , sport s, and lawor t hey are ent repreneurs and senior
execut ives.
If t he t op 1 percent are st ars of a sort , t hey can look up t o superst ars who have seen even
bigger increases. While t he t op 1 percent earned about 19 percent of all income in t he Unit ed
St at es, t he t op 1 percent of t he 1 percent (or t he t op 0.01 percent )saw t heir share of
nat ional income double from 3 percent t o 6 percent bet ween 1995 and 2007. This is nearly six
t imes as much as t he 0.01 percent earned bet ween World War II and t he lat e 1970s. In ot her
words, t he t op 0.01 percent now get a bigger share of t he t op 1 percent of income t han t he
t op 1 percent get of t he whole economy. Because it is hard t o maint ain anonymit y when
report ing dat a for small numbers of people, it is hard t o get reliable dat a at income levels higher
t han t he t op 0.01 percent . Aft er all, while t here are over 1.35 million households in t he t op 1
percent wit h an average income of $1.12 million, t he 0.01 percent represent s just 14,588
families each wit h incomes over $11,477,000.*
3
But t he evidence suggest s t hat t he spread of
incomes cont inues at high levels of income wit h a fract al-like qualit y, wit h each subset of
superst ars wat ching an even smaller group of super-duper-st ars pulling away.
How Superstars Thrive in the Winner-Take-All Economy
In t he previous chapt er, we saw Int uit s TurboTax aut omat e t he job of t ax preparat ion, allowing
a machine t o do t he jobs of hundreds of t housands of human t ax preparers. That s an example
of t echnology aut omat ing rout ine informat ion-processing jobs, and also an example of capit al
subst it ut ing for labor. But most import ant ly, it s an example of t he superst ar economy in act ion.
Int uit s CEO made $4 million last year and Scot t Cook, t he founder, is a billionaire.
4
Likewise, t he
fift een people who creat ed Inst agram didnt need a lot of unskilled human helpers and did
leverage some valuable physical capit al. But most of all, t hey benefit t ed from t heir t alent ,
t iming, and t ies t o t he right people.
Top performers in ot her indust ries have also seen t heir fort unes rise. J. K. Rowling, aut hor of
t he Harry Potter series, is t he worlds first billionaire aut hor in an indust ry not known for mint ing
t he super wealt hy. As George Mason Universit ys Alex Tabarrok not es of Rowlings success:
Homer, Shakespeare and Tolkien all earned much less. Why? Consider Homer, he told great stories but he could
earn no more in a night than say 50 people might pay for an evenings entertainment. Shakespeare did a little better.
The Globe theater could hold 3000 and unlike Homer, Shakespeare didnt have to be at the theater to earn.
Shakespeares words were leveraged.
5
J. R. R. Tolkiens words were leveraged furt her. By selling books, Tolkien could sell t o
hundreds of t housands, even millions of buyers in a yearmore t han have ever seen a
Shakespeare play in four hundred years. And books were cheaper t o produce t han act ors,
which meant t hat Tolkien could earn a great er share of t he revenues t han did Shakespeare.
Technology has supercharged t he abilit y of aut hors like Rowling t o leverage t heir t alent s via
digit izat ion and globalizat ion. Rowlings st ories can be capt ured in movies and video games as
well as t ext , but each of t hose format s, including t he original books, can be t ransmit t ed globally
at t rivial cost . She and ot her superst ar st oryt ellers now reach billions of cust omers t hrough a
variet y of channels and format s.
More oft en t han not , when improvement s in digit al t echnologies make it more and more
at t ract ive t o digit ize somet hing, superst ars in various market s see a boost in t heir incomes
while second-best s have a harder t ime compet ing. The t op performers in music, sport s, and
ot her areas have also seen t heir reach and incomes grow since t he 1980s.
6
At t he same t ime, ot hers working in t he cont ent and ent ert ainment indust ries have not seen
a big increase. Only 4 percent of soft ware developers in t he burgeoning app economy have
made over a million dollars.
7
Three-quart ers of t hem made less t han t hirt y t housand dollars.
While a handful of writ ers, act ors, or baseball players can become millionaires, many ot hers
st ruggle t o make ends meet . A gold-medal winner at t he Olympics can earn millions of dollars
in endorsement s, while t he silver medal winnerlet alone t he person who placed t ent h or
t hirt iet his quickly forgot t en, even if t he difference is measured in t ent hs of a second and
could have result ed from a gust of wind or a lucky bounce of t he ball.
Even t op execut ives have st art ed earning rock-st ar compensat ion. The rat io of CEO pay t o
average worker pay increased from sevent y in 1990 t o t hree hundred in 2005. Much of t his
growt h is linked t o t he great er use of informat ion t echnology, according t o research t hat Erik
complet ed wit h his st udent Heekyung Kim.
8
One rat ionale for t his increase in execut ive pay is
t hat t echnology increases t he reach, scale, or monit oring capacit y of a decision-maker. If
execut ives use digit al t echnologies t o observe act ivit ies in fact ories t hroughout t he world, t o
give specific inst ruct ions for changing a process, and t o make sure inst ruct ions are carried out
wit h high fidelit y, t hen t he value of t hose decision-makers increases. Direct management via
digit al t echnologies makes a good manager more valuable t han in earlier t imes when managers
had diffuse cont rol via long chains of subordinat es, or when t hey could only affect a smaller
scale of act ivit ies.
Direct digit al oversight also makes hiring t he best candidat e rat her t han t he second-best
t hat much more import ant . Companies are ready t o pay a premium for execut ives whom t hey
perceive t o be t he best , reasoning t hat even a small difference in qualit y can have huge
consequences for shareholders. The bigger t he market value of a company, t he more
compelling t he argument for t rying t o get t he very best execut ive.
9
A single decision t hat
increases value by a modest 1 percent is wort h $100 million t o a t en-billion-dollar company.
In a compet it ive market , even a small difference in t he perceived t alent s of CEO candidat es
can lead t o fairly large differences in t heir compensat ion. As economist s Robert Frank and
Philip Cook not e in t heir book, The Winner-Take-All Society, When a sergeant makes a
mist ake only t he plat oon suffers, but when a general makes a mist ake t he whole army
suffers.
10
When Relative Advantage Leads to Absolute Domination
The economics of superst ars was first formally analyzed in 1981 by economist Sherwin
Rosen.
11
In many market s, buyers wit h a choice among product s or services will prefer t he one
wit h t he best qualit y. When t here are capacit y const raint s or significant t ransport at ion cost s,
t hen t he best seller will only be able t o sat isfy a small fract ion of t he global market (for
inst ance, in t he 1800s, even t he best singers and act ors might perform for at most a few
t housand people each year). Ot her inferior sellers will also have a market for t heir product s. But
what if a t echnology arises t hat let s each seller cheaply replicat e his or her services and deliver
t hem globally at lit t le or no cost ? Suddenly t he t op-qualit y provider can capt ure t he whole
market . The next -best provider might be almost as good, but it will not mat t er. Each t ime a
market becomes more digit al, t hese winner-t ake-all economics become a lit t le more
compelling.
Winner-t ake-all market s were just coming t o t he fore in t he 1990s, when Frank and Cook
wrot e t heir remarkably prescient book. They compared t hese winner-t ake-all market s, where
t he compensat ion was mainly det ermined by relative performance, t o t radit ional market s,
where revenues more closely t racked absolute performance. To underst and t he dist inct ion,
suppose t he best , hardest -working const ruct ion worker could lay one t housand bricks in a day
while t he t ent h-best laid nine hundred bricks per day. In a well-funct ioning market , pay would
reflect t his difference proport ionat ely, whet her it could be at t ribut ed t o more efficiency and
skill, or simply t o more hours of work. In a t radit ional market , someone who is 90 percent as
skilled or works 90 percent as hard creat es 90 percent as much value and t hus can earn 90
percent as much money. That s absolut e performance.
By cont rast , a soft ware programmer who writ es a slight ly bet t er mapping applicat ionone
t hat loads a lit t le fast er, has slight ly more complet e dat a, or pret t ier iconsmight complet ely
dominat e a market . There would likely be lit t le, if any, demand for t he t ent h-best mapping
applicat ion, even it got t he job done almost as well. This is relat ive performance. People will not
spend t ime or effort on t he t ent h-best product when t hey have access t o t he best . And t his is
not a case where quant it y can make up for qualit y: t en mediocre mapping t ools are no
subst it ut e for one good one. When consumers care most ly about relat ive performance, even a
small difference in skill or effort or luck can lead t o a t housand-fold or million-fold difference in
earnings. There were a lot of t raffic apps in t he market place in 2013, but Google only judged
one, Waze, wort h buying for over one billion dollars.
12
Why Winner-Take-All Is Winning
Why are winner-t ake-all market s more common now? Shift s in t he t echnology for product ion
and dist ribut ion, part icularly t hese t hree changes:
a) t he digit izat ion of more and more informat ion, goods, and services,
b) t he vast improvement s in t elecommunicat ions and, t o a lesser ext ent , t ransport at ion,
and
c) t he increased import ance of net works and st andards.
Albert Einst ein once said t hat black holes are where God divided by zero, and t hat creat ed
some st range physics. While t he marginal cost s of digit al goods do not quit e approach zero,
t hey are close enough t o creat e some pret t y st range economics. As discussed in chapt er 3,
digit al goods have much lower marginal cost s of product ion t han physical goods. Bit s are
cheaper t han at oms, not t o ment ion human labor.
Digit izat ion creat es winner-t ake-all market s because, as not ed above, wit h digit al goods
capacit y const raint s become increasingly irrelevant . A single producer wit h a websit e can, in
principle, fill t he demand from millions or even billions of cust omers. Jenna Marbless homemade
YouTube video How t o t rick people int o t hinking youre good looking, t o t ake one wildly
successful example, garnered 5.3 million views t he week she post ed it in July 2010.
13
Shes now
earned millions of dollars from over one billion viewings of her videos around t he world. Every
digit al app developer, no mat t er how humble it s offices or how small it s st aff, almost
aut omat ically becomes a micro-mult inat ional, reaching global audiences wit h a speed t hat
would have been inconceivable in t he first machine age.
In cont rast , t he economics of personal services (nursing) or physical work (gardening) are
very different , since each provider, no mat t er how skilled or hard-working, can only fulfill a t iny
fract ion of t he overall market demand. When an act ivit y t ransit ions from t he second cat egory
t o t he first t he way t ax preparat ion did, t he economics shift t oward winner-t ake-all out comes.
What s more, lowering prices, t he t radit ional refuge for second-t ier product s, is of lit t le benefit
for anyone whose qualit y is not already at or near t he worlds best . Digit al goods have
enormous economies of scale, giving t he market leader a huge cost advant age and room t o
beat t he price of any compet it or while st ill making a good profit .
14
Once t heir fixed cost s are
covered, each marginal unit produced cost s very lit t le t o deliver.
15
Improvements in Telecommunications: Reach Out and Touch More
People
Secondly, winner-t ake-all market s have also been boost ed by t echnological improvement s in
t elecommunicat ions and t ransport at ion t hat also expand t he market individuals and
companies can reach. When t here are many small local market s, t here can be a best provider
in each, and t hese local heroes frequent ly can all earn a good income. If t hese market s merge
int o a single global market , t op performers have an opport unit y t o win more cust omers, while
t he next -best performers face harsher compet it ion from all direct ions. A similar dynamic comes
int o play when t echnologies like Google or even Amazons recommendat ion engine reduce
search cost s. Suddenly second-rat e producers can no longer count on consumer ignorance or
geographic barriers t o prot ect t heir margins.
Digit al t echnologies have aided t he t ransit ion t o winner-t ake-all market s, even for product s
we wouldnt t hink would have superst ar st at us. In a t radit ional camera st ore, cameras t ypically
are not ranked number one versus number t en. But online ret ailers make it easy t o list
product s in rank order by cust omer rat ings, or t o filt er result s t o include only product s wit h
every conceivable desirable feat ure. Product s wit h lower rankings or only nine out of t en
desirable feat ures receive disproport ionat ely lower sales from even small differences in qualit y,
convenience, or pricing performance.
16
Digit al ranking and filt ering creat e disproport ional ret urns even in labor market s for workaday,
non-superst ar careers. Companies have digit ized t heir hiring processes and use aut omat ed
filt ers t o winnow t he flood of applicant s. For example, companies can readily cull all t he
candidat es t hat dont have a college degree as a simple expedient even if t he job does not
act ually require a college educat ion.
17
This can amplify a t rickle of skill-biased t echnical change
int o a t orrent of st ardom for a lucky few. Similarly, job candidat e resumes t hat miss t he
buzzword requirement s might drop from considerat ion even if t he 90-percent -qualified
candidat e might ot herwise be a st ellar employee.
Networks and Standards: The Value of Scale
Thirdly, t he increased import ance of net works (like t he Int ernet or credit card net works) and
int eroperable product s (like comput er component s) can also creat e winner-t ake-all market s.
Just as low marginal cost s creat e economies of scale on t he product ion side, net works can
creat e demand side economies of scale t hat economist s somet imes call network effects. We
see t hem at work when users prefer product s or services t hat ot her people are flocking t o. If
your friends keep in t ouch via Facebook, t hat makes Facebook more at t ract ive t o you, t oo. If
you t hen join Facebook, t he sit e becomes more valuable t o your friends as well.
Somet imes net work effect s are indirect . You can make a phone call equally well t o someone
using an iPhone or an Android phone. But t he t ot al number of users on a given plat form
influences app developers: t he bigger net work of users will t end t o at t ract more developers, or
encourage app developers t o invest more in a given plat form. The more apps available for a
given phone, t he great er it s appeal t o users. Thus, your benefit s from buying one or t he ot her
will be affect ed by t he number of ot her users who buy t he same product . When Apples app
ecosyst em is st rong, buyers will want t o buy int o t hat plat form, at t ract ing even more
developers. But t he opposit e dynamic can unravel a dominant st andard, as it almost did for t he
Apple Macint osh plat form in t he mid-1990s. Like low marginal cost s, net work effect s can
creat e bot h winner-t ake-all market s and high t urbulence.
18
The Social Acceptability of Superstars
In addit ion t o t he t echnical changes t hat have increased digit izat ion, t elecommunicat ion,
net works, and ot her fact ors t hat creat e superst ar product s and companies, t here are more
aspect s at work in boost ing superst ar compensat ion for individuals. In some cases, cult ural
barriers t o very large pay packages have fallen. CEOs, financial execut ives, act ors, and
professional at hlet es may be more willing t o demand seven- or even eight -figure
compensat ion deals. As more people get t hose deals, a posit ive feedback loop emerges: it
becomes easier for ot hers t o make similar request s.
In fact , t he concent rat ion of wealt h it self can creat e what Frank and Cook call deep pocket
winner-t ake-all market s. As t he great economist Alfred Marshall not ed, a rich client whose
reput at ion or fort une or bot h are at st ake will scarcely count any price t oo high t o secure t he
services of t he best man he can get .
19
If mass-market media enables an at hlet e like O. J.
Simpson t o earn millions, t hen he can afford t o pay a lawyer like Alan Dershowit z millions t o
defend him in court , even if Dershowit zs services are not replicat ed t o millions of people like
Simpsons are. In a sense, Dershowit z is a superst ar by proxy: he benefit s from t he abilit y of his
superst ar client s whose labor has been more direct ly leveraged by digit izat ion and net works.*
Laws and inst it ut ions have also changed in ways t hat oft en boost t he incomes of
superst ars. The t op marginal t ax rat e was as high as 90 percent during t he Eisenhower years
and over 50 percent early in Ronald Reagans administ rat ion, but fell t o 35 percent in 2002,
where it remained t hrough 2012. While t his shift obviously boost ed t he after-tax income of t op
earners, research suggest s it can also affect report ed pre-tax income by mot ivat ing people t o
work harder (because t hey keep more of each dollar t hey earn) and report more of t heir act ual
income, rat her t han seek ways t o hide or shelt er it (because t he cost s of report ing t o t ax
aut horit ies arent as high as before).
Rest rict ions on t rade have also decreased. Like cheaper t elecommunicat ions and
t ransport at ion, t his makes market s more global, allowing int ernat ional superst ars t o more
easily compet e wit h, and drive out , local producers. When Kia poached Pet er Schreyer from
Audi in 2006, it was a signal t hat t he market for t alent ed aut omobile designers was
increasingly global, not local.
Alt hough t he t op 1 percent and 0.01 percent have seen record increases in t heir earnings,
t he superst ar economy has faced a few headwinds. Perhaps t he most import ant among t hese
is t he growt h of t he long tailt he increased availabilit y of niche product s and services.
Technology has not just lowered marginal cost s; in many cases it has also lowered fixed cost s,
invent ory cost s, and t he cost s of searching. Each of t hese changes makes it more at t ract ive t o
offer a great er variet y of product s and services, filling small niches t hat previously went unfilled.
Inst ead of going head-t o-head wit h a superst ar, some individuals and businesses are
inst ead finding ways t o different iat e t heir product s, t o find or creat e an alt ernat ive niche where
t hey can be t he worlds best . J. K. Rowling is a billion-dollar aut hor, but t here are also millions of
ot her aut hors who now have a chance t o publish for more specialized audiences of a few
t housand or even a few hundred readers. Amazon will st ock t heir books and make t hem
accessible t o people across t he planet . That will be profit able for Amazon even if it would have
been unprofit able for any physical bookst ore, wit h a much smaller set of cust omers, t o st ock
t he book. Even as t he t echnology dest roys geographya barrier t hat used t o prot ect aut hors
from worldwide compet it ionit opens up specializat ion as a source of different iat ion.
Inst ead of being t he t housandt h-best childrens book aut hor in t he world, it may be more
profit able t o be t he number-one aut hor in Science-Based Advice for Ecological Ent repreneurs,
or Foot ball Clock Management .
20
Following t his principle, developers have creat ed over seven
hundred t housand apps for t he iPhone and Android, while Amazon offers over t went y-five
million songs. An even larger number of blog post s, Facebook st ories, and YouTube videos
have been creat ed in t he sharing economy, creat ing economic value if not necessarily direct
income for t heir creat ors. As weve seen, however, opport unit ies t o creat e new product s dont
necessarily come wit h big paychecks. A superst ar or long-t ail economy wit h low barriers t o
ent ry is st ill one wit h far more inequalit y.
The Power Curve Nation
An economy dominat ed by winner-t ake-all market s has very different dynamics t han t he
indust rial economy t o which we are accust omed. As we discussed at t he beginning of t he
chapt er, t he earnings of bricklayers will vary a lot less t han t he winner-t ake-all earnings of app
developers, but t hat s not t he only difference. Inst ead of st able market shares, where revenues
and income correspond proport ionally t o differences in t alent and effort , compet it ion in winner-
t ake-all market s will be much more unst able and asymmet rical. The great economist Joseph
Schumpet er wrot e of creat ive dest ruct ion, where each innovat ion not only creat ed value for
consumers but also wiped out t he previous incumbent . The winners scaled up and dominat ed
t heir market s, but were in t urn vulnerable t o t he next generat ion of innovat ors. Schumpet ers
observat ion describes market s in soft ware, media, and t he Int ernet much bet t er t han
t radit ional market s in manufact uring and services. But as more and more indust ries become
increasingly digit ized and net worked, we can expect t he Schumpet erian dynamic t o spread.
21
In a superst ar economy, t he dist ribut ion of income isnt just more spread out ; it has a very
different shape. It s not just t hat a small group at t he t op sees big increases. It s also a change
in t he fundament al st ruct ure of t he dist ribut ion. When revenues are roughly proport ional t o
absolut e performance, as in t he example of t he bricklayer, t he earnings dist ribut ion is likely t o
roughly mat ch t he dist ribut ion of apt it ude and effort . For many charact erist ics, humans fall
roughly along a normal distribution, also known as t he Gaussian distribution or t he bell curve.
That s t he approximat e dist ribut ion for height , st rengt h, speed, general IQ, and in all likelihood
many ot her charact erist ics such as emot ional int elligence, management savvy, and even
diligence.
Normal dist ribut ions are very common (hence t he name), and t hey have an int uit ive pat t ern.
As you move furt her and furt her int o eit her t ail, t he number of part icipant s drops precipit ously.
What s more, t he mean, median, and mode of t he dist ribut ion are all t he same number. An
average person is also t he one in t he middle of t he dist ribut ion, as well as t he most t ypical or
common t ype of person. If t he income dist ribut ion of t he Unit ed St at es followed a normal
dist ribut ion, t hen median income would have risen along wit h average incomebut of course,
it didnt . Anot her charact erist ic of t he normal dist ribut ion is t hat as you diverge from t he mean,
t he probabilit y of finding anyone wit h ext reme charact erist ics drops rapidly, and at an
increasing rat e. The rat io of people who are seven feet t all t o people who are six and a half
feet t all is much less t han t he rat io people who are six and a half feet t all t o people who are six
feet t all. Thus, t here are very few people at t he ext remes.
FI GURE 10. 1
In cont rast , superst ar (and long t ail) market s are oft en bet t er described by a power law, or
Paret o curve, in which a small number of people reap a disproport ionat e share of sales. This is
oft en charact erized as t he 80/20 rule, where 20 percent of t he part icipant s get 80 percent of
t he gains, but it can be more ext reme t han t hat .
22
For inst ance, research by Erik and his
coaut hors found t hat book sales at Amazon were charact erized by a power law dist ribut ion.
23
Power law dist ribut ions have a fat t ail, which means t he likelihood of ext reme event s is much
great er t han one would expect t o see in a normal dist ribut ion.
24
They are also scale invariant ,
which means t hat t he t op-selling book account s for about t he same share of t he t op t en
books sales as t he t op t en books do for t he t op one hundred, or t he t op one hundred do for
t he t op one t housand. Power laws describe many phenomena, from frequency of eart hquakes
t o t he frequency of words in most languages. They also describe t he sales dist ribut ion of
books, DVD, apps, and ot her informat ion product s.
Ot her market s are mixt ures of different t ypes of dist ribut ions. The U.S. economy as a whole
can be described as a mixt ure of a log-normal dist ribut ion (a variant of t he classical normal
dist ribut ion) and power law, wit h t he power law fit t ing t he incomes at t he t op best .
25
Some of
our current research at MIT is t rying t o bet t er underst and t he causes and consequences of
t his mixt ure, and how it may be evolving over t ime.
A shift in t he dist ribut ion of income t o a power-law dist ribut ion would have import ant
implicat ions. For inst ance, Kim Taipale, founder of t he St ilwell Cent er for Advanced St udies in
Science and Technology Policy, has argued t hat , The era of bell curve dist ribut ions t hat
support ed a bulging social middle class is over and we are headed for t he power-law
dist ribut ion of economic opport unit ies. Educat ion per se is not going t o make up t he
difference.
26
Such a shift disrupt s our ment al models for underst anding t he world. Most of us are used t o
reasoning by reference t o a prot ot ypical. Polit icians t alk about t he average vot er and
market ing managers t alk about t he t ypical consumer. This works well for normal dist ribut ions
where t he most common value is near t he average or, more formally, t he mode and mean of
t he dist ribut ion are t he same or nearly t he same. However, t he mean (or average) of a power-
law dist ribut ion is generally much, much higher t han t he median or t he mode.
27
For inst ance, in
2009, t he average salary for major league baseball players was $3,240,206, roughly t hree t imes
t he median salary of $1,150,000.
28
In pract ical t erms, t his means t hat when income is dist ribut ed according t o a power law,
most people will be below averagesay goodbye, Lake Wobegon! Furt hermore, over t ime,
average income can increase wit hout any increase in t he median income or, for t hat mat t er,
wit hout any increase in income for most people. Power-law dist ribut ions dont just increase
income inequalit y; t hey also mess wit h our int uit ions.
* If youre a cynic, you might call it luck-biased technical change.
* In 2011, families with incomes above $367,000 were in the top 1 percent in the United States, but of course, the average
reflects people with much higher incomes than that. See http://elsa.berkeley.edu/~saez/saez-UStopincomes-2011.pdf
This is a characteristic of Power Law distributions, which well discuss later in this chapter.
* At least in his capacity as a courtroom lawyer. As an author or TV celebrity, he is benefitting more directly from the
technologies of superstardom discussed in the previous section.
The test of our progress is not whether we add more to the abundance of those who have much it; is whether we
provide enough for those who have little.
Franklin D. Roosevelt
IN THE LAST FOUR chapt ers, weve seen t hat t he second machine age cont ains a paradox. GDP has
never been higher and innovat ion has never been fast er, yet people are increasingly
pessimist ic about t heir childrens fut ure living st andards. Adjust ed for inflat ion, t he combined
net wort h on Forbes billionaire list has more t han quint upled since 2000, but t he income of t he
median household in America has fallen.
1
The economic st at ist ics underscore t he dichot omy of bount y and spread. The economist
Jared Bernst ein, a senior fellow at t he Cent er on Budget and Policy Priorit ies, brought our
at t ent ion t o t he way product ivit y and employment have become decoupled, as shown in
Figure 11.1. While t hese t wo key economic st at ist ics t racked each ot her for most of t he
post war period, t hey became decoupled in t he lat e 1990s. Product ivit y cont inued it s upward
pat h as employment sagged. Today t he employment -t o-populat ion rat io is lower t han any
t ime in at least 20 years, and t he real income of t he median worker is lower t oday t han in t he
1990s. Meanwhile, like product ivit y, GDP, corporat e invest ment , and aft er-t ax profit s are also
at record highs.
In a place like Silicon Valley or a research universit y like MIT, t he rapid pace of innovat ion is
part icularly easy t o see. St art ups flourish, mint ing new millionaires and billionaires, while
research labs churn out ast onishing new t echnologies like t he ones we saw in earlier chapt ers.
At t he same t ime, however, a growing number of people face financial hardships: st udent s
st ruggle wit h enormous debt , recent graduat es have difficult y finding new jobs, and millions
have t urned t o debt t o t emporarily maint ain t heir living st andards.
FI GURE 11. 1 Labor Produc t i vi t y and Pri vat e Empl oyment
In t his chapt er, well address t hree import ant quest ions about t he fut ure of t he bount y and
t he spread. First , will t he bount y overwhelm t he spread? Second, can t echnology not only
increase inequalit y but also creat e st ruct ural unemployment ? And t hirdly, what about
globalizat ion, t he ot her great force t ransforming t he economycould it explain recent declines
in wages and employment ?
Whats Bigger, Bounty or Spread?
Thanks t o t echnology, we are creat ing a more abundant worldone where we get more and
more out put from fewer input s like raw mat erials, capit al, and labor. In t he years t o come we will
cont inue t o benefit in t he form of t hings t hat are relat ively easy t o measure, such as higher
product ivit y, and t hings t hat are less suscept ible t o met rics, such as t he boost we get from
free digit al goods.
The previous paragraph describes our current bount y in t he dry vocabulary of economics.
This is a shame and needs t o be correct eda phenomenon so fundament al and wonderful
deserves bet t er language. Bount y doesnt mean simply more cheap consumer goods and
empt y calories. As we not ed in chapt er 7, it also means simult aneously more choice, great er
variet y, and higher qualit y in many areas of our lives. It means heart surgeries performed
wit hout cracking t he st ernum and opening t he chest cavit y. It means const ant access t o t he
worlds best t eachers combined wit h personalized self-assessment s t hat let st udent s know
how well t heyre mast ering t he mat erial. It means t hat households have t o spend less of t heir
t ot al budget over t ime on groceries, cars, clot hing, and ut ilit ies. It means ret urning hearing t o
t he deaf and, event ually, sight t o t he blind. It means less need t o work doing boring, repet it ive
t asks and more opport unit y for creat ive and int eract ive work.
The manifest at ions of progress are all based at least in part on digit al t echnologies. When
combined wit h polit ical and economic syst ems t hat offer people choices inst ead of locking
t hem in, t echnological advance is an awe-inspiring engine of bet t erment and bount y. It is also
an engine driving spread, creat ing larger and larger differences over t ime in areas t hat we care
about wealt h, income, st andards of living, and opport unit ies for advancement . Some of t hese
t rends (part icularly rising inequalit y) are also visible in ot her count ries. We wish t hat progress in
digit al t echnologies were a rising t ide t hat lift ed all boat s equally in all areas, but it s not .
Technology is cert ainly not t he only force causing t his rise in spread, but it is one of t he main
ones. Todays informat ion t echnologies favor more-skilled over less-skilled workers, increase
t he ret urns t o capit al owners over labor, and increase t he advant ages t hat superst ars have
over everybody else. All of t hese t rends increase spreadbet ween t hose t hat have a job and
t hose t hat dont , bet ween highly skilled and educat ed workers and less advanced ones,
bet ween superst ars and t he rest of us. It s clear t o us, from everyt hing weve seen and learned
recent ly, t hat all else being equal, fut ure t echnologies will t end t o increase spread, just as t hey
will boost t he bount y.
The fact t hat t echnology brings bot h bount y and spread, and brings more of bot h over t ime,
leads t o an import ant quest ion: Since theres so much bounty, should we be concerned about
the spread? In ot her words, we might consider rising inequalit y less of a problem if people at
t he bot t om are also seeing t heir lives improve t hanks t o t echnology.
Income inequalit y and ot her measures of spread are increasing, but not everyone is
convinced t his is a problem. Some observers advance what we will call t he st rong bount y
argument , which essent ially says t hat a focus on spread is misleading and inappropriat e, since
bount y is t he more import ant phenomenon and exist s even at t he bot t om of t he spread. This
argument acknowledges t hat highly skilled workers are pulling away from t he rest and t hat
superst ars are pulling so far away as t o be out of sight but t hen essent ially asks, So what ?
As long as all peoples economic lives are get t ing bet t er, why should we be concerned if some
are get t ing a lot bet t er? As Harvard economist Greg Mankiw has argued, t he enormous
income earned by t he one percent is not necessarily a problem if it reflect s t he just desert s of
people who are creat ing value for everyone else.
2
Capit alist economic syst ems work in part because t hey provide st rong incent ives t o
innovat ors: if your offering succeeds in t he market place, youll reap at least some of t he
financial rewards. And if your offering succeeds like crazy, t he rewards can be huge. When
t hese incent ives are working well (and not doing t hings like providing huge, risk-free rewards t o
people t aking inappropriat e risks wit hin t he financial syst em), t he benefit s can be bot h large
and broad: innovat ors improve t he lives of many people whose purchases, in aggregat e, make
t he innovat or rich. Everyone benefit s, even t hough not all benefit s are t he same.
The high-t ech indust ry offers many examples of t his happy phenomenon in act ion.
Ent repreneurs creat e devices, websit es, apps, and ot her goods and services t hat we value. We
buy and use t hem in large numbers, and t he ent repreneurs enjoy great financial success. This
is not a dysfunct ional pat t ern; it s a beneficial one. As economist Larry Summers put it ,
suppose t he Unit ed St at es had 30 more people like St eve Jobs. . . . [W]e do need t o
recognize t hat a component of t his inequalit y is t he ot her side of successful ent repreneurship;
t hat is surely somet hing we want t o encourage.
3
We part icularly want t o encourage it because, as we saw in chapt er 6, t echnological
progress t ypically helps even t he poorest people around t he world. Careful research has shown
t hat innovat ions like mobile t elephones are improving peoples incomes, healt h, and ot her
measures of well-being. As Moores Law cont inues t o simult aneously drive down t he cost and
increase t he capabilit y of t hese devices, t he benefit s t hey bring will cont inue t o add up.
If t he st rong bount y argument is correct , t hen we have not hing significant t o worry about as
we head deeper int o t he second machine age. But is it ? We wish t hat were t he case, but it s
not . As we saw in chapt ers 9 and 10, t he dat a are quit e clear t hat many people in t he Unit ed
St at es and elsewhere are losing ground over t ime, not just relat ive t o ot hers but in absolut e
t erms. In America, t he income of t he median worker is lower in real dollars t han it was in 1999
and t he st ory largely repeat s it self when we look at households inst ead of individual workers,
or t ot al wealt h inst ead of annual income. Many people are falling behind as t echnology races
ahead.
Some proponent s of t he st rong bount y argument believe t hat while t hese declines are real,
t heyre st ill less import ant t han t he unmeasured price decreases, qualit y improvement s, and
ot her benefit s t hat weve been experiencing. Economist s Donald Boudreaux and Mark Perry
writ e t hat :
Spending by households on many of modern lifes basicsfood at home, automobiles, clothing and footwear,
household furnishings and equipment, and housing and utilitiesfell from 53% of disposable income in 1950 to
44% in 1970 to 32% today. . . [and] the quantities and qualities of what ordinary Americans consume are closer to
that of rich Americans than they were in decades past. Consider the electronic products that every middle-class
teenager can now affordiPhones, iPads, iPods and laptop computers. They arent much inferior to the electronic
gadgets now used by the top 1% of American income earners, and often they are exactly the same.
4
Perry adds t hat t hanks t o innovat ion and t echnology . . . all Americans (especially low-income
and middle-income groups) are bet t er off t oday t han in any previous period.
5
In t he National
Review and elsewhere, Scot t Winship of t he Brookings Inst it ut ion has made similar point s.
6
These are int riguing argument s. We part icularly like t he insight t hat t he average worker
t oday is in import ant ways bet t er off t han his or her count erpart in earlier generat ions precisely
because of t he bount y brought by innovat ion and t echnology. For anyt hing relat ed t o
informat ion, media, communicat ion, and comput at ion, t he improvement s are so large t hat t hey
can hardly be believed in ret rospect , or ant icipat ed in advance. And t he bount y doesnt st op
t here: t echnological progress also causes cost and qualit y improvement s in ot her areas, such
as food and ut ilit ies, t hat may not seem high-t ech on t he surface but act ually are when you
look under t he hood.
These point s have merit , but we are not convinced t hat people at t he lower ranges of t he
spread are doing OK. For one t hing, some crit ical it ems t hat t hey (and everyone else) would like
t o purchase are get t ing much more expensive over t ime. This phenomenon is well summarized
in research by Jared Bernst ein, who compared increases in median family income bet ween
1990 and 2008 wit h changes in t he cost of housing, healt h care, and college. He found t hat
while family income grew by around 20 percent during t hat t ime, prices for housing and college
grew by about 50 percent , and healt h care by more t han 150 percent .
7
Since American real
median incomes have been falling in recent years, t hese comparisons would be even more
unfavorable if repeat ed over lat er t ime periods t han 1990 t o 2008.
However American households are spending t heir money, many of t hem are left wit hout a
financial cushion. The economist s Annamaria Lusardi, Daniel J. Schneider, and Pet er Tufano
conduct ed a 2011 st udy asking people about t heir capacit y t o come up wit h $2,000 in 30
days. Their findings are t roubling. They concluded t hat , Approximat ely one quart er of
Americans report t hat t hey would cert ainly not be able t o come up wit h such funds, and an
addit ional 19% would do so by relying at least in part on pawning or selling possessions or
t aking payday loans. . . . [In ot her words, we] find t hat nearly half of Americans are financially
fragile. . . . [A] sizable fract ion of seemingly middle class Americans . . . judge t hemselves t o be
financially fragile.
8
Ot her dat aabout povert y rat es, access t o healt h care, t he number of people who want
full-t ime jobs but can only find part -t ime work, and so onconfirm t he impression t hat while
t he economic bount y from t echnology is real, it is not sufficient t o compensat e for huge
increases in spread. And t hose increases are not purely a consequence of t he Great
Recession, nor a recent or t ransient phenomenon.
That many Americans face st agnant and falling incomes is bad enough, but it is now
combined wit h decreasing social mobilit yan ever lower chance t hat children born at t he
bot t om end of t he spread will escape t heir circumst ances and move upward t hroughout t heir
lives and careers. Recent research makes it clear t hat t he American Dream of upward mobilit y,
which was real in earlier generat ions, is great ly diminished t oday. To t ake just one example, a
2013 st udy of U.S. t ax ret urns from 1987 t o 2009 conduct ed by economist s Jason DeBacker,
Bradley Heim, and t heir colleagues found t hat t he t hirt y-five t housand households t hey
st udied t ended t o st ay in roughly t he same order of richest t o poorest year aft er year, wit h
lit t le reshuffling, even as t he differences in household income grew over t ime.
9
More recent ly,
sociologist Robert Put nam has illust rat ed how for Americans in cit ies like Port Clint on, Ohio (his
homet own), economic condit ions and prospect s have worsened in recent decades for t he
children of parent s wit h only high school educat ions even as t heyve improved for college-
educat ed families. This is exact ly what wed expect t o see as skill-biased t echnical change
accelerat es.
10
Many Americans believe t hat t hey st ill live in t he land of opport unit yt he count ry t hat offers
t he great est chance of economic advancement . But t his is no longer t he case. As The
Economist sums it up, Back in it s Horat io Alger days, America was more fluid t han Europe.
Now it is not . Using one-generat ion measures of social mobilit yhow much a fat hers relat ive
income influences t hat of his adult sonAmerica does half as well as Nordic count ries, and
about t he same as Brit ain and It aly, Europes least -mobile places.
11
So t he spread is not only
large, but also self-perpet uat ing. Too oft en, people at t he bot t om and middle st ay where t hey
are over t heir careers, and families st ay locked in across generat ions. This is not healt hy for an
economy or societ y.
It would be even unhealt hier if t he spread were t o diminish t he bount yif inequalit y and it s
consequences somehow impeded t echnological progress, keeping us from enjoying all t he
pot ent ial benefit s of t he new machine age. Alt hough a common argument is t hat high levels of
inequalit y can mot ivat e people t o work harder, boost ing overall economic growt h, t he inequalit y
can also dampen growt h. In 2012 economist Daron Acemoglu and polit ical scient ist James
Robinson published Why Nations Fail, a sweeping account of hundreds of years of hist ory
aimed at uncovering, as t he books subt it le put s it , t he origins of power, prosperit y, and
povert y. According t o Acemoglu and Robinson, t he t rue origins are not geography, nat ural
resources, or cult ure. Inst ead, t heyre inst it ut ions like democracy, propert y right s, and t he rule
of law; inclusive ones bring prosperit y, and ext ract ive onesones t hat bend t he economy and
t he rules of t he game t o t he service of ent renched elit ebring povert y. The aut hors make a
compelling case, and when t hey t urn t heir at t ent ion t o Americas current condit ion, t hey offer
import ant insight s and caut ions:
Prosperity depends on innovation, and we waste our innovative potential if we do not provide a level playing field
for all: we dont know where the next Microsoft, Google, or Facebook will come from, and if the person who will
make this happen goes to a failing school and cannot get into a good university, the chances that it will become a
reality are much diminished. . . .
The U.S. generated so much innovation and economic growth for the last two hundred years because, by and
large, it rewarded innovation and investment. This did not happen in a vacuum; it was supported by a particular set
of political arrangementsinclusive political institutionswhich prevented an elite or another narrow group from
monopolizing political power and using it for their own benefit and at the expense of society.
So here is the concern: economic inequality will lead to greater political inequality, and those who are further
empowered politically will use this to gain greater economic advantage, stacking the cards in their favor and
increasing economic inequality still furthera quintessential vicious circle. And we may be in the midst of it.
12
Their analysis hit s on a final reason t o be concerned about t he large and growing inequalit y
of recent years: it could lead t o t he creat ion of ext ract ive inst it ut ions t hat would slow our
journey int o t he second machine age. We t hink t his would be somet hing more t han a shame; it
would be closer t o a t ragedy. We also believe, based on t he work of Acemoglu and Robinson
and ot hers, t hat it is a plausible scenario. Inst ead of being confident t hat t he bount y from
t echnology will more t han compensat e for t he spread it generat es, we are inst ead concerned
about somet hing close t o t he reverse: t hat t he spread could act ually reduce t he bount y in
years t o come.
Technological Unemployment
Weve seen t hat t he overall pie of t he economy is growing, but some people, even a majorit y of
t hem, can be made worse off by advances in t echnology. As demand falls for labor, part icularly
relat ively unskilled labor, wages fall. But can t echnology act ually lead t o unemployment ?
Were not t he first people t o ask t hese quest ions. In fact , t heyve been debat ed vigorously,
even violent ly, for at least t wo hundred years. Bet ween 1811 and 1817, a group of English
t ext ile workers whose jobs were t hreat ened by t he aut omat ed looms of t he first Indust rial
Revolut ion rallied around a perhaps myt hical, Robin Hoodlike figure named Ned Ludd and
at t acked mills and machinery before being suppressed by t he Brit ish government .
Economist s and ot her scholars saw in t he Luddit e movement an early example of a broad
and import ant new pat t ern: large-scale aut omat ion ent ering t he workplace and affect ing
peoples wage and employment prospect s. Researchers soon fell int o t wo camps. The first and
largest argued t hat while t echnological progress and ot her fact ors definit ely cause some
workers t o lose t heir jobs, t he fundament ally creat ive nat ure of capit alism creat es ot her,
usually bet t er, opport unit ies for t hem. Unemployment , t herefore, is only t emporary and not a
serious problem. John Bat es Clark (aft er whom t he medal for t he best economist under t he
age of fort y is named) wrot e in 1915 t hat In t he act ual [economy], which is highly dynamic,
such a supply of unemployed labor is always at hand, and it is neit her possible [nor] normal t hat
it should be alt oget her absent . The well-being of workers requires t hat progress should go on,
and it cannot do so wit hout causing t emporary displacement of laborers.
13
The following year, t he polit ical scient ist William Leiserson t ook t his argument furt her. He
described unemployment as somet hing close t o a mirage: t he army of t he unemployed is no
more unemployed t han are firemen who wait in fire-houses for t he alarm t o sound, or t he
reserve police force ready t o meet t he next call.
14
The creat ive forces of capit alism, in short ,
required a supply of ready labor, which came from people displaced by previous inst ances of
t echnological progress.
John Maynard Keynes was less confident t hat t hings would always work out so well for
workers. His 1930 essay Economic Possibilit ies for our Grandchildren, while most ly opt imist ic,
nicely art iculat ed t he posit ion of t he second campt hat aut omat ion could in fact put people
out of work permanent ly, especially if more and more t hings kept get t ing aut omat ed. His essay
looked past t he immediat e hard t imes of t he Great Depression and offered a predict ion: We
are being afflict ed wit h a new disease of which some readers may not yet have heard t he
name, but of which t hey will hear a great deal in t he years t o comenamely, technological
unemployment. This means unemployment due t o our discovery of means of economizing t he
use of labor out running t he pace at which we can find new uses for labor.
15
The ext ended
joblessness of t he Great Depression seemed t o confirm Keyness ideas, but it event ually
eased. Then came World War II and it s insat iable demands for labor, bot h on t he bat t lefield and
t he home front , and t he t hreat of t echnological unemployment receded.
Aft er t he war ended, t he debat e about t echnologys impact on t he labor force resumed and
t ook on new life once comput ers appeared. A commission of scient ist s and social t heorist s
sent an open let t er t o President Lyndon Johnson in 1964 arguing t hat :
A new era of production has begun. Its principles of organization are as different from those of the industrial era as
those of the industrial era were different from the agricultural. The cybernation revolution has been brought about by
the combination of the computer and the automated self-regulating machine. This results in a system of almost
unlimited productive capacity which requires progressively less human labor.
16
The Nobel Prizewinning economist Wassily Leont ief agreed, st at ing definit ively in 1983 t hat
t he role of humans as t he most import ant fact or of product ion is bound t o diminish in t he
same way t hat t he role of horses in agricult ural product ion was first diminished and t hen
eliminat ed by t he int roduct ion of t ract ors.
17
Just four years lat er, however, a panel of economist s assembled by t he Nat ional Academy of
Sciences disagreed wit h Leont ief and made a clear, comprehensive, and opt imist ic st at ement
in t heir report Technology and Employment :
By reducing the costs of production and thereby lowering the price of a particular good in a competitive market,
technological change frequently leads to increases in output demand: greater output demand results in increased
production, which requires more labor, offsetting the employment effects of reductions in labor requirements per
unit of output stemming from technological change. . . . Historically and, we believe, for the foreseeable future,
reductions in labor requirements per unit of output resulting from new process technologies have been and will
continue to be outweighed by the beneficial employment effects of the expansion in total output that generally
occurs.
18
This viewt hat aut omat ion and ot her forms of t echnological progress in aggregat e creat e
more jobs t han t hey dest royhas come t o dominat e t he discipline of economics. To believe
ot herwise is t o succumb t o t he Luddit e Fallacy. So in recent years, most of t he people
arguing t hat t echnology is a net job dest royer have not been mainst ream economist s.
The argument t hat t echnology cannot creat e ongoing st ruct ural unemployment , rat her t han
just t emporary spells of joblessness during recessions, rest s on t wo pillars: 1) economic t heory
and 2) t wo hundred years of hist orical evidence. But bot h of t hese are less solid t han t hey first
appear.
First , t he t heory. There are t hree economic mechanisms t hat are candidat es for explaining
t echnological unemployment : inelast ic demand, rapid change, and severe inequalit y.
If t echnology leads t o more efficient use of labor, t hen as t he economist s on t he Nat ional
Academy of Sciences panel point ed out , t his does not aut omat ically lead t o reduced demand
for labor. Lower cost s may lead t o lower prices for goods, and in t urn, lower prices lead t o
great er demand for t he goods, which can ult imat ely lead t o an increase in demand for labor as
well. Whet her or not t his will act ually happen depends on t he elast icit y of demand, defined as
t he percent age increase in t he quant it y demanded for each percent age decline in price.
For some goods and services, such as aut omobile t ires or household light ing, demand has
been relat ively inelast ic and t hus insensit ive t o price declines.
19
Cut t ing t he price of art ificial
light in half did not double t he amount of light consumers and businesses demanded, so t he
t ot al revenues for t he light ing indust ry have fallen as light ing became more efficient . In an great
piece of hist orical sleut hing, economist William Nordhaus document ed how t echnology has
reduced t he price of light by over a t housand-fold since t he days of candles and whale oil
lamps, allowing us t o expend far less on labor while get t ing all t he light we need.
20
Whole
sect ors of t he economy, not just product cat egories, can face relat ively inelast ic demand. Over
t he years agricult ure and manufact uring have each experienced falling employment as t hey
became more efficient . The lower prices and improved qualit y of t heir out put s did not lead t o
enough increased demand t o offset improvement s in product ivit y.
On t he ot her hand, when demand is very elast ic, great er product ivit y leads t o enough of an
increase in demand t hat more labor ends up employed. The possibilit y of t his happening for
some t ypes of energy has been called t he Jevons paradox: more energy efficiency can
somet imes lead t o great er t ot al energy consumpt ion. But t o economist s t here is no paradox,
just an inevit able implicat ion of elast ic demand. This is especially common in new indust ries like
informat ion t echnology.
21
If elast icit y is exact ly equal t o one (i.e., a 1 percent decline in price
leads t o exact ly a 1 percent increase in quant it y), t hen t ot al revenues (price t imes quant it y) will
be unchanged. In ot her words, an increase in product ivit y will be exact ly mat ched by an
ident ical increase in demand t o keep everyone just as busy as t hey were before.
Elast icit y of exact ly one might seem like a very special case, yet a good (but not airt ight )
argument can be made t hat , in t he long run, t his is exact ly what happens in t he overall
economy. For inst ance, falling food prices might reduce demand for agricult ural labor, but t hey
free up just enough money t o be spent elsewhere in t he economy so t hat overall employment
is maint ained.
22
The money is spent not just buying more of t he exist ing goods, but also on
newly invent ed product s and services. This is t he core of t he economic argument t hat
t echnological unemployment is impossible.
KEYNES DI SAGREED. He t hought t hat in t he long run, demand would not be perfect ly inelast ic. That is,
ever lower (qualit y-adjust ed) prices would not necessarily mean we would consume ever more
goods and services. Inst ead, we would become sat iat ed and choose t o consume less. He
predict ed t hat t his would lead t o a dramat ic reduct ion in working hours t o as few as fift een per
week as less and less labor was needed t o produce all t he goods and services t hat people
demanded.
23
However, it s hard t o see t his t ype of t echnological unemployment as an
economic problem. Aft er all, in t hat scenario, by definit ion, people are working less because
t hey are sat iat ed. The economic problem of scarcit y is replaced by t he ent irely more
appealing problem of what t o do wit h abundant wealt h and copious leisure. As Art hur C. Clarke
is purport ed t o have put it , The goal of t he fut ure is full unemployment , so we can play.
24
Keynes was more concerned wit h short -t erm maladjust ment s, which brings us t o t he
second, more serious argument for t echnological unemployment : t he inabilit y of our skills,
organizat ions, and inst it ut ions t o keep pace wit h t echnical change. When t echnology
eliminat es one t ype of job, or even t he need for a whole cat egory of skills, t hose workers will
have t o develop new skills and find new jobs. Of course, t hat can t ake t ime, and in t he
meant ime t hey may be unemployed. The opt imist ic argument maint ains t hat t his is t emporary.
Event ually, t he economy will find a new equilibrium and full employment will be rest ored as
ent repreneurs invent new businesses and t he workforce adapt s it s human capit al.
But what if t his process t akes a decade?
25
And what if, by t hen, t echnology has changed
again? This is t he possibilit y t hat Wassily Leont ief had in mind his 1983 art icle when he
speculat ed t hat many workers could end up permanent ly unemployed, like horses unable t o
adjust t o t he invent ion of t he t ract ors.
26
Once one concedes t hat it t akes t ime for workers and
organizat ions t o adjust t o t echnical change, t hen it becomes apparent t hat accelerat ing
t echnical change can lead t o widening gaps and increasing possibilit ies for t echnological
unemployment . Fast er t echnological progress may ult imat ely bring great er wealt h and longer
lifespans, but it also requires fast er adjust ment s by bot h people and inst it ut ions. Wit h
apologies t o Keynes, in t he long run we may not be dead, but we will st ill need jobs.
The t hird argument for t echnological unemployment may be t he most t roubling of all. It goes
beyond t emporary maladjust ment s. As described in det ail in chapt ers 8 and 9, recent
advances in t echnology have creat ed bot h winners and losers via skill-biased t echnical
change, capit al-biased t echnical change, and t he proliferat ion of superst ars in winner-t ake-all
market s. This has reduced t he demand for some t ypes of work and skills. In a free market ,
prices adjust t o rest ore equilibrium bet ween supply and demand, and indeed, real wages have
fallen for millions of people in t he Unit ed St at es.
In principle, t he equilibrium wage could be one dollar an hour for some workers, even as ot her
workers command a wage t housands of t imes higher. Most people in advanced count ries
would not consider one dollar an hour a living wage, and dont expect societ y t o require people
t o work at t hat wage under t hreat of st arvat ion. What s more, in ext reme winner-t ake-all
market s, t he equilibrium wage might be zero: even if we offered t o sing Sat isfact ion for free,
people would st ill prefer t o pay for t he version sung by Mick Jagger. In t he market for music,
Mick can now, in effect , make digit al copies of himself t hat compet e wit h us. A near-zero wage
is not a living wage. Rat ional people would rat her look for anot her gig, and look, and look, and
look, t han depend on a near-zero wage for t heir sust enance.
Thus, t here is a floor on how low wages for human labor can go. In t urn, t hat floor can lead t o
unemployment : people who want t o work, but are unable t o find jobs. If neit her t he worker nor
any ent repreneur can t hink of a profit able t ask t hat requires t hat workers skills and
capabilit ies, t hen t hat worker will go unemployed indefinit ely. Over hist ory, t his has happened
t o many ot her input s t o product ion t hat were once valuable, from whale oil t o horse labor. They
are no longer needed in t odays economy even at zero price. In ot her words, just as t echnology
can creat e inequalit y, it can also creat e unemployment . And in t heory, t his can affect a large
number of people, even a majorit y of t he populat ion, and even if t he overall economic pie is
growing.
So t hat s t heory, but what about t he dat a? For most of t he t wo hundred years since t he
Luddit e rebellion t echnology has boost ed product ivit y enormously, but t he dat a show t hat
employment grew alongside product ivit y up unt il t he end of t he t went iet h cent ury. This shows
t hat product ivit y doesnt always lead t o job dest ruct ion. It s even t empt ing t o suppose t hat
product ivit y somehow inevit ably leads t o job creat ion, as t echnology boost ers somet imes
argue. However, as we saw in figure 11.1, t he dat a also show t hat , more recent ly, job growt h
decoupled from product ivit y in t he lat e 1990s. According t o Jared Bernst ein, t he ant i-Luddit es
call t his fact a head scrat cher. Which hist ory should we t ake guidance from: t he t wo
cent uries ending in t he lat e 1990s, or t he fift een years since t hen? We cant know for sure, but
our reading of t echnology t ells us t hat t he power of exponent ial, digit al, and combinat orial
forces, as well as t he dawning of machine int elligence and net worked int elligence, presage
even great er disrupt ions.
The Android Experiment
Imagine t hat t omorrow a company int roduced androids t hat could do absolut ely everyt hing a
human worker could do, including building more androids. Theres an endless supply of t hese
robot s, and t heyre ext remely cheap t o buy and virt ually free t o run over t ime. They work all
day, every day, wit hout breaking down.
Clearly, t he economic implicat ions of such an advance would be profound. First of all,
product ivit y and out put would skyrocket . The androids would operat e t he farms and fact ories.
Food and product s would become much cheaper t o produce. In a compet it ive market , in fact ,
t heir prices would fall close t o t he cost of t heir raw mat erials. Around t he world, wed see an
amazing increase in t he volume, variet y, and affordabilit y of offerings. The androids, in short ,
would bring great bount y.
Theyd also bring severe dislocat ions t o t he labor force. Every economically rat ional employer
would prefer androids, since compared t o t he st at us quo t hey provide equal capabilit y at lower
cost . So t hey would very quickly replace most , if not all, human workers. Ent repreneurs would
cont inue t o develop novel product s, creat e new market s, and found companies, but t heyd
st aff t hese companies wit h androids inst ead of people. The owners of t he androids and ot her
capit al asset s or nat ural resources would capt ure all t he value in t he economy, and do all t he
consuming. Those wit h no asset s would have only t heir labor t o sell, and t heir labor would be
wort hless.
This t hought experiment reflect s t he realit y t hat t here is no iron law t hat t echnological
progress must always be accompanied by broad job creat ion.
One slight variat ion on t his t hought experiment imagines t hat t he androids can do
everyt hing a human worker can do except for one skillsay, cooking. The economic result s
would be unchanged, except t hat t here would st ill be human cooks. Because t here would be
so much compet it ion for t hese jobs, however, companies t hat employed cooks could offer
much lower wages and st ill fill t heir open posit ions. The t ot al number of hours spent cooking in
t he economy would st ay t he same (at least as long as people kept eat ing in rest aurant s), but
t he t ot al wages paid t o cooks would go down. The only except ion might be superst ar chefs
wit h some combinat ion of skill and reput at ion t hat could not be duplicat ed by ot her people.
Superst ars would st ill be able t o command high wages; ot her cooks would not . So in addit ion t o
bringing great bount y of out put , t he androids would also great ly increase t he spread in income.
How useful are t hese t hought experiment s, which sound more like science fict ion t han any
current realit y? Fully funct ional humanoid androids are not rumbling around at American
companies t oday. In fact , t hey dont yet exist , and unt il recent ly progress had been slow in
making machines t hat can t ake t he places of human workers in areas like pat t ern recognit ion,
complex communicat ion, sensing, and mobilit y. But as weve seen, t he pace of progress here
has been accelerat ing great ly in recent years.
The bet t er machines can subst it ut e for human workers, t he more likely it is t hat t heyll drive
down t he wages of humans wit h similar skills. The lesson from economics and business
st rat egy is t hat you dont want t o compet e against close subst it ut es, especially if t hey have a
cost advant age.
But in principle, machines can have very different st rengt hs and weaknesses t han humans.
When engineers work t o amplify t hese differences, building on t he areas where machines are
st rong and humans are weak, t hen t he machines are more likely t o complement humans rat her
t han subst it ut e for t hem. Effect ive product ion is more likely t o require bot h human and
machine input s, and t he value of t he human input s will grow, not shrink, as t he power of
machines increases. A second lesson of economics and business st rat egy is t hat it s great t o
be a complement t o somet hing t hat s increasingly plent iful. Moreover, t his approach is more
likely t o creat e opport unit ies t o produce goods and services t hat could never have been
creat ed by unaugment ed humans, or machines t hat simply mimicked people, for t hat mat t er.
These new goods and services provide a pat h for product ivit y growt h based on increased
out put rat her t han reduced input s.
Thus in a very real sense, as long as t here are unmet needs and want s in t he world,
unemployment is a loud warning t hat we simply arent t hinking hard enough about what needs
doing. We arent being creat ive enough about solving t he problems we have using t he freed-up
t ime and energy of t he people whose old jobs were aut omat ed away. We can do more t o
invent t echnologies and business models t hat augment and amplify t he unique capabilit ies of
humans t o creat e new sources of value, inst ead of aut omat ing t he ones t hat already exist . As
we will discuss furt her in t he next chapt ers, t his is t he real challenge facing our policy makers,
our ent repreneurs, and each of us individually.
An Alternative Explanation: Globalization
Technology isnt t he only t hing t ransforming t he economy. The ot her big force of our era is
globalizat ion. Could t his be t he reason t hat median wages have st agnat ed in t he Unit ed
St at es and ot her advanced economies? A number of t hought ful economist s have made
exact ly t hat argument . The st ory is one of factor price equalization. This means t hat in any
single market , compet it ion will t end t o bid t he prices of t he fact ors of product ionsuch as
labor or capit alt o a single, common price.* Over t he past few decades, lower t ransact ion in
communicat ion cost s have helped creat e one big global market for many product s and
services.
Businesses can ident ify and hire workers wit h skills t hey need anywhere in t he world. If a
worker in China can do t he same work as an American, t hen what economist s call t he law of
one price demands t hat t hey earn essent ially t he same wages, because t he market will
arbit rage away differences just as it would for ot her commodit ies. That s good news for t he
Chinese worker, and for overall economic efficiency. But is not good news for t he American
worker who now faces low-cost compet it ion. A number of economist s have made exact ly t his
argument . Michael Spence, in his brilliant book The Next Convergence, explains how t he
int egrat ion of global market s is leading t o enormous dislocat ions, especially in labor market s.
27
The fact or price equalizat ion st ory yields a t est able predict ion: American manufact urers
would be expect ed t o shift product ion overseas, where cost s are lower. And indeed
manufact uring employment in t he Unit ed St at es has fallen over t he past t went y years;
economist s David Aut or, David Dorn, and Gordon Hanson est imat e t hat compet it ion from
China can explain about a quart er of t he decline in U.S. manufact uring employment .
28
However,
when one looks more closely at t he dat a, t he globalizat ion st ory becomes much less
compelling. Since 1996, manufact uring employment in China it self has act ually fallen as well,
coincident ally by an est imat ed 25 percent .
29
That s over t hirt y million fewer Chinese workers in
t hat sect or, even while out put soared by 70 percent . It s not t hat American workers are being
replaced by Chinese workers. It s t hat bot h American and Chinese workers are being made
more efficient by aut omat ion. As a result , bot h count ries are producing more out put wit h fewer
workers.
In t he long run, t he biggest effect of aut omat ion is likely t o be on workers not in America and
ot her developed nat ions, but rat her in developing nat ions t hat current ly rely on low-cost labor
for t heir compet it ive advant age. If you t ake most of t he cost s of labor out of t he equat ion by
inst alling robot s and ot her t ypes of aut omat ion, t hen t he compet it ive advant age of low wages
largely disappears. This is already beginning t o happen. Terry Guo of Foxconn has been
aggressively inst alling hundreds of t housands of robot s t o replace an equivalent number of
human workers. He says he plans t o buy millions more robot s in t he coming years. The first
wave is going int o fact ories in China and Taiwan, but once an indust ry becomes largely
aut omat ed, t he case for locat ing a fact ory in a low-wage count ry becomes less compelling.
There may st ill be logist ical advant ages if t he local business ecosyst em is st rong, making it
easier t o get spare part s, supplies, and cust om component s. But over t ime inert ia may be
overcome by t he advant ages of reducing t ransit t imes for finished product s and being closer t o
cust omers, engineers and designers, educat ed workers, or even regions where t he rule of law
is st rong. This can bring manufact uring back t o America, as ent repreneurs like Rod Brooks
have been emphasizing.
A similar argument applies out side of manufact uring. For inst ance, int eract ive voice-
response syst ems are aut omat ing jobs in call cent ers. Unit ed Airlines has been successful in
making such a t ransit ion. This can disproport ionally affect low-cost workers in places like India
and t he Philippines. Similarly, many medical doct ors used t o have t heir dict at ion sent overseas
t o be t ranscribed. But an increasing number are now happy wit h comput er t ranscript ion. In
more and more domains, int elligent and flexible machines, not humans in ot her count ries, are
t he most cost -effect ive source for labor.
If you look at t he t ypes of t asks t hat have been offshored in t he past t went y years, you see
t hat t hey t end t o be relat ively rout ine, well-st ruct ured t asks. Int erest ingly, t hese are precisely
t he t asks t hat are easiest t o aut omat e. If you can give precise inst ruct ions t o someone else on
exact ly what needs t o be done, you can oft en writ e a precise comput er program t o do t he
same t ask. In ot her words, offshoring is oft en only a way st at ion on t he road t o aut omat ion.
In t he long run, low wages will be no mat ch for Moores Law. Trying t o fend off advances in
t echnology by cut t ing wages is only a t emporary prot ect ion. It is no more sust ainable t han
asking folk legend John Henry t o lift weight s t o bet t er compet e wit h a st eam-powered
hammer.
* This is no different from the concept we invoked when we were comparing and equating the wages of human workers
with robots that, hypothetically, had identical capabilities.
But they are useless. They can only give you answers.
Pablo Picasso, on computers
1
WEVE TALKED ABOUT OUR research findings and conclusions wit h many different groups, from execut ive
t eams t o radio show audiences. Almost every t ime we do, one of t he first quest ions is
somet hing like, I have children in school. How should I be helping t hem prepare for t he fut ure
youre describing? Somet imes t he kids are in college, somet imes t heyre in kindergart en, but
t he quest ion is t he same. And it s not just parent s who are concerned about career
opport unit ies in t he second machine age. St udent s t hemselves, leaders of t he organizat ions
t hat might hire t hem, educat ors, policy makers and elect ed officials, and many ot hers also
wonder which human skills and abilit ies, if any, will st ill be valued as t echnology cont inues t o
improve.
Recent hist ory shows t hat t his is a difficult quest ion t o answer. Frank Levy and Richard
Murnanes excellent book The New Division of Labor was by far t he best research and t hinking
on t his t opic when it came out in 2004, arguing t hat pat t ern recognit ion and complex
communicat ion were t he t wo broad areas where humans would cont inue t o hold t he high
ground over digit al labor. As weve seen, however, t his has not always proved t o be t he case.
So as t echnology races ahead, will it leave a generat ion behind in all areas, or at least most of
t hem?
The answer is no. Even in t hose areas where digit al machines have far out st ripped humans,
people st ill have vit al roles t o play. This sounds like a cont radict ion in t erms; t he game of chess
shows why it s not .
Even Though Its Checkmate, Its Not Game Over
Aft er t he reigning world champion Garry Kasparov lost t o t he IBM comput er Deep Blue in 1997,
head-t o-head cont est s bet ween people and chess comput ers lost much of t heir allure; it was
clear t hat fut ure compet it ions would be increasingly one-sided. Dut ch grandmast er Jan Hein
Donner summed up t he current at t it ude of human chess mast ers. When asked how he would
prepare for a mat ch against a comput er, he replied, I would bring a hammer.
2
It might seem, t hen, t hat humans no longer have anyt hing t o cont ribut e t o t he game of
chess. But t he invent ion of freest yle chess t ournament s shows how far t his is from t he t rut h.
In t hese event s, t eams can include any combinat ion of human and digit al players. As Kasparov
himself explains when discussing t he result s of a 2005 freest yle cont est ,
The teams of human plus machine dominated even the strongest computers. The chess machine Hydra, which is a
chess-specific supercomputer like Deep Blue, was no match for a strong human player using a relatively weak
laptop. Human strategic guidance combined with the tactical acuity of a computer was overwhelming.
The surprise came at the conclusion of the event. The winner was revealed to be not a grandmaster with a state-
of-the-art PC but a pair of amateur American chess players using three computers at the same time. Their skill at
manipulating and coaching their computers to look very deeply into positions effectively counteracted the superior
chess understanding of their grandmaster opponents and the greater computational power of other participants.
Weak human + machine + better process was superior to a strong computer alone and, more remarkably, superior
to a strong human + machine + inferior process.
3
The key insight from freest yle chess is t hat people and comput ers dont approach t he same
t ask t he same way. If t hey did, humans would have had not hing t o add aft er Deep Blue beat
Kasparov; t he machine, having learned how t o mimic human chess-playing abilit y, would just
keep riding Moores Law and racing ahead. But inst ead we see t hat people st ill have a great
deal t o offer t he game of chess at it s highest levels once t heyre allowed t o race wit h
machines, inst ead of purely against t hem.
So what are t hese st ill-valuable, uniquely human abilit ies? Kasparov writ es about human
st rat egic guidance vs. comput ers t act ical acuit y in chess, but t he dist inct ion bet ween
t hese t wo is oft en not clear, part icularly in advance. Similarly, as we not ed earlier, t echnology
has made deeper inroads int o rout ine t asks t han nonrout ine work.
This dist inct ion is a valid and import ant oneadding up a column of numbers is t ot ally
rout ine and by now t ot ally aut omat edbut here again t he boundary bet ween t he t wo t ask
cat egories is not always obvious. Very few people, for example, would have considered playing
chess a rout ine t ask half a cent ury ago. In fact , it was considered one of t he highest
expressions of human abilit y. As t he former world champion Anat oly Karpov wrot e about t he
idols of his yout h, I simply lived in one world, and t he grandmast ers exist ed in a complet ely
different one. People like t hat were not really even people, but like gods or myt hical heroes.
4
But t he human heroes fell t o rout ine, number-crunching comput ers in t his domain. And yet ,
once t hey were allowed t o work wit h machines inst ead of only against t hem, t hey reassert ed
t heir value. How?
EurekaSomething Computers Cant Do!
Kasparov offers an import ant clue when describing a mat ch he played against t he Bulgarian
grandmast er Veselin Topalov, during which t hey were each allowed t o freely consult a
comput er. Kasparov knew, he wrot e, t hat since we bot h had equal access t o t he same
dat abase, t he advant age st ill came down t o creat ing a new idea at some point .
5
As we look
across examples of t hings we havent seen comput ers do yet , t his idea of t he new idea
keeps recurring.
Weve never seen a t ruly creat ive machine, or an ent repreneurial one, or an innovat ive one.
Weve seen soft ware t hat could creat e lines of English t ext t hat rhymed, but none t hat could
writ e a t rue poem (t he spont aneous overflow of powerful feelings, recollect ed in t ranquilit y,
as Wordswort h described it ). Programs t hat can writ e clean prose are amazing achievement s,
but weve not yet seen one t hat can figure out what t o writ e about next . Weve also never
seen soft ware t hat could creat e good soft ware; so far, at t empt s at t his have been abject
failures.
These act ivit ies have one t hing in common: ideation, or coming up wit h new ideas or
concept s. To be more precise, we should probably say good new ideas or concept s, since
comput ers can easily be programmed t o generat e new combinat ions of preexist ing element s
like words. This however, is not recombinant innovat ion in any meaningful sense. It s closer t o
t he digit al equivalent of a hypot het ical room full of monkeys banging away randomly on
t ypewrit ers for a million years and st ill not reproducing a single play of Shakespeares.
Ideat ion in it s many forms is an area t oday where humans have a comparat ive advant age
over machines. Scient ist s come up wit h new hypot heses. Journalist s sniff out a good st ory.
Chefs add a new dish t o t he menu. Engineers on a fact ory floor figure out why a machine is no
longer working properly. St eve Jobs and his colleagues at Apple figure out what kind of t ablet
comput er we act ually want . Many of t hese act ivit ies are support ed and accelerat ed by
comput ers, but none are driven by t hem.
Picassos quot e at t he head of t his chapt er is just about half right . Comput ers are not
useless, but t heyre st ill machines for generat ing answers, not posing int erest ing new
quest ions. That abilit y st ill seems t o be uniquely human, and st ill highly valuable. We predict
t hat people who are good at idea creat ion will cont inue t o have a comparat ive advant age over
digit al labor for some t ime t o come, and will find t hemselves in demand. In ot her words, we
believe t hat employers now and for some t ime t o come will, when looking for t alent , follow t he
advice at t ribut ed t o t he Enlight enment sage Volt aire: Judge a man by his quest ions, not his
answers.
6
Ideat ion, creat ivit y, and innovat ion are oft en described as t hinking out side t he box, and t his
charact erizat ion indicat es anot her large and reasonably sust ainable advant age of human over
digit al labor. Comput ers and robot s remain lousy at doing anyt hing out side t he frame of t heir
programming. Wat son, for example, is an amazing Jeopardy! player, but would be defeat ed by
a child at Wheel of Fortune, The Price is Right, or any ot her TV game show unless it was
subst ant ially reprogrammed by it s human creat ors. Wat son is not going t o get t here on it s
own.
Inst ead of conquering ot her game shows, however, t he IBM t eam behind Wat son is t urning
it s at t ent ion t o ot her fields such as medicine. Here again, it will be limit ed by it s frame. Make no
mist ake: we believe t hat Wat son will ult imat ely make an excellent doct or. Right now human
diagnost icians reign supreme, but just as Wat son soon got good enough t o beat Ken Jennings,
Brad Rut t er, and all ot her human Jeopardy! players, we predict t hat Dr. Wat son will soon be
able t o beat Dr. Welby, Dr. House, and real human doct ors at t heir own game.
While comput er reasoning from predefined rules and inferences from exist ing examples can
address a large share of cases, human diagnost icians will st ill be valuable even aft er Dr.
Wat son finishes it s medical t raining because of t he idiosyncrasies and special cases t hat
inevit ably arise. Just as it is much harder t o creat e a 100-percent self-driving car t han one t hat
merely drives in normal condit ions on a highway, creat ing a machine-based syst em for covering
all possible medical cases is radically more difficult t han building one for t he most common
sit uat ions. As wit h chess, a part nership bet ween Dr. Wat son and a human doct or will be far
more creat ive and robust t han eit her of t hem working alone. As fut urist Kevin Kelly put it Youll
be paid in t he fut ure based on how well you work wit h robot s.
7
Sensing Our Advantage
So comput ers are ext raordinarily good at pat t ern recognit ion wit hin t heir frames, and t errible
out side t hem. This is good news for human workers because t hanks t o our mult iple senses,
our frames are inherent ly broader t han t hose of digit al t echnologies. Comput er vision, hearing,
and even t ouch are get t ing exponent ially bet t er all t he t ime, but t here are st ill t asks where our
eyes, ears, and skin, t o say not hing of our noses and t ongues, surpass t heir digit al equivalent s.
At present and for some t ime t o come, t he sensory package and it s t ight connect ion t o t he
pat t ern-recognit ion engine of t he brain gives us a broader frame.
The Spanish clot hing company Zara exploit s t his advant age and uses humans inst ead of
comput ers t o decide which clot hes t o make. For most apparel ret ailers, forecast ing and sales
planning are largely st at ist ical affairs, conduct ed mont hs in advance of t he clot hes act ually
showing up in st ores. Zara t akes a different approach. It specializes in fast fashion
inexpensive, t rendy clot hes aimed primarily at t eens and young adult s. Because t hese st yles
gain popularit y as quickly as t hey fade away, Zara has configured it s fact ories and warehouses
t o make and deliver garment s very rapidly, while t heyre st ill hot . To answer t he crit ical quest ion
Which clot hes should we make and ship t o each st ore? Zara relies on it s st ore managers
around t he world t o order exact ly, and only, t he merchandise t hat will sell in t hat locat ion over
t he next few days.
8
Managers figure t his out not by consult ing algorit hms but inst ead by walking around t he
st ore, observing what shoppers (part icularly cool ones) are wearing, t alking t o t hem about
what t hey like and what t heyre looking for, and generally doing many t hings at which people
excel. Zara st ore managers do a lot of visual pat t ern recognit ion, engage in complex
communicat ion wit h cust omers, and use all of t his informat ion for t wo purposes: t o order
exist ing clot hes using a broad frame of input s, and t o engage in ideat ion by t elling
headquart ers what kinds of new clot hes would be popular in t heir locat ion. Zara has no plans
t o swit ch from human-based t o machine-based ordering any t ime soon, and we t hink t heyre
making a very smart decision.
So ideat ion, large-frame pat t ern recognit ion, and t he most complex forms of communicat ion
are cognit ive areas where people st ill seem t o have t he advant age, and also seem likely t o
hold on t o it for some t ime t o come. Unfort unat ely, t hough, t hese skills are not emphasized in
most educat ional environment s t oday. Inst ead, primary educat ion oft en focuses on rot e
memorizat ion of fact s, and on t he skills of reading, writ ing, and arit hmet ict he t hree Rs, as
Tory MP Sir William Curt is named t hem around 1825 (incident ally, it s unlikely t hat a machine
would have given t hem a moniker as memorable, if t echnically inaccurat e, as t he t hree Rs).
9
To Switch the Skills, Switch the Schools
Educat ion researcher Sugat a Mit ra, who has showed how much poor children in t he developing
world can learn on t heir own when provided wit h not hing more t han some appropriat e
t echnology, has a provocat ive explanat ion for t he emphasis on rot e learning. In his speech at
t he 2013 TED conference, where his work was recognized wit h t he one-million-dollar TED
prize, he gave an account of when and why t hese skills came t o be valued.
I tried to look at where did the kind of learning we do in schools, where did it come from? . . . It came from . . . the
last and the biggest of the empires on this planet, [the British Empire].
What they did was amazing. They created a global computer made up of people. Its still with us today. Its called
the bureaucratic administrative machine. In order to have that machine running, you need lots and lots of people.
They made another machine to produce those people: the school. The schools would produce the people who
would then become parts of the bureaucratic administrative machine. . . . They must know three things: They must
have good handwriting, because the data is handwritten; they must be able to read; and they must be able to do
multiplication, division, addition and subtraction in their head. They must be so identical that you could pick one up
from New Zealand and ship them to Canada and he would be instantly functional.
10
Of course, we like t his explanat ion because it describes t hings as comput ers and machines.
But more fundament ally, we like it because it point s out t hat t he t hree Rs were once t he skills
t hat workers needed t o cont ribut e t o t he most advanced economy of t he t ime. As Mit ra point s
out , t he educat ional syst em of Vict orian England was designed quit e well for it s t ime and
place. But t hat t ime and place are no longer ours. As Mit ra cont inued:
The Victorians were great engineers. They engineered a system that was so robust that its still with us today,
continuously producing identical people for a machine that no longer exists. . . . [Today] the clerks are the
computers. Theyre there in thousands in every office. And you have people who guide those computers to do their
clerical jobs. Those people dont need to be able to write beautifully by hand. They dont need to be able to multiply
numbers in their heads. They do need to be able to read. In fact, they need to be able to read discerningly.
11
Mit ras work shows t hat children, even poor and uneducat ed ones, can learn t o read
discerningly. The children in his st udies form t eams, use t echnology t o search broadly for
relevant informat ion, discuss what t heyre learning wit h one anot her, and event ually come up
wit h new (t o t hem) ideas t hat very oft en t urn out t o be correct . In ot her words, t hey acquire
and demonst rat e t he skills of ideat ion, broad-frame pat t ern recognit ion, and complex
communicat ion. So t he self-organizing learning environment s (SOLEs) Mit ra observed seem
t o be t eaching children t he skills t hat will give t hem advant ages over digit al labor.
We probably shouldnt be t oo surprised by t his; SOLEs have been around for a while, and
have produced many people who have excelled at racing wit h machines. In t he early years of
t he t went iet h cent ury, t he It alian physician and researcher Maria Mont essori developed t he
primary educat ional syst em t hat st ill bears her name. Mont essori classrooms emphasize self-
direct ed learning, hands-on engagement wit h a wide variet y of mat erials (including plant s and
animals), and a largely unst ruct ured school day. And in recent years t heyve produced alumni
including t he founders of Google (Larry Page and Sergey Brin), Amazon (Jeff Bezos), and
Wikipedia (Jimmy Wales).
These examples appear t o be part of a broader t rend. Management researchers Jeffrey
Dyer and Hal Gregersen int erviewed five hundred prominent innovat ors and found t hat a
disproport ionat e number of t hem also went t o Mont essori schools, where t hey learned t o
follow t heir curiosit y. As a Wall Street Journal blog post by Pet er Sims put it , t he Mont essori
educat ional approach might be t he surest rout e t o joining t he creat ive elit e, which are so
overrepresent ed by t he schools alumni t hat one might suspect a Mont essori Mafia. Whet her
or not hes part of t his mafia, Andy will vouch for t he power of SOLEs. He was a Mont essori kid
for t he earliest years of his schooling, and agrees complet ely wit h Larry Page t hat part of t hat
t raining [was] not following rules and orders, and being self-mot ivat ed, quest ioning what s
going on in t he world, doing t hings a lit t le bit different ly.
12
Our recommendat ions about how people can remain valuable knowledge workers in t he new
machine age are st raight forward: work t o improve t he skills of ideat ion, large-frame pat t ern
recognit ion, and complex communicat ion inst ead of just t he t hree Rs. And whenever possible,
t ake advant age of self-organizing learning environment s, which have a t rack record of
developing t hese skills in people.
Failing College
Of course, t his is easier said t han done. And it appears t hat it s not being done very well in
many educat ional environment s. One of t he st rongest bodies of evidence weve come across
t hat suggest s st udent s arent acquiring t he right skills is t he work of sociologist s Richard Arum
and Josipa Roksa and summarized in t heir book Academically Adrift: Limited Learning on
College Campuses and subsequent research.
13
Arum and Roksa made use of t he Collegiat e
Learning Assessment (CLA), a recent ly developed t est given t o college st udent s t o assess
t heir abilit ies in crit ical t hinking, writ t en communicat ion, problem solving, and analyt ic reasoning.
Alt hough t he CLA is administ ered via comput er, it requires essays inst ead of mult iple-choice
answers. One of it s main component s is t he performance t ask, which present s st udent s wit h
a set of background document s and gives t hem ninet y minut es t o writ e an essay requiring
t hem t o ext ract informat ion from t he mat erials given and develop a point of view or
recommendat ion. In short , t he performance t ask is a good t est of ideat ion, pat t ern recognit ion,
and complex communicat ion.
Arum, Roksa, and t heir colleagues t racked more t han 2,300 st udent s enrolled full-t ime in
four-year degree programs at a range of American colleges and universit ies. Their findings are
alarming: 45 percent of st udent s demonst rat e no significant improvement on t he CLA aft er
t wo years of college, and 36 percent did not improve at all even aft er four years. The average
improvement on t he t est aft er four years was quit e small. Consider a st udent who scored at
t he fift iet h percent ile as a freshman. If he experienced average improvement over four years of
college, t hen went back and t ook t he t est again wit h anot her group of incoming freshmen, he
would score only in t he sixt y-eight h percent ile. The CLA is so new t hat we dont know if t hese
gains would have been bigger in t he past , but previous research using ot her t est s indicat es
t hat t hey were, and t hat only a few decades ago t he average college st udent learned a great
deal bet ween freshman and senior years.
What account s for t hese disappoint ing result s? Arum, Roksa, and t heir colleagues
document t hat college st udent s t oday spend only 9 percent of t heir t ime st udying (compared
t o 51 percent on socializing, recreat ing, and ot her), much less t han in previous decades, and
t hat only 42 percent report ed having t aken a class t he previous semest er t hat required t hem
t o read at least fort y pages a week and writ e at least t went y pages t ot al. They writ e t hat ,
The port rayal of higher educat ion emerging from [t his research] is one of an inst it ut ion
focused more on social t han academic experiences. St udent s spend very lit t le t ime st udying,
and professors rarely demand much from t hem in t erms of reading and writ ing.
They also find, however, t hat at every college st udied some st udent s show great
improvement on t he CLA. In general, t hese are st udent s who spent more t ime st udying
(especially st udying alone), t ook courses wit h more required reading and writ ing, and had more
demanding facult y. This pat t ern fit s well int o conclusions by educat ion researchers Ernest
Pascarella and Pat rick Terenzini, who summarized more t han t went y years of research in t heir
book How College Affects Students. They writ e t hat t he impact of college is largely
det ermined by individual effort and involvement in t he academic, int erpersonal, and
ext racurricular offerings on a campus.
14
This work leads direct ly t o our most fundament al recommendat ion t o st udent s and t heir
parent s: st udy hard, using t echnology and all ot her available resources t o fill up your t oolkit
and acquire skills and abilit ies t hat will be needed in t he second machine age.
Tools to Help You Stand Out
Acquiring an excellent educat ion is t he best way t o not be left behind as t echnology races
ahead. The discouraging news is t hat t oday many st udent s seem t o be squandering at least
some of t heir educat ional opport unit ies. The good news, t hough, is t hat t echnology is now
providing more of t hese opport unit ies t han ever before.
Mot ivat ed st udent s and modern t echnologies are a formidable combinat ion. The best
educat ional resources available online allow users t o creat e self-organized and self-paced
learning environment sones t hat allow t hem t o spend as much t ime as t hey need wit h t he
mat erial, and also t o t ake t est s t hat t ell t hem if t hey mast ered it . One of t he best known of
t hese resources is Khan Academy, which was st art ed by t henhedge fund manager Salman
Khan as a series of online doodles and YouTube video lect ures int ended t o t each mat h t o his
young relat ives. Their immense popularit y led him t o quit his job in 2009 and devot e himself t o
creat ing online educat ional mat erials, freely available t o all. By May 2013, Khan Academy
included more t han 4,100 videos, most no more t han a few minut es long, on subject s ranging
from arit hmet ic t o calculus t o physics t o art hist ory. These videos had been viewed more t han
250 million t imes, and t he Academys st udent s had t ackled more t han one billion aut omat ically
generat ed problems.
15
Khan Academy was originally aimed at primary-school children, but similar t ools and
t echniques have been also applied t o higher educat ion, where t heyre known as massive online
open courses, or MOOCs. One of t he most int erest ing experiment s in t his area came in 2011
when Sebast ian Thrun, a t op art ificial int elligence researcher (and one of t he main people
behind Googles driverless car), announced wit h a single email t hat he would be t eaching his
graduat e-level AI course not only t o st udent s at St anford but also as a MOOC available for
free over t he Int ernet . Over 160,000 st udent s signed up for t he course. Tens of t housands of
t hem complet ed all exercises, exams, and ot her requirement s, and some of t hem did quit e well.
The t op performer in t he course at St anford, in fact , was only t he 411t h best among all t he
online st udent s. As Thrun put it , We just found over 400 people in t he world who
out performed t he t op St anford st udent .
16
In chapt er 9, we described t he growing gap in earnings bet ween t hose wit h and wit hout
college degrees. Our MIT colleague David Aut or summarizes t he research by writ ing t hat large
payoffs from schooling are increasingly associat ed wit h t he at t ainment of four-year and
post college degrees. . . . Workers wit h less t han a college educat ion clust er relat ively closer
t oget her in t he earnings dist ribut ion while t he most educat ed groups pull away.
17
College
graduat es are also much less likely t o be unemployed t han t he less educat ed. Economics
report er Cat herine Rampell point s out t hat college graduat es are t he only group t hat has seen
employment growt h since t he st art of t he Great Recession in 2007, and in Oct ober of 2011
t he unemployment rat e for bachelors degree holders, at 5.8 percent , was only about half t hat
of t hose wit h associat es degrees (10.6 percent ) and a t hird t hat of t hose who st opped aft er
high school (16.2 percent ).
18
The college premium exist s in part because so many t ypes of raw dat a are get t ing
dramat ically cheaper, and as dat a get cheaper, t he bot t leneck increasingly is t he abilit y t o
int erpret and use dat a. This reflect s t he career advice t hat Google chief economist Hal Varian
frequent ly gives: seek t o be an indispensable complement t o somet hing t hat s get t ing cheap
and plent iful. Examples include dat a scient ist s, writ ers of mobile phone apps, and genet ic
counselors, who have come int o demand as more people have t heir genes sequenced. Bill
Gat es has said t hat he chose t o go int o soft ware when he saw how cheap and ubiquit ous
comput ers, especially microcomput ers, were becoming. Jeff Bezos syst emat ically analyzed t he
bot t lenecks and opport unit ies creat ed by low-cost online commerce, part icularly t he abilit y t o
index large numbers of product s, before he set up Amazon. Today, t he cognit ive skills of
college graduat esincluding not only science, t echnology, engineering, and mat h, t he so-
called STEM disciplines, but also humanit ies, art s, and social sciencesare oft en complement s
t o low-cost dat a and cheap comput er power. This helps t hem command a premium wage.
However, anot her part of t he college premium is less encouraging. More and more employers
are requiring college degrees, even for ent ry-level jobs. As Rampell writ es, The college degree
is becoming t he new high school diploma: t he new minimum requirement , albeit an expensive
one, for get t ing even t he lowest -level job. . . . Across indust ries and geographic areas, many
ot her jobs t hat didnt used t o require a diplomaposit ions like dent al hygienist s, cargo agent s,
clerks and claims adjust ersare increasingly requiring one.
19
This degree inflat ion is t roubling
because a college educat ion is expensive and causes many people t o go int o debt . By t he end
of 2011, in fact , st udent loan debt in America was great er t han eit her t ot al out st anding car
loans or credit card debt .
20
We hope t hat MOOCs and ot her educat ional innovat ions event ually
provide a lower-cost alt ernat ive t o t radit ional colleges, and one t hat is t aken seriously by
employers, but unt il t hat t ime comes a college degree remains a vit al st epping st one t o most
careers.
In t he fut ure, more and more careers will not be in pure informat ion workt he kind t hat can
be done ent irely from a desk. Inst ead, t hey will include moving t hrough and int eract ing wit h t he
physical world. This is because comput ers remain comparat ively weak here, even as t hey get
so much st ronger at many cognit ive t asks.
Advances like aut onomous cars, drone airplanes, t he Baxt er robot , and hacked Kinect
devices t hat can map a room show t hat great progress has been made in giving machines
real-world capabilit ies, but a t owel-folding robot illust rat es how far we are from cracking
Moravecs paradox. A t eam of Berkeley researchers equipped a humanoid robot wit h four
st ereo cameras and algorit hms t hat would allow it t o see t owels, bot h individually and in piles.
These algorit hms worked; t he robot successfully grasped and folded t he t owels, even t hough
it somet imes t ook more t han one t ry t o grab t hem correct ly. However, it t ook an average of
1,478 seconds, or more t han t went y-four minut es, per t owel. The robot spent most of t hat
t ime looking t o learn where t he t owel was and how t o grasp it .
21
Result s like t hese indicat e t hat cooks, gardeners, repairmen, carpent ers, dent ist s, and home
healt h aides are not about t o be replaced by machines in t he short t erm. All of t hese
professions involve a lot of sensorimot or work, and many of t hem also require t he skills of
ideat ion, large-frame pat t ern recognit ion, and complex communicat ion. Not all of t hese jobs are
well paying, but t heyre also not subject t o a head-t o-head race against t he machine.
They may, however, be subject t o more compet it ion among people. As t he labor market
polarizes more and t he middle class cont inues t o hollow out , people who were previously doing
mid-skill knowledge work st art going aft er jobs lower on t he skill and wage ladder. Aft er medical
billing specialist s have t heir work aut omat ed, for example, t hey may st art looking for jobs as
home healt h aides. This put s downward pressure on wages and makes it harder t o find a job in
t hat profession. Even if home healt h aides remain largely immune t o aut omat ion, in short , t hey
wont necessarily be immune t o all t he effect s of digit izat ion.
The Fuzzy Future
We have t o st ress t hat none of our predict ions and recommendat ions here should be t reat ed
as gospel. We dont project t hat comput ers and robot s are going t o acquire t he general skills of
ideat ion, large-frame pat t ern recognit ion, and highly complex communicat ion any t ime soon,
and we dont t hink t hat Moravecs paradox is about t o be fully resolved. But one t hing weve
learned about digit al progress is never say never. Like many ot her observers, weve been
surprised over and over as digit al t echnologies demonst rat ed skills and abilit ies st raight out of
science fict ion.
In fact , t he boundary bet ween uniquely human creat ivit y and machine capabilit ies cont inues
t o change. Ret urning t o t he game of chess, back in 1956, t hirt een-year-old child prodigy Bobby
Fischer made a pair of remarkably creat ive moves against grandmast er Donald Byrne. First he
sacrificed his knight , seemingly for no gain, and t hen exposed his queen t o capt ure. On t he
surface, t hese moves seemed insane, but several moves lat er, Fischer used t hese moves t o
win t he game. His creat ivit y was hailed at t he t ime as t he mark of genius. Yet t oday if you
program t hat same posit ion int o a run-of-t he-mill chess program, it will immediat ely suggest
exact ly t he moves t hat Fischer played. It s not because t he comput er has memorized t he
FischerByrne game, but rat her because it searches far enough ahead t o see t hat t hese
moves really do pay off. Somet imes, one mans creat ivit y is anot her machines brut e-force
analysis.
22
Were very confident t hat more surprises are in st ore. Aft er spending t ime working wit h
leading t echnologist s and wat ching one bast ion of human uniqueness aft er anot her fall before
t he inexorable onslaught of innovat ion, it s becoming harder and harder t o have confidence
t hat any given t ask will be indefinit ely resist ant t o aut omat ion. That means people will need t o
be more adapt able and flexible in t heir career aspirat ions, ready t o move on from areas t hat
become subject t o aut omat ion, and seize new opport unit ies where machines complement and
augment human capabilit ies. Maybe well see a program t hat can scan t he business landscape,
spot an opport unit y, and writ e up a business plan so good it ll have vent ure capit alist s ready t o
invest . Maybe well see a comput er t hat can writ e a t hought ful and insight ful report on a
complicat ed t opic. Maybe well see an aut omat ic medical diagnost ician wit h all t he different
kinds of knowledge and awareness of a human doct or. And maybe well see a comput er t han
can walk up t he st airs t o an elderly womans apart ment , t ake her blood pressure, draw blood,
and ask if shes been t aking her medicat ion, all while put t ing her at ease inst ead of t errifying
her. We dont t hink any of t hese advances is likely t o come any t ime soon, but weve also
learned t hat it s very easy t o underest imat e t he power of digit al, exponent ial, and
combinat orial innovat ion. So never say never.
A policy is a temporary creed liable to be changed, but while it holds good it has got to be pursued with apostolic
zeal.
Mahatma Gandhi
WHAT SHOULD WE DO t o encourage t he bount y of t he second machine age while working t o reduce
t he spread, or at least mit igat e it s harmful effect s? How can we best encourage t echnology t o
race ahead while ensuring t hat as few people as possible are left behind?
Wit h so much science-fict ion t echnology becoming realit y now every day, it might seem t hat
radical st eps are necessary. But t his is not t he case, at least not right away. Many of t he
recommendat ions for growt h and prosperit y found in just about any st andard Economics 101
t ext book are t he right place t o st art and will be for some t ime t o come. In our discussions wit h
policy makers, t echnologist s, and business execut ives, we were surprised t o find t hat t he logic
behind t hese recommendat ions was oft en not well underst ood. Hence t his chapt er.
A Few Things Even Economists Can Agree On
The st andard Econ 101 t ext book st ill provides t he right playbook t hese days because despit e
recent advances, digit al labor is st ill far from a complet e subst it ut e for human labor. Robot s
and comput ers, as powerful and capable as t hey are, are not about t o t ake all of our jobs.
Googles aut onomous car cant yet drive on all roads or in all condit ions, and it doesnt know
what t o do when a flagman or t raffic cop appears in t he middle of t he st reet t o manually direct
t raffic. (That s not t o suggest t he car would keep driving and run t his person over; it would st op
and wait for t he sit uat ion t o normalize.) The t echnologies t hat make Wat son so pot ent are
being applied in many fields, including healt h care, finance, and cust omer service, but for now
t he syst em is st ill just a really good Jeopardy! player.
In t he short t erm, companies will st ill need human workers t o sat isfy t heir cust omers and
succeed in t he economy. (Well discuss t he longer t erm in t he next chapt er). Yes, second-
machine-age t echnologies are quickly leaving t he lab and ent ering mainst ream business. But
as rapid as t his progress is, we st ill have lot s of human cashiers, cust omer service
represent at ives, lawyers, drivers, policemen, home healt h aides, managers, and ot her workers.
They are not all on t he brink of being swept out of t heir jobs by a crest ing wave of
comput erizat ion. In March 2013 t he U.S. workforce consist ed of over 142 million people; in each
case, t heir employers chose t hem over digit al t echnologies (or in addit ion t o t hem) even aft er
more t han fift y years of experience and improvement wit h business comput ers, t hirt y years
wit h PCs, and almost t went y wit h t he World Wide Web.
1
While t hose employers are likely t o
choose digit al labor more oft en in t he fut ure, it will not be immediat e and it will not be in all
cases.
For now t he best way t o t ackle our labor force challenges is t o grow t he economy. As
companies see opport unit ies for growt h, t he great majorit y will need t o hire people t o seize
t hem. Job growt h will improve, and so will workers prospect s.
If only growt h were t hat easy. Fierce debat es rage about t he best ways t o bring about fast er
economic expansion. In part icular, t here are long-st anding and deep disagreement s about t he
proper role of government in t his area. Economist s, policy makers, and businesspeople alike
argue quest ions of monet ary policyShould t he Federal Reserve increase t he money supply?
What int erest should it charge banks?and fiscal policyHow should t he government spend
t he money it raises? How much debt should it t ake on? What s t he right level and mix of
income, sales, corporat e, and ot her t axes? What should t he t op t ax rat e be?
Disagreement s over t hese quest ions oft en seem so ent renched t hat t here can be no
common ground. But t heres act ually quit e a bit of it . Whet her you st udy from t he best -selling
int roduct ory t ext books Principles of Economics, writ t en by Harvards Greg Mankiw, a
conservat ive economist who advised George Bush and Mit t Romney, or Economics: An
Introductory Analysis, writ t en by MITs Paul Samuelson, a liberal advisor t o John Kennedy and
Lyndon B. Johnson, youll learn many of t he same t hings.* Across good Econ 101 t ext books,
and across good economist s, t heres far more agreement about government s role in
promot ing economic growt h t han you might expect from t he more vit riolic public debat es in t he
media. We agree wit h t his Econ 101 playbook as well, and t hink it will remain cent ral t o any
appropriat e response as machines cont inue t o race ahead.
This playbook advocat es government policies and ot her int ervent ions in a few key areas.
Not all of t hem are concerned wit h t he digit al t ools of t he second machine age. This is because
many of t he t hings we should do in a t ime of brilliant t echnologies are not relat ed t o t he
t echnologies t hemselves. Inst ead, t heyre about promot ing economic growt h and opport unit y
more generally. Heres our Econ 101 playbook on how t o do t hat .
1. Teach The Children Well
The Unit ed St at es was t he clear leader in primary educat ion in t he first half of t he t went iet h
cent ury, having realized t hat inequalit y was a race bet ween educat ion and t echnology, t o
use a phrase coined by Jan Tinbergen (winner of t he first Nobel Prize in Economic Sciences)
and used by t he economist s Claudia Goldin and Lawrence Kat z as t he t it le of t heir influent ial
2010 book.
2
When t echnology advances t oo quickly for educat ion t o keep up, inequalit y
generally rises. Realizing t his early last cent ury, t he Unit ed St at es made subst ant ial
invest ment s in primary educat ion. Goldin document s t hat by 1955, for example, almost 80
percent of American children bet ween t he ages of fift een and ninet een were enrolled in high
schools, a level more t han t wice as high as t hat in any European count ry at t he t ime.
Over t he past half cent ury t hat st rong U.S. advant age in primary educat ion has vanished,
and t he count ry is now no bet t er t han t he middle of t he pack among wealt hy count ries, and
worse in some import ant areas. The most recent survey by t he Organizat ion for Economic Co-
operat ion and Development s (OECD) Program for Int ernat ional St udent Assessment (PISA),
conduct ed in 2009, found t hat American fift een-year-olds ranked fourt eent h among t he t hirt y-
four count ries in reading, sevent eet h in science, and t went y-fift h in mat h.
3
As educat ion
researcher Mart in West summarizes, In mat h, t he average U.S. st udent by age 15 was at least
a full year behind t he average st udent in six count ries, including Canada, Japan, and t he
Net herlands. St udent s in six addit ional count ries, including Aust ralia, Belgium, Est onia, and
Germany, out performed U.S. st udent s by more t han half a year.
4
The economic benefit s of closing t hat gap are likely t o be quit e large. The economist s Eric
Hanushek and Ludger Woessmann found a st rong relat ionship bet ween improved t est scores
and fast er economic growt h aft er st udying fort y years wort h of dat a from fift y count ries. This
suggest s t hat if t he Unit ed St at es could move it s st udent s t o t he t op of t he int ernat ional
rankings, it might enjoy a subst ant ial boost in GDP growt h, especially since many of t he
count rys product s and services rely heavily on skilled labor. What s more, it s not an accident
t hat t he most educat ed places in t he count ry, like Aust in, Texas; Bost on; Minneapolis; and San
Francisco have low unemployment rat es.
It s been said t hat Americas great est idea was mass educat ion. It s st ill a great idea t hat
applies at all levels, not just K-12 and universit y educat ion, but also preschool, vocat ional, and
lifelong learning.
So, how can we get bet t er result s?
USING TECHNOLOGY
We can change t he way we deliver educat ion by put t ing t o work digit al t echnologies t hat have
been developed over t he past decade or t wo. The good news is t hat compared t o ot her
indust ries such as media, ret ailing, finance, or manufact uring, educat ion is a t remendous
laggard in t he use of t echnology. That s good news because it means we can expect big gains
simply by cat ching up t o ot her indust ries. Innovat ors can make a huge difference in t his area in
t he coming decade.
The t remendous experiment at ion now underway wit h massive online open courses, or
MOOCs, is especially encouraging. We discussed MOOCs, which anyone can t ake, oft en for
free, in some det ail in t he previous chapt er on recommendat ions for individuals. But we want t o
point out t wo of t heir main economic benefit s.
The first and most obvious one is t hat MOOCs enable low-cost replicat ion of t he best
t eachers, cont ent , and met hods. Just as we can all list en t o t he best pop singer or cellist in t he
world t oday, st udent s will soon have access t o t he most excit ing geology demonst rat ions, t he
most insight ful explanat ions of Renaissance art , and t he most effect ive exercises for learning
st at ist ical t echniques. In many cases, we can expect t o see schools flip t he classroom by
having st udent s list en t o lect ures at home and work t hrough t radit ional homework
exercises, problem set s, and writ ing assignment sin school, where peers, t eachers, and
coaches are available t o help t hem.
The second, subt ler benefit from t he digit izat ion of educat ion is ult imat ely more import ant .
Digit al educat ion creat es an enormous st ream of dat a t hat makes it possible t o give feedback
t o bot h t eacher and st udent . Educat ors can run cont rolled experiment s on t eaching met hods
and adopt a cult ure of cont inuous improvement . For inst ance, one course t aught via MITx
(MITs online educat ion init iat ive) recorded all 230 million t imes t hat someone clicked on course
mat erials, and analyzed over 100,000 comment s on class discussion boards.
5
The head of
MITx, Anant Agarwal, says t hat he was surprised when t he dat a revealed t hat half of his
st udent s st art ed working on t heir homework assignment s before wat ching t he video lect ures.
St udent s were more mot ivat ed t o really underst and t he cont ent of t he lect ure once t hey saw
t he specific challenges t hat t hey would learn how t o overcome.
The real impact of MOOCs is most ly ahead of us, in scaling up t he reach of t he best
t eachers, in devising met hods t o increase t he overall level of inst ruct ion, and in measuring and
finding ways t o accelerat e st udent improvement . For millennia t eaching met hods have
remained relat ively unchanged: a lone lect urer st ands in front of st udent s, working wit h chalk
and slat e t o illust rat e ideas. Our generat ion is poised t o use digit izat ion and analyt ics t o offer a
host of improvement s. As our friend t he t echnology researcher and professor Venkat
Venkat raman put it , We need digit al models of learning and t eaching. Not just a t echnology
overlay on old modes of t eaching and learning.* We cant predict exact ly which met hods will
be invent ed and which will cat ch on, but we do see a clear pat h for enormous progress. The
ent husiasm and opt imism in t his space is infect ious. Given t he plet hora of new t echnologies
and t echniques t hat are now being explored, it s a cert aint y t hat some of t hemin fact , we
t hink many of t hemwill be significant improvement s over current approaches t o t eaching and
learning.
A GRAND BARGAIN: HIGHER TEACHER SALARIES AND MORE ACCOUNTABILITY
If t heres one consist ent finding from educat ional research, it s t hat t eachers mat t er. In fact ,
t he impact of a good t eacher can be huge. Economist s Raj Chet t y, John Friedman, and Jonah
Rockoff, in a st udy of 2.5 million American schoolchildren, found t hat st udent s assigned t o
bet t er t eachers (as measured by t heir impact on previous st udent s t est scores) earned more
as adult s, were more likely t o at t end college, and were less likely t o have children as t eenagers.
They also found t hat t he differences bet ween poor and average t eachers can be as import ant
as t he ones bet ween average and superior t eachers. As t hey writ e, Replacing a [bot t om 5
percent ] t eacher wit h an average t eacher would increase t he present value of st udent s
lifet ime income by more t han $250,000 for t he average classroom in our sample.
6
It seems sensible, t hen, for educat ional reforms in t he Unit ed St at es t o include renewed
effort s t o at t ract and ret ain well-qualified people in t he t eaching profession, and t o remove or
ret rain consist ent low performers.
Part of t he bargain should also be longer school hours, longer school years, more aft er-
school act ivit ies and more opport unit ies for preschool educat ion. St udies of successful chart er
schools by Harvard economist Roland Fryer and ot hers have found t hat t he formula for
success is simple, if not easy: longer hours, addit ional school days, and a no-excuses
philosophy t hat t est s st udent s and, implicit ly, t heir t eachers.
7
This approach has helped
Singapore and Sout h Korea do well in t he PISA rankingsbot h rely heavily on st andardized
t est s for children of all ages.
8
Lengt hening t he school year may be especially beneficial for poor
kids, since research suggest s t hat rich and poor children learn at a similar rat e when school is
in session, but t hat poor children fall behind over t he summer when t hey are not in school.
9
However, one risk of t est ing is t hat it can encourage t eaching t o t he t est at t he expense of
ot her t ypes of learning. We dont necessarily t hink t eaching t o t he t est is always a bad t hing,
at least for skills t hat really can be t aught and t est ed, including many basic capabilit ies t hat are
needed in a global, informat ion-based economy. But it s also import ant t o recognize t hat hard-
t o-measure skills like creat ivit y and unst ruct ured problem solving are increasingly import ant as
machines handle more rout ine work. MITs Bengt Holmst rom and St anfords Paul Milgrom did
pioneering work showing t hat st rong incent ives for achieving measurable goals can crowd out
hard-t o-measure goals.
10
A clever solut ion t hey suggest is via job design and t ask allocat ion.
Give one group of t eachers responsibilit y for t he most measurable goals, while reserving ample
t ime and resources for t eachers focusing on t he less measurable t ypes of learning, prot ect ing
it from being crowded out . In principle, t his can achieve t he best of bot h worlds.
We have lit t le doubt t hat improving educat ion will boost t he bount y by providing more of t he
complement ary skills our economy needs t o make effect ive use of new t echnologies. Were
also hopeful t hat it can help reduce t he spread, especially insofar as it s caused by skill-biased
t echnical change. That s largely a mat t er of supply and demand. Reducing t he supply of
unskilled workers will relieve some of t he downward pressure on t heir wages, while increasing
t he supply of educat ed workers diminishes t he short ages in t hose areas. We also t hink
creat ivit y can be fost ered by t he right educat ional set t ings, boost ing t he prospect s not only of
t he st udent s but also societ y as a whole.
But were also realist ic about how new educat ional t echnologies are being used in pract ice.
Highly mot ivat ed self-st art ers are t he ones who t ake t he great est advant age of t he
abundance of online educat ional resources now available. We know t welve- and fourt een-
year-olds who are t aking college courses t o which t hey previously would never have had
access. Meanwhile, t heir peers dont part icipat e. Consequent ly what had been a small gap in
t heir knowledge has become a much larger one. The lesson here is t hat unless we make real
effort s t o broaden it s impact , t he digit izat ion of educat ion wont aut omat ically reduce t he
spread.
2. Restart Startups
We champion ent repreneurship, but not because we t hink everyone can or should st art a
company. Inst ead, it s because ent repreneurship is t he best way t o creat e jobs and
company. Inst ead, it s because ent repreneurship is t he best way t o creat e jobs and
opport unit y. As old t asks get aut omat ed away, along wit h demand for t heir corresponding
skills, t he economy must invent new jobs and indust ries. Ambit ious ent repreneurs are best at
t his, not well-meaning government leaders or visionary academics. Thomas Edison, Henry Ford,
Bill Gat es, and many ot hers creat ed new indust ries t hat more t han replaced t he work t hat was
eliminat ed as farming jobs vanished over t he decades. The current t ransformat ion of t he
economy creat es an equally large opport unit y.
Ent repreneurship has been an import ant part of t he Econ 101 playbook at least since
economist Joseph Schumpet ers landmark work, writ t en in t he middle of t he t went iet h cent ury,
on t he nat ure of capit alism and innovat ion. Schumpet er put forward our favorit e definit ion of
innovat iont he market int roduct ion of a t echnical or organisat ional novelt y, not just it s
invent ionand, like us, believed t hat it was an essent ially recombinant process, t he carrying
out of new combinat ions.
11
He also argued t hat innovat ion was less likely t o t ake place in incumbent companies t han in
t he upst art s t hat were t rying t o displace t hem. As he wrot e in The Theory of Economic
Development, New combinat ions are, as a rule, embodied . . . in firms which generally do not
arise out of t he old ones. . . . It is not t he owner of a st age coach who builds railways.
12
Ent repreneurship, t hen, is an innovat ion engine. It s also a prime source of job growt h. In
America, in fact , it appears t o be t he only t hing t hat s creat ing jobs. In a st udy published in
2010, Tim Kane of t he Kauffman Foundat ion used Census Bureau dat a t o divide all U.S.
companies int o t wo cat egories: brand-new st art ups and exist ing firms (t hose t hat had been
around for at least a year). He found t hat for all but seven years bet ween 1977 and 2005,
exist ing firms as a group were net job dest royers, losing an average of approximat ely one
million jobs annually.
13
St art ups, in sharp cont rast , creat ed on average a net t hree million jobs
per year.
Subsequent work by John Halt iwanger, Henry Hyat t , and t heir colleagues confirmed t hat net
job creat ion is much higher at young companies even t hough wages are lower.
14
Their research
also suggest s t hat st art ups are responsible for a disproport ionat e amount of worker churn.
This sounds like an unpleasant phenomenon, but it s not ; it s mainly workers moving lat erally
bet ween jobs in search of bet t er opport unit ies. Churn is an import ant act ivit y in a healt hy
economy, but it t ends t o decrease sharply during recessions, when people become more
reluct ant t o leave t heir jobs. The group found t hat young companies increased t heir share of
t ot al churn during t he Great Recession and it s aft ermat h, implying t hat st art ups provided a
much-needed source of t ransfer opport unit ies for workers during a difficult period.
Americas ent repreneurial environment remains t he envy of t he rest of t he world, but t here is
t roubling evidence t hat it is becoming less fert ile over t ime. Kauffman Foundat ion research
conduct ed by economist Robert Fairlie found t hat while t he rat e of new business format ion
rose bet ween 1996 and 2011, most of t hese st art ups had a single employee: t he founder.
15
This t ype of ent repreneurship act ually increased during t he Great Recession, indicat ing t hat
some ent repreneurs are probably people going int o business by t hemselves aft er t heyve lost
t heir jobs. Meanwhile, bet ween 1996 and 2011, t he birt h rat e of employer est ablishment s
companies t hat employ more t han one person at st art updeclined by more t han 20 percent .
It s not ent irely clear what s behind t his decline, but t he climat e facing would-be immigrant s
might be one fact or. In 2012, ent repreneur Vivek Wadhwa and polit ical scient ist AnnaLee
Saxenian, along wit h Francis Siciliano, revisit ed t he earlier research t hey had done on
immigrant ent repreneurship. They found t hat for t he first t ime in decades, t he growt h rat e of
immigrant -founded companies has st agnat ed, if not declined. In comparison wit h previous
decades of increasing immigrant -led ent repreneurism, t he last seven years has wit nessed a
flat t ening out of t his t rend.
16
The change was especially pronounced in Silicon Valley, where
over half of companies founded from 1995 t o 2005 had at least one immigrant founder.
Bet ween 2006 and 2012, t hat percent age dropped almost t en point s, t o 43.9 percent .
Anot her commonly cit ed culprit behind depressed ent repreneurship is excessive regulat ion.
Innovat ion researcher Michael Mandel has point ed out t hat any single regulat ion might not do
much t o det er new business format ion, but each one is like anot her pebble in a st ream. Their
cumulat ive effect can be increasingly damaging as opport unit ies t o work around t hem are
diminished. Theres pret t y good evidence t hat such regulat ory t hicket s are in fact impeding
new business format ion. For inst ance, economist s Leora Klapper, Luc Laeven, and Raghuram
Rajan found t hat higher levels of regulat ion reduce st art up act ivit y.
17
Their research was
conduct ed using European dat a, but it seems likely t hat it s conclusions are at least in part
applicable t o t he Unit ed St at es as well.
We favor reducing unnecessary, redundant , and overly burdensome regulat ion, but
recognize t hat t his is likely t o be slow and difficult work. First , regulat ors rarely like giving up
aut horit y once it s grant ed t o t hem. Second, t hose companies and indust ries prot ect ed by
exist ing regulat ions will no doubt lobby st renuously t o preserve t heir privileged posit ions. And
t hird, separat e set s of regulat ions exist at t he federal, st at e, and municipal levels in America, so
comprehensive change cannot be brought about by any single ent it y. The count rys
Const it ut ion is clear t hat most powers relat ed t o commerce rest wit h t he individual st at es, so
prospect ive ent repreneurs can likely expect t o face a cont inued pat chwork of regulat ions in
many areas. St ill, we believe t hat it is import ant t o t ry t o reduce t he regulat ory burden and
make t he business environment as welcoming as possible for ent repreneurs.
We dont expect anyone t o duplicat e Silicon Valley, but we do t hink government , businesses,
and individuals can do more t o fuel high-growt h ent repreneurship. An int riguing example is t he
work t hat St eve Case and t he Kauffman Foundat ion are doing wit h t he St art up America
Part nership. It seeks t o support over t hirt y ent repreneur-led st art up regions, complet e wit h a
dat ing sit e t o make it easier for new vent ures t o part ner wit h Fort une 500 firms t hat can
complement t heir innovat ions wit h market ing, manufact uring, or dist ribut ion net works.
3. Make More Matches
Alt hough job sit es like Monst er.com and Aft ercollege.com and net working sit es like LinkedIn
have made it easier for employers and employees t o find one anot her, t he vast majorit y of our
st udent s t hat graduat e each year st ill rely primarily on word of mout h recommendat ions from
friends, relat ives, and, yes, professors, t o make int roduct ions. We must find ways t o reduce t he
frict ion and search cost s t hat make it unnecessarily difficult t o mat ch people wit h jobs.
LinkedIn is developing a real-t ime dat abase t hat describes t he skills sought by companies
and mat ches t hose skills wit h t he t raining t hat st udent s and ot her pot ent ial employees have.
Somet imes simply rewording a few concept s on a resume can make t he difference: companies
looking for app developers for Android phones, for example, may not realize t hat a soft ware
development class on a st udent s resume used t hat operat ing syst em.
Local, nat ional, and global dat abases of job opport unit ies and candidat es can have a huge
payoff. Too oft en employers focus narrowly on graduat es from a few schools when t here are
t housands of equal or bet t er-qualified candidat es. The federal government could use prizes t o
spur development of t hese dat abases. We should also encourage and support privat e
companies t o develop bet t er algorit hms and t echniques for ident ifying skills and mat ching
t hem t o employers. For inst ance, a company called Knack, which Erik advises, has developed a
series of games, each of which generat es megabyt es of dat a. By mining t he dat a, Knack can
get surprisingly accurat e assessment s of t he players creat ivit y, persist ence, ext roversion,
diligence, and ot her charact erist ics t hat are hard t o discern from a college t ranscript or even a
face-t o-face int erview. Ot her companies such as HireArt and oDesk are also using analyt ics t o
creat e bet t er mat ches and less frict ion in t he employment market . We are also encouraged by
t he burgeoning use of rat ings like TopCoder scores t o provide object ive met rics of candidat e
skills. This makes it easier for job seekers t o find t heir best niches and for ent repreneurs and
employers t o find t he t alent t hey need.
4. Support Our Scientists
Aft er rising for a quart er-cent ury, U.S. federal government support for basic academic research
st art ed t o fall in 2005.
18
This is cause for concern because economics t eaches t hat basic
research has large beneficial ext ernalit ies. This fact creat es a role for government , and t he
payoff can be enormous. The Int ernet , t o t ake one famous example, was born out of U.S.
Defense Depart ment research int o how t o build bomb-proof net works. GPS syst ems,
t ouchscreen displays, voice recognit ion soft ware like Apples Siri, and many ot her digit al
innovat ions also arose from basic research sponsored by t he government . It s pret t y safe t o
say, in fact , t hat hardware, soft ware, net works, and robot s would not exist in anyt hing like t he
volume, variet y, and forms we know t oday wit hout sust ained government funding.
19
This
funding should be cont inued, and t he recent dispirit ing t rend of reduced federal funding for
basic research in America should be reversed.
We should also reform t he U.S. int ellect ual propert y regime, part icularly when it comes t o
soft ware pat ent s and copyright durat ion. In any age, but especially in t he second machine age,
int ellect ual propert y is ext remely import ant . It s bot h a reward for innovat ion (if someone
invent s a bet t er mouset rap, he or she get s t o pat ent it ) and an input t o it (most new ideas are
recombinat ions of exist ing ones). Government s t herefore have t o st rike a delicat e balance;
t hey have t o provide enough int ellect ual propert y prot ect ion t o encourage innovat ion but not
so much t hat t hey st ifle it . Many of t odays informed observers conclude t hat soft ware pat ent s
are providing t oo much prot ect ion. The same is probably t rue for at least some copyright s; it s
not clear what public int erest is served by laws t hat ensure Disneys 1928 St eamboat Willie
(precursor t o Mickey Mouse) remains under copyright , as does t he song Happy Birt hday.
20
PRIZES
Many innovat ions are of course impossible t o describe in advance (t hat s what makes t hem
innovat ions). But t here are also cases where we know exact ly what were looking for and just
want somebody t o invent it . In t hese cases, prizes can be especially effect ive.* Googles
driverless car was a direct out growt h of a Defense Advanced Research Project s Agency
(DARPA) challenge t hat offered a one-million-dollar prize for a car t hat could navigat e a
specific course wit hout a human driver. Tom Kalil, Deput y Direct or for Policy of t he Unit ed
St at es Office of Science and Technology Policy, provides a great playbook for how t o run a
prize:
21
1. Shine a spot light on a problem or opport unit y
2. Pay only for result s
3. Target an ambit ious goal wit hout predict ing which t eam or approach is most likely t o
succeed
4. Reach beyond usual suspect s t o t ap t op t alent
5. St imulat e privat e-sect or invest ment many t imes great er t han t he prize purse
6. Bring out -of-discipline perspect ives t o bear
7. Inspire risk t aking by offering a level playing field
8. Est ablish clear t arget met rics and validat ion prot ocols
Over t he past decade, t he t ot al federal and privat e funds earmarked for large prizes have
more t han t ripled and now surpass $375 million.
22
This is great , but it s just a t iny fract ion of
overall government spending on research. There remains great scope for increasing t he
volume and variet y of innovat ion compet it ions.
5. Upgrade Infrastructure
It s almost universally agreed among economist s t hat t he government should be involved in
building and maint aining infrast ruct urest reet s and highways, bridges, port s, dams, airport s
and air t raffic cont rol syst ems, and so on. This is because, like educat ion and research,
infrast ruct ure is subject t o posit ive ext ernalit ies.
Excellent infrast ruct ure makes a count ry a more pleasant place t o live, and also a more
product ive place in which t o do business. Ours, however, is not in good shape. The American
Societ y of Civil Engineers (ASCE) gave t he Unit ed St at es an overall infrast ruct ure grade of D+
in 2013, and est imat ed t hat t he count ry has a backlog of over $3.6 t rillion in infrast ruct ure
invest ment .
23
However, only a bit more t han $2 t rillion has been budget ed t o be spent by 2020,
leaving a large gap. You might t hink t hat t he ASCE has an obvious bias on t he quest ion of
infrast ruct ure spending, but t he dat a bear t hem out . Bet ween 2009 and 2013, public
invest ment in infrast ruct ure fell by over $120 billion in real t erms, t o it s lowest level since
2001.
24
Bringing U.S. infrast ruct ure up t o an accept able grade would be one of t he best invest ment s
t he count ry could make in it s own fut ure. As we writ e in 2013, energy prices are dropping,
t hanks in large part t o t he domest ic shale oil boom, and wages in count ries like China are rising.
Because of t hese and ot her fact ors, we oft en hear from business leaders somet hing very close
t o what Eric Spiegel, t he CEO of Siemens USA, said in an int erview: The U.S. is a great place
for manufact uring t hese days. Were making t hings here in t he U.S. t hat were shipping over t o
China. . . . We just need t o make sure t hat weve . . . got t he infrast ruct ure in place t o be able t o
handle t he increased work.
25
Theres an int erest ing hist orical wrinkle in discussions about infrast ruct ure invest ment . The
legendary economist John Maynard Keynes, whose name is at t ached t o a school of t hought
t hat advocat es st imulus spending, famously suggest ed in 1936 t hat during recessions t he
government should put money in bot t les, bury t he bot t les deep in old coal mines, t hen sell t he
right s t o dig t hem up.
26
Doing so, he argued only part ly in jest , would be bet t er t han not hing
because it would creat e demand during periods when labor and capit al would ot herwise go
unused. Economist s fiercely debat e whet her or not t his could act ually work, but t hey rarely
debat e t he merit s of good roads and bridges, or of government involvement wit h t hem
because of posit ive ext ernalit ies. Were making our argument for infrast ruct ure invest ment
because of t hese ext ernalit ies, independent of any Keynesian st imulus it might provide, and
were squarely in t he economic mainst ream when we do so.
WELCOME THE WORLDS TALENT
Any policy shift advocat ed by bot h t he libert arian Cat o Inst it ut e and t he progressive Cent er for
American Progress can t ruly be said t o have diverse support .
27
Such is t he case for immigrat ion
reform, a range of proposed changes wit h t he broad goal of increasing t he numbers of legal
foreign-born workers and cit izens in t he Unit ed St at es. Generous immigrat ion policies really are
part of t he Econ 101 playbook; t here is wide agreement among economist s t hat t hey benefit
not only t he immigrant s t hemselves but also t he economy of t he count ry t hey move t o.
Some st udies have found t hat cert ain workers in t he host count ry, part icularly less skilled
ones, are made worse off by immigrat ion because t heir wages fall but ot her research has
reached different conclusions. Economist David Card, for example, evaluat ed t he impact of
Cubas 1980 Mariel boat lift (a mass emigrat ion of Cubans t o t he Unit ed St at es approved by
Fidel Cast ro) on t he Miami labor market . Mariel brought over one hundred t housand people t o
t he cit y in less t han a year and increased it s labor force by 7 percent , yet Card found virt ually
no effect on t he wages or unemployment rat es of less-skilled workers, even among Cubans
who had immigrat ed earlier.
28
Economist Rachel Friedberg reached virt ually t he same
conclusion about mass migrat ion from Russia and t he rest of t he former Soviet Union int o
Israel.
29
Despit e increasing t he count rys populat ion by 12 percent bet ween 1990 and 1994, t his
immigrat ion had no discernible adverse effect on Israeli workers.
Despit e t his and ot her evidence, concerns persist in America t hat large-scale immigrat ion of
unskilled workers, part icularly from Mexico and ot her Lat in American count ries and part icularly
by illegal means, will harm t he economic prospect s of t he nat ive-born labor force. Since 2007, it
appears t hat net illegal immigrat ion t o t he Unit ed St at es is approximat ely zero, or act ually
negat ive.
30
And a st udy by t he Brookings Inst it ut ion found t hat highly educat ed immigrant s
now out number less educat ed ones; in 2010, 30 percent had at least a college educat ion, while
only 28 percent lacked t he equivalent of a high school degree.
31
Ent repreneurship in America, part icularly in t echnology-int ensive sect ors of t he economy, is
fueled by immigrat ion t o an ext raordinary degree. Foreign-born people make up less t han 13
percent of t he count rys populat ion in recent years, but bet ween 1995 and 2005 more t han 25
percent of all new engineering and t echnology companies had at least one immigrant
cofounder, according t o research by Wadhwa, Saxenian, and t heir colleagues.
32
These
companies in t ot al had more t han $52 billion in 2005 sales, and employed almost 450,000
people. According t o immigrat ion reform advocacy group Part nership for a New American
Economy, bet ween 1990 and 2005, 25 percent of Americas highest -growt h companies were
founded by foreign-born ent repreneurs.
33
As economist Michael Kremer demonst rat ed in a now
classic paper, increasing t he number of immigrant engineers act ually leads t o higher, not lower,
wages for nat ive-born engineers because immigrant s help creat ive ecosyst ems flourish.
34
It s
no wonder t hat wages are higher for good soft ware designers in Silicon Valley, where t hey are
surrounded by ot hers wit h similar and generally complement ary skills, rat her t han in more
isolat ed part s of t he world.
Today, immigrant s are having t his large and beneficial effect on t he count ry not because of
Americas processes and policies but oft en despit e t hem. Immigrat ion t o t he Unit ed St at es is
oft en described as slow, complex, inefficient , and highly bureaucrat ic. Darrell West , a vice
president at t he Brookings Inst it ut ion, wrot e a book in 2011 called Brain Gain: Rethinking U.S.
Immigration Policy. But his research didnt prepare him for his own Kafkaesque experiences
aft er he married a German woman who t hen sought American cit izenship. He wrot e, For many
immigrant s, it is virt ually impossible for t hem t o afford t he fees, handle t he paperwork, and
navigat e a complex bureaucrat ic process. Even wit h a Ph.D. in polit ical science, I was
overwhelmed wit h t he complexit y of t he mult iple applicat ions, fees, document at ion, int erviews,
and t rips t o t he immigrat ion office. . . . American immigrat ion is a 19t h cent ury process in a 21st
cent ury world.
35
In addit ion t o broken processes, t he Unit ed St at es also has count erproduct ive immigrat ion
policies. Among t echnologist s, t he clearest example of t his is probably t he annual cap on t he
number of H1-B visas issued. These allow U.S. employers t o hire foreign workers in specialt y
occupat ions, usually t echnical, for up t o six years. In t he early years of t he t went y-first cent ury
as many as 195,000 were issued annually, but t he quot a was reduced t o 65,000 in 2004 (in
2006 t he program was expanded t o include 20,000 graduat es of American universit ies).
The H1-B visa program should be furt her expanded. We like t he imagery of st apling a green
card t o every advanced diploma awarded t o an immigrant . We also support t he creat ion of a
separat e st art up visa cat egory aimed at making it easier for ent repreneurs, especially t hose
who have already at t ract ed funding, t o launch t heir vent ures in t he Unit ed St at es. This idea
has been championed most prominent ly by American vent ure capit alist s and business groups,
but ot her count ries have t aken t he lead. Aust ralia, t he UK, and Chile have all launched
programs t o at t ract early-st age ent repreneur immigrant s, and in January 2013 Canada
announced a full-fledged st art up visa program, t he first of it s kind in t he world.
36
Meanwhile,
comprehensive immigrat ion reform st alled in t he U.S. Congress in t he summer of t hat same
year.
6. Since We Must Tax, Tax Wisely
In general, t axing somet hing discourages it s product ion. That s usually considered a bad t hing,
but it doesnt have t o be since we can t ax t hings we want less of. There are also some goods
and services t hat are except ions t o t he rule; t axat ion doesnt lead t o decreases in t he amount
of t hem available. Economist s say t hat t hese offerings are provided inelast ically wit h respect
t o t axat ion. We can and should t ake advant age of t his fact .
PIGOVIAN TAXES
A fact ory might find it really cheap and convenient t o dump all of it s wast e int o t he river t hat
flows past it , but t he result ing t oxic wat er, dead fish, and nast y smell are clearly unwant ed.
Economist s call t his t ype of unwant ed effect a negative externality. Many t ypes of pollut ion are
prohibit ed out right as a result , but it s not possible or smart t o forbid every t ype. Ut ilit ies have
t o generat e some pollut ion when t hey generat e elect ricit y, for example, and while cars t oday
run much more cleanly t han t hey used t o, t hey st ill give off greenhouse gases. It is an
unfort unat e fact of human life t hat some t ypes of product ion generat e bads alongside goods.
In cases like t hese, most economist s advocat e t axing t he pollut ion. Such t axes are called
Pigovian aft er Art hur Pigou, a Brit ish economist of t he early t went iet h cent ury who was one
of t heir early champions. The t axes have t wo import ant benefit s. First , t hey reduce t he amount
of undesirable act ivit y; if a ut ilit y get s t axed based on t he amount of sulfur dioxide it releases
int o t he at mosphere, it has st rong incent ives t o invest in scrubber t echnology t hat leaves t he
air cleaner. Second, Pigovian t axes raise revenue for t he government , which could be used t o
compensat e t hose harmed by t he pollut ion (or for any ot her purpose). Theyre a win-win.
Taxes of t his t ype are popular across t he polit ical spect rum and among people in many fields;
members of t he Pigou Club, a group of advocat es ident ified by economist Gregory Mankiw,
include bot h Alan Greenspan and Ralph Nader.
37
By improving measurement and met ering, t he t echnologies of t he second machine age
make Pigovian t axes more feasible. Consider t raffic congest ion. Each of us imposes a cost on
all ot her drivers when we join an already overcrowded highway and furt her slow t raffic. At peak
hours, t raffic on Int erst at e 405 in Los Angeles crawls at fourt een miles per hour, more t han
quadrupling what should be an eight -minut e drive. Congest ion pricing, aided by elect ronic
passes or digit al cameras, can dynamically adjust t he cost of t he roadway so t hat drivers
would only choose t o drive when t he t ot al cost creat ed, including t he addit ional congest ion,
was less t han t he value of t heir t rip.
Congest ion-reducing act ivit ies like carpooling, off-peak commut ing, bicycling, t elecommut ing,
and mass t ransit would all increase wit h congest ion pricing in effect . Already Pigovian principles
have been applied t o revenue-generat ing segment s of infrast ruct ure like t oll roads and
Londons congest ion zone, which reduces t raffic and t akes in money by charging mot orist s t o
drive int o t he cit y cent er during peak t imes. Meanwhile, Singapore has implement ed an
Elect ronic Road Pricing Syst em t hat has virt ually eliminat ed congest ion.
Americans collect ively spend over one hundred billion hours st uck in t raffic jams, a t est ament
t o t he fact t hat road pricing is not yet widely adopt ed. By some est imat es, t he revenues from
opt imal congest ion pricing would be enough t o eliminat e all st at e t axes in California. In t he
past , it was impossible t o met er road usage in a cost -effect ive way, so we set t led for leaving it
unpriced and put t ing up wit h what result ed: t he kinds of long lines and wait ing we rarely saw
out side t he former Soviet Union for ot her goods and services. Digit al road pricing syst ems
could help us recapt ure t hat lost t ime while replacing revenues from ot her sources.
TAXES ON ECONOMIC RENTS
The supply of some goods, like land, is complet ely inelast ict heres t he same amount of land,
no mat t er how heavily it s t axed. That means t hat a t ax on t he revenues from t hat good (in
ot her words t he economic rent s from it ) will not reduce it s supply. As a result , such t axes are
relat ively efficient t hey dont dist ort incent ives or act ivit ies. The ninet eent h-cent ury
economist Henry George t ook t his insight and argued t hat we should have just a single t ax, a
land t ax. While an ent icing idea, t he realit y is t hat revenues from land rent s arent high enough
t o pay for all government services. St ill, t hey could pay for more t han t hey current ly do, and
t here are ot her rent s in t he economy, including t hose from nat ural resources like government -
owned oil and gas leases, t hat could be significant ly increased.
Theres also an argument t hat a big part of t he very high earnings of many superst ars are
also rent s. These quest ions t urn on whet her most professional at hlet es, CEOs, media
personalit ies, or rock st ars are genuinely mot ivat ed by t he absolut e level of t heir compensat ion
versus t he relat ive compensat ion, t heir fame, or t heir int rinsic love of t heir work. In all likelihood,
we could raise more revenue by increasing marginal t ax rat es on t he highest income earners,
for inst ance by int roducing new t ax bracket s at t he one-million- and t en-million-dollar levels of
annual income. We do not find much evidence support ing t he count er-argument t hat higher
t axes on t his populat ion will harm economic growt h by eroding high earners init iat ive. In fact ,
research by our MIT colleague and Nobel Prizewinning economist Pet er Diamond, in
part nership wit h Clark Medal winner Emmanuel Saez, suggest s t hat opt imal t ax rat es at t he
very t op of t he income dist ribut ion might be as high as 76 percent .
38
While we dont see t he
need for t hat level of t axat ion, we do t ake comfort from t he fact t hat t he last t ime income
t axes were subst ant ially raised under Bill Clint on, t he economy grew rapidly in t he years t hat
followed. Indeed, as not ed by economist Menzie Chinn, t here is no visible relat ionship bet ween
t op t ax rat es and overall economic growt h, at least in t he ranges t he U.S. experienced.
39
We dont pret end t hat t he policies we advocat e here will be easy t o adopt in t he current
polit ical climat e, or t hat if t hey somehow were all adopt ed t hey would immediat ely bring back
full employment and rising average wages. We know t hat t hese are challenging t imes; many
people have seen t heir fort unes suffer during t he Great Recession and subsequent slow
recovery and are being left behind by t he t win forces of t echnology and globalizat ion.
Inequalit y and ot her forms of spread are increasing, and everyone is not sharing in all t he t ypes
of bount y t he economy is generat ing.
The policy recommendat ions we out line above share one simple and modest goal: bringing
about higher rat es of overall economic growt h. If t his happens, t he prospect s of workers and
job seekers alike will improve.
* The same is true for textbooks by Krugman and Wells, Cowen and Tabarrok, Nordhaus, and on and on.
* This was from a posting he put on his Facebook wallsometimes the medium is part of the message.
* Prizes have a long history going back to the Longitude Prize offered by act of the British Parliament in 1714. While
latitude was relatively easy to calculate, longitude was a bigger problem, especially during long ocean voyages. A series
of prizes totaling over one hundred thousand British pounds motivated major advances throughout the 1700s in the
measurement of longitude. In 1919, the twenty-five-thousand-dollar Orteig Prize for a nonstop transatlantic flight
motivated a series of aviation innovations, culminating in Charles Lindberghs successful flight in 1927.
Work saves a man from three great evils: boredom, vice, and need.
Voltaire
THE RECOMMENDATI ONS WE MADE in t he previous chapt er will help boost t he bount y and reduce or reverse
t he spread. But as we move deeper int o t he second machine age and t he second half of t he
chessboard, will t he Econ 101 playbook be enough t o maint ain healt hy wage and job
prospect s?
As we look furt her aheadint o t he 2020s and beyondwe see androids. They dont look
like t he machines in t he Matrix or Terminator moviessome dont even have physical bodies;
t heyre not going t o declare war on us, and t heyre not going t o replace all human workers, or
even most of t hem, in t he next few years. But as weve seen in earlier chapt ers, t echnology is
st eadily encroaching on humans skills and abilit ies. So what should we do about t he fact t hat
t he androids are coming? What are t he right policies and int ervent ions going forward?
Please, No Politburos
Let s st art by being humble. Hist ory is lit t ered wit h unint ended and somet imes t ragic side
effect s of well-int ent ioned social and economic policies. It s difficult t o know in advance exact ly
which changes will be most disrupt ive, which will be implement ed wit h unexpect ed ease, and
how people will react in an environment t hat has never before been observed.
Caveat s aside, we do have some ideas about how t o proceed, and how not t o. We do not
t hink t he right policy would be t o t ry t o halt t he march of t echnology, or t o somehow disable
t he mix of exponent ial, digit al, combinat orial innovat ion t aking place at present . Doing so would
be about as bad an idea as locking all t he schools and burning all t he scient ific journals. At
best , such moves would ensure t he st at us quo at t he expense of bet t erment or progress. As
t he t echnologist Tim OReilly put s it , t heyd be effort s t o prot ect t he past against t he fut ure.
1
So would at t empt s t o prot ect t odays jobs by short -circuit ing t omorrows t echnologies. We
need t o let t he t echnologies of t he second machine age do t heir work and find ways t o deal
wit h t he challenges t hey will bring wit h t hem.
We are also skept ical of effort s t o come up wit h fundament al alt ernat ives t o capit alism. By
capit alism here, we mean a decent ralized economic syst em of product ion and exchange in
which most of t he means of product ion are in privat e hands (as opposed t o belonging t o t he
government ), where most exchange is volunt ary (no one can force you t o sign a cont ract
against your will), and where most goods have prices t hat vary based on relat ive supply and
demand inst ead of being fixed by a cent ral aut horit y. All of t hese feat ures exist in most
economies around t he world t oday. Many are even in place in t odays China, which is st ill
officially communist .
These feat ures are so widespread because t hey work so well. Capit alism allocat es
resources, generat es innovat ion, rewards effort , and builds affluence wit h high efficiency, and
t hese are ext raordinarily import ant t hings t o do well in a societ y. As a syst em capit alism is not
perfect , but it s far bet t er t han t he alt ernat ives. Winst on Churchill said t hat , Democracy is t he
worst form of government except for all t hose ot hers t hat have been t ried.
2
We believe t he
same about capit alism.
The element t hat s most likely t o change, and t o present challenges, is one t hat we have
not ment ioned yet : in t odays capit alist economies, most people acquire money t o buy t hings
by offering t heir labor t o t he economy. Most of us are laborers, not owners of capit al. If our
android t hought experiment is correct , t hough, t his long-st anding exchange will become less
feasible over t ime. As digit al labor becomes more pervasive, capable, and powerful, companies
will be increasingly unwilling t o pay people wages t hat t heyll accept and t hat will allow t hem t o
maint ain t he st andard of living t o which t heyve been accust omed. When t his happens, t hey
remain unemployed. This is bad news for t he economy, since unemployed people dont creat e
much demand for goods and overall growt h slows down. Weak demand can lead t o furt her
det eriorat ion in wages and unemployment as well as less invest ment in human capit al and in
equipment , and a vicious cycle can t ake hold.
Revisiting the Basic Income
A number of economist s have been concerned about t his possible failure mode of capit alism.
Many of t hem have proposed t he same simple solut ion: give people money. The easiest way t o
do t his would have t he government dist ribut e an equal amount of money t o everyone in t he
count ry each year, wit hout doing any means of t est ing or ot her evaluat ion of who needs t he
money or who should get more or less. This basic income scheme, it s proponent s argue, is
comparat ively st raight forward t o administ er, and it preserves t he element s of capit alism t hat
work well while addressing t he problem t hat some people cant make a living by offering t heir
labor. The basic income assures t hat everyone has a minimum st andard of living. If people
want t o improve on it by working, invest ing, st art ing a company, or doing any of t he ot her
act ivit ies of t he capit alist engine t hey cert ainly can, but even if t hey dont t hey will st ill be able
t o act as consumers, since t hey will st ill receive money.
Basic income is not part of mainst ream policy discussions t oday, but it has a surprisingly long
hist ory and came remarkably close t o realit y in t went iet h-cent ury America. One of it s early
proponent s was t he English-American polit ical act ivist Thomas Paine, who advocat ed in his
1797 pamphlet Agrarian Justice t hat everyone should be given a lump sum of money upon
reaching adult hood t o compensat e for t he unjust fact t hat some people were born int o
landowning families while ot hers were not . Lat er advocat es included philosopher Bert rand
Russell and civil right s leader Mart in Lut her King, Jr., who wrot e in 1967, I am now convinced
t hat t he simplest approach will prove t o be t he most effect ivet he solut ion t o povert y is t o
abolish it direct ly by a now widely discussed measure: t he guarant eed income.
3
Many economist s on bot h t he left and t he right have agreed wit h King. Liberals including
James Tobin, Paul Samuelson, and John Kennet h Galbrait h and conservat ives like Milt on
Friedman and Friedrich Hayek have all advocat ed income guarant ees in one form or anot her,
and in 1968 more t han 1,200 economist s signed a let t er in support of t he concept addressed
t o t he U.S. Congress.
4
The president elect ed t hat year, Republican Richard Nixon, t ried t hroughout his first t erm in
office t o enact it int o law. In a 1969 speech he proposed a Family Assist ance Plan t hat had
many feat ures of a basic income program. The plan had support across t he ideological
spect rum, but it also faced a large and diverse group of opponent s.
5
Caseworkers and ot her
administ rat ors of exist ing welfare programs feared t hat t heir jobs would be eliminat ed under
t he new regime; some labor leaders t hought t hat it would erode support for minimum wage
legislat ion; and many working Americans didnt like t he idea of t heir t ax dollars going t o people
who could work, but chose not t o. By t he t ime of his 1972 reelect ion campaign, Nixon had
abandoned t he Family Assist ance Plan, and universal income guarant ee programs have not
been seriously discussed by federal elect ed officials and policymakers since t hen.*
Avoiding the Three Great Evils
Will we need t o revisit t he idea of a basic income in t he decades t o come? Maybe, but it s not
our first choice. Volt aire beaut ifully summarized why not when he made t he observat ion
quot ed at t he st art of t his chapt er: Work saves a man from t hree great evils: boredom, vice,
and need.
6
A guarant eed universal income t akes care of need, but not t he ot her t wo. And just
about all t he research and evidence weve looked at has convinced us t hat Volt aire was right .
It s t remendously import ant for people t o work not just because t hat s how t hey get t heir
money, but also because it s one of t he principal ways t hey get many ot her import ant t hings:
self-wort h, communit y, engagement , healt hy values, st ruct ure, and dignit y, t o name just a few.
Whet her t he focus is on t he individual or t he communit y, t he conclusion is t he same: work is
beneficial. At t he individual level t here has been a great deal of research int o what makes
people feel fulfilled, cont ent , and happy. In his book Drive, Daniel Pink summarizes t he t hree
key mot ivat ions from t he research lit erat ure: mast ery, aut onomy, and purpose.
7
The last of
t hese was emphasized by an older worker quot ed in a February 2013 st ory about t he pros and
cons of t he warehouse jobs online ret ail giant Amazon was creat ing in t he UK: It gives you
your pride back. That s what it gives you. Your pride back.
8
His view is st rongly support ed by
t he work of economist Andrew Oswald, who found t hat joblessness last ing six mont hs or
longer harms feelings of well-being and ot her measures of ment al healt h about as much as t he
deat h of a spouse, and t hat lit t le of t his decline is due t o t he loss of income; inst ead, it arises
from a loss of self-wort h.
9
A survey of people in many count ries conduct ed by t he Gallup polling organizat ion confirmed
t he fundament al desire for work. As Gallup CEO Jim Clift on put s it in his book The Coming
Jobs War, The primary will of t he world is no longer about peace or freedom or even
democracy; it is not about having a family, and it is neit her about God nor about owning a
home or land. The will of t he world is first and foremost t o have a good job. Everyt hing else
comes aft er t hat .
10
It seems t hat all around t he world, people want t o escape t he evils of
boredom, vice, and need and inst ead find mast ery, aut onomy, and purpose by working.
A lack of work harms not just individuals but ent ire communit ies. Sociologist William Julius
Wilson summarized a long careers wort h of findings in his 1996 book When Work Disappears.
His conclusions are unequivocal:
The consequences of high neighborhood joblessness are more devastating than those of high neighborhood
poverty. A neighborhood in which people are poor but employed is different from a neighborhood in which many
people are poor and jobless. Many of todays problems in the inner-city ghetto neighborhoodscrime, family
dissolution, welfare, low levels of social organization, and so onare fundamentally a consequence of the
disappearance of work.
11
In his 2012 book Coming Apart, social researcher Charles Murray put numbers t o t he
problems Wilson described and also showed t hat t hey werent confined t o inner cit ies or largely
minorit y neighborhoods. Inst ead, t hey were squarely part of mainst ream whit e America. Murray
ident ified t wo groups. The first comprises Americans wit h at least a college educat ion and a
professional or managerial job; t hese are dubbed resident s of t he hypot het ical t own Belmont ,
named aft er a prosperous suburb of Bost on. The second group consist s of t hose wit h no more
t han a high school educat ion and a blue-collar or clerical job; t hese are resident s of Fisht own,
named aft er a working-class suburb of Philadelphia. In 2010 approximat ely 30 percent of t he
American workforce lived in Belmont , 20 percent in Fisht own.
12
Using a variet y of dat a sources, Murray t racked what happened in Belmont and Fisht own
from 1960 t o 2010. At t he st art of t hat t ime span t he t wo t owns were not t hat far apart in
most measures t hat t rack t he healt h of a communit ymarriage, divorce, crime, et c.and t hey
were also bot h full of people t hat worked. In 1960, 90 percent of Belmont households had at
least one adult working fort y or more hours a week, as did 81 percent of Fisht own households.
By 2010 t he sit uat ion had changed drast ically for one of t he communit ies. While 87 percent of
Belmont households st ill had at least one person working t hat much, only 53 percent of
Fisht own households did.
What else changed in Fisht own? Many t hings, none of t hem good. Marriages became less
happy, and less common. In 1960, only about 5 percent of Fisht owners bet ween t he ages of
t hirt y and fort y-nine were divorced or separat ed; by 2010, a t hird of t hem were. Over t ime,
many fewer children in Fisht own grew up in t wo-parent homes; by 2004, t he figure had
dropped below 30 percent . And incarcerat ion rat es skyrocket ed; in 1974, 213 out of every
100,000 Fisht owners were in prison. That number grew more t han fourfold, t o 957, over t he
next t hirt y years. Belmont also saw negat ive changes in some of t hese areas, but t hey were
t iny in comparison. As lat e as 2004, for example, fully 90 percent of children in Belmont were
st ill living wit h bot h of t heir biological parent s.
The disappearance of work was not t he only force driving Belmont and Fisht own apart
Murray himself focuses on ot her fact ors
13
but we believe it is a very import ant one. The
evidence suggest s t hat communit ies in which people are working are much healt hier t han
communit ies where work is scarce, all ot her t hings being equal. So we support policies t hat
encourage work, even as t he second machine age progresses.
And we see t wo pieces of good news here. The first is t hat economist s have developed
int ervent ions t hat encourage and reward work in ways t hat a basic income guarant ee alone
does not . The second is t hat innovat ors and ent repreneurs have developed t echnologies not
only t o subst it ut e for human labor but also t o complement it . In ot her words, digit al t ools are
not just t aking work out of t he economy; t heyre also providing new opport unit ies for people t o
cont ribut e work t o it . As t echnology keeps racing ahead t he best approach is t o combine
t hese t wo pieces of good news and t ry t o maint ain an economy of workers. Doing so will
address all t hree of Volt aires evils and give us a much bet t er chance of maint aining not only a
bount eous economy, but also a healt hy societ y.
Better Than Basic: The Negative Income Tax
The Nobel Prizewinning conservat ive economist Milt on Friedman did not advocat e many
government int ervent ions, but he was in favor of what he t ermed a negat ive income t ax t o
help t he poor. As he explained it in a 1968 t elevision appearance:
Under present law we have a positive Income Tax that everybody knows about. . . . [U]nder the Positive Income Tax
if you happen to be the head of a family of four, for example, and you have $3,000 of income, you neither pay a tax
nor receive any benefit from it. Youre just on the break-even point. Suppose you have an income of $4,000. Then
you have $1,000 of positive taxable income, on which at current rates (14%) you pay $140.00 in tax. Suppose today
you had an income of $2,000. Well then youre entitled to deductions and exemptions of $3,000, you have an
income of $2,000. You have a negative . . . taxable income of $1,000. But currently under present law you get no
benefit of those unused deductions. The idea of a Negative Income Tax is that, when your income is below the
break-even point, you would get a fraction of it as a payment from the government. You would receive the funds
instead of paying them.
14
To finish his example, if t he negat ive income t ax rat e were 50 percent , t he person making
$2,000 would get $500 back from t he government , which is $1,000 (t he negat ive t axable
income) t imes .50 (t he 50-percent negat ive income t ax rat e), and would t hus have t ot al
income for t hat year of $2,500. A person wit h zero income would get $1,500 from t he
government , since t hey had $3,000 of negat ive t axable income.
The negat ive income t ax combines a guarant eed minimum income wit h an incent ive t o work.
Below t he cut off point in t he example (which was $3,000 in 1968 but would be about $20,000
in 2013 dollars), every dollar earned st ill increases t ot al income by $1.50. This encourages
people t o st art working and keep finding more work t o do, even if t he wages t hey receive for
t his work are low. It also encourages t hem t o file t ax ret urns and so become part of t he visible
mainst ream workforce. In addit ion, it is relat ively st raight forward t o administ er, making use of
t he exist ing infrast ruct ure for filing t axes and dist ribut ing refunds.
For all t hese reasons, we like t he idea of a negat ive income t ax. At present , t he American
federal t ax syst em includes a relat ed idea called t he Earned Income Tax Credit , or EITC.
Compared t o Freidmans fort y-year-old proposal, however, t he EITC is small; in 2012 it maxed
out at less t han $6,000 for families wit h t hree or more qualifying children and less t han $500
for families wit h no children. In addit ion, it cannot be used by people who have no income. Even
t hough it s small, t hough, t he EITC is st ill powerful: research by economist s Raj Chet t y and
Nat haniel Hendren at Harvard, along wit h Pat rick Kline and Emmanuel Saez at Berkeley,
suggest s t hat st at es wit h more generous EITC policies also have significant ly great er
int ergenerat ional mobilit y.
15
We support t urning t he EITC int o a full-fledged negat ive income t ax by making it larger and
making it universal. We also t hink claiming t he EITC should be made easier and more obvious.
Approximat ely 20 percent of eligible t axpayers dont t ake advant age of it , probably because
t hey arent aware of it s exist ence or are put off by it s complexit y.
16
The EITC is really a subsidy on labor, paying a bonus dollar of labor income. It put s int o
pract ice some of t he oldest economic advice of all: t ax t hings you want t o see less of, and
subsidize t hings you want t o see more of. We t ax cigaret t es and gas-guzzling cars, for
example, and subsidize solar panel inst allat ions.
17
The idea, of course, is t hat t he t ax will
decrease t he incidence of t he undesirable act ivit y (smoking cigaret t es, driving a gas-guzzler)
by making it more expensive, while t he subsidy will have exact ly t he opposit e effect . We agree
wit h our MIT colleague Tom Kochan, who t hinks of unemployment as a kind of market failure,
or ext ernalit y. That means t hat t he benefit s of increasing employment reduced crime, great er
invest ment , and st ronger communit iesext end t o people t hroughout societ y, not just t he
employer or employee who are part y t o t he employment cont ract . If unemployment creat es
negat ive ext ernalit ies, t hen we should reward employment inst ead of t axing it .
It s not always possible t o follow t his advice. The U.S. government t axes labor not because it
want s people t o be idle but because it needs t o raise money somehow, and income and labor
t axes have hist orically been t he preferred met hod. The income t ax first appeared during t he
Civil War and was made permanent in 1913 by t he Sixt eent h Amendment t o t he Const it ut ion.
18
By 2010, over 80 percent of all revenue collect ed by t he federal government came from
individual income t axes and payroll t axes. In t urn, payroll t axes fall int o t wo cat egories. The first
are payroll t axes wit hheld by employers from t heir employees wages; t he second are per-
employee t axes charged t o t he employers t hemselves. Payroll t axes, which fund programs like
Medicare, Social Securit y, and unemployment insurance, account ed for only about 10 percent
of federal t ax revenue early in t he 1950s but now make up about 40 percent , an amount
roughly equal t o t hat raised by t he individual income t ax.
19
While income t axes are not meant t o discourage work and employment , t hey can st ill have
t his effect . Payroll t axes can lead t o similar shift s, and by design mainly affect people wit h low
and middle incomes.
20
They can cause organizat ions t o move away from hiring addit ional
domest ic employees, and inst ead out source work or make use of part -t ime cont ract ors. As
digit al t echnologies keep acquiring new skills and capabilit ies, t hese same organizat ions will
increasingly have anot her opt ion: t heyll be able t o make use of digit al laborers rat her t han
humans. The more expensive human labor is, t he more readily employers will swit ch over t o
machines. And since payroll t axes make human labor more expensive, t heyll very likely have
t he effect of hast ening t his swit ch. Mandat es like employer-provided healt h care coverage
have t he same effect ; t hey t oo appear as a t ax on human labor and so discourages it , all ot her
t hings being equal.
21
We bring up t hese point s not because we dislike Social Securit y or healt h care coverage. We
like bot h of t hem a great deal and want t hem t o cont inue. We simply point out t hat t hese and
ot her popular programs are financed, in whole or in part , by t axes on labor. This might have
been an appropriat e idea when t here were no viable alt ernat ives t o humans for most jobs, but
t hat is no longer t he case. The bet t er machines become at subst it ut ing for human labor, t he
bigger negat ive effect any t ax or mandat e will have on human employment .
So in addit ion t o subsidizing work via a negat ive income t ax, we also support not t axing work
as much in t he first place and reducing burdens and mandat es on employers. Like so much
else at t he int ersect ion of economics and policy, t his is easy t o say and ext remely hard t o
enact . How else, if not by t axes on labor, are expensive, popular, and import ant programs like
Social Securit y and Medicare t o be funded? How is healt h care coverage t o be provided if not
by employers?
We dont claim t o have all t he answers t o t hese crit ical quest ions, but we do know t hat t he
economist s t oolkit cont ains ot her kinds of t axes besides t hose on labor. As discussed in t he
last chapt er, t hese include Pigovian t axes on pollut ion and ot her negat ive ext ernalit ies,
consumpt ion t axes, and t he value-added t ax (VAT), which companies pay based on t he
difference bet ween t heir cost s (labor, raw mat erials, and so on) and t he prices t hey charge
cust omers. A VAT has several at t ract ive propert iesit s relat ively st raight forward t o collect ,
adjust able, and lucrat ivebut is not current ly used in t he Unit ed St at es. In fact , America is t he
only one of t he t hirt y-four nat ions in t he OECD wit hout one. Economist Bruce Bart let t , legal
scholar Michael Graet z, and ot hers have put t oget her alt ernat ives t o t he current American t ax
syst em t hat rely heavily on a VAT.
22
We t hink t hese are valuable cont ribut ions t o t he
discussion about how t o best pay for government services in t he second machine age, and
deserve serious considerat ion.
The Peer Economy and Artificial Artificial Intelligence
Changing t he subsidies and t axes on labor might seem like a short -t erm solut ion. Aft er all, isnt
t he second machine age defined by relent less aut omat ion t hat will lead t o a largely or
complet ely post work economy?
Weve argued here t hat in many domains it is. But , as weve also hopefully shown, people
have skills and abilit ies t hat are not yet aut omat ed. They may become aut omat able at some
point but t his hasnt st art ed in any serious way t hus far, which leads us t o believe t hat it will
t ake a while. We t hink well have human dat a scient ist s, conference organizers, divisional
managers, nurses, and busboys for some t ime t o come.
And as we discussed previously, people st ill have much t o offer even in heavily aut omat ed
domains. Alt hough no person now can beat t he best chess comput er, for example, t he right
mix of human and digit al labor easily beat s it . So it s not t he case t hat people cease t o be
valuable t he inst ant comput ers surpass t hem in a domain. They can be enormously useful
once t heyve paired up t o race with machines, inst ead of against t hem.
We see t his even in heavily aut omat ed fields like comput er search. As St eve Lohr explained
in a March 2013 New York Times st ory,
[W]hen Mitt Romney talked of cutting government money for public broadcasting in a presidential debate last fall and
mentioned Big Bird, [Twitter] messages with that phrase surged. Human judges recognized instantly that Big Bird,
in that context and at that moment, was mainly a political comment, not a reference to Sesame Street, and that
politics-related messages should pop up when someone searched for Big Bird. People can understand such
references more accurately and quickly than software can, and their judgments are fed immediately into Twitters
search algorithm. . . .
Other human helpers, known as evaluators or raters, help Google develop tweaks to its search algorithm, a
powerhouse of automation, fielding 100 billion queries a month[.]
23
So even t hough t he algorit hms are get t ing bet t er, t hey cant do it alone. This insight has led t o
new, t echnology-based ways t o organize and accomplish work.
In t he middle of t he last decade, t he online ret ail giant Amazon realized t hat t here were
more t han a few duplicat es among it s millions of pages describing product s for sale. Algorit hms
alone didnt do a great job of finding t hem all, so a t eam led by employee Pet er Cohen built
soft ware t hat showed possible duplicat es t o human beings and let t hem make t he final
det erminat ion.
24
Cohen and Amazon soon realized t hat t his was a generally useful innovat ion.
It t ook a large problem (finding t he duplicat es among millions of pages), broke it down int o
many small t asks (are t hese t wo pages duplicat es?), sent t he t asks out t o a large group of
people, collect ed t heir responses, and used t hem t o make progress on t he problem (eliminat ing
t he duplicat es).
The soft ware was originally int ended only for int ernal use, but in November of 2005 Amazon
released it t o t he public under t he name Mechanical Turk, in honor of a famous eight eent h-
cent ury chess-playing robot t hat t urned out t o have a human inside it .
25
The Mechanical Turk
soft ware was similar t o t his aut omat on in t hat it t oo appeared t o accomplish t asks
aut omat ically, but in realit y made use of human labor. It was an example of what Amazon CEO
Jeff Bezos called art ificial art ificial int elligence, and anot her way for people t o race wit h
machines, alt hough not one wit h part icularly high wages.
26
Mechanical Turk, which quickly became popular, was an early inst ance of what came t o be
called crowdsourcing, defined by communicat ions scholar Daren Brabham as an online,
dist ribut ed problem-solving and product ion model.
27
This model is int erest ing because inst ead
of using t echnology t o aut omat e a process, crowdsourcing makes it deliberat ely labor
int ensive. The labor is provided not by a preident ified group of employees, as is t he case wit h
most indust rial processes, but inst ead by one or more people (oft en many more), not ident ified
in advance, who choose t o part icipat e.
In less t han a decade, crowdsourced product ion has become an import ant phenomenon. In
fact , it s given rise t o a large new crop of companies, oft en grouped t oget her as t he peer
economy. Peer economy companies sat isfy t heir cust omers request s by crowdsourcing t hem.
Some of t he graphs you see in t his book, for example, were generat ed or improved by people
wed never met before. We found t hem by post ing a request for help wit h t he t ask t o
TaskRabbit , a company founded by soft ware engineer Leah Busque in 2008. Busque got t he
idea for TaskRabbit aft er she ran out of dog food one night and realized t hat t here was no
quick and easy way for her t o use t he Int ernet t o find (and pay) someone willing t o pick some
up for her.
28
That same year, Joe Gebbia, Brian Chesky, and Nat han Blecharczyk also launched a websit e
t hat used t he Int ernet and t he crowd t o bet t er mat ch supply and demand. In t heir case, t he
demand was not for help wit h a t ask, but inst ead for a place t o st ay. The sit e, Airbedand-
breakfast .com, allowed people t o offer rooms in t heir homes t o visit ors; it grew out of an
experience t hat Gebbia and Chesky had offering space in t heir apart ment t o at t endees of a
2007 design conference in San Francisco, where affordable hot el rooms were scarce.
The service t hey built , which was renamed Airbnb.com in 2009, quickly became popular. On
New Years Eve of 2012, for example, over 140,000 people around t he world st ayed in places
booked via Airbnb; t his is 50 percent more t han could be accommodat ed in all t he hot els on
t he Las Vegas St rip.
29
TaskRabbit also grew quickly; by January 2013 t he company was
report ing mont h-over-mont h t ransact ional growt h in t he double digit s.
30
TaskRabbit allows people t o offer t heir labor t o t he crowd while Airbnb let s t hem offer an
asset . The peer economy now includes many examples of bot h t ypes of company.
Crowdsourced labor market s exist in specific domains like programming, design, and cleaning,
as well as for general t ask execut ion. And people now use websit es and apps t o rent out t heir
cameras, t ools, bicycles, parking spaces, dog kennels, and almost anyt hing else t hey might
own.
Some services bring t hese t wo models t oget her and let people offer a combinat ion of labor
and asset s over t he Int ernet . When Andy needed t o have his mot orcycle t owed t o anot her
st at e in 2010, he found t he right person for t he jobsomeone wit h bot h t ime and a t railer on
t heir handson uShip. Lyft , founded in 2011, allows people t o effect ively t urn t heir cars int o
t axis whenever t hey want , giving crosst own rides t o ot hers. In an effort t o avoid opposit ion
from t axi regulat ors and ot her aut horit ies, Lyft does not set fees or rat es. It inst ead suggest s
t o cust omers a donat ion t hat t hey should offer t o t he person who just gave t hem a lift .
As t he st ory of Lyft highlight s, t here are many legal and regulat ory issues t hat will need t o be
resolved as t he peer economy grows. While we cert ainly acknowledge t he need t o ensure
public safet y, we hope t hat regulat ion in t his new area will not be st ifling and t hat t he peer
economy will cont inue t o grow. We like t he efficiency gains and price declines t hat
crowdsourcing brings, but we also like t he work t hat it brings. Part icipat ion in services like
TaskRabbit and Airbnb gives people previously unavailable economic opport unit ies, and it also
gives t hem somet hing t o do. It t herefore has t he pot ent ial t o address all t hree of Volt aires
great evils, and so should be encouraged by policy, regulat ion, incent ives like t he ETIC, and
ot her available levers.
The peer economy is st ill new and st ill small, bot h relat ive t o GDP and in absolut e t erms. In
April 2013, for example, TaskRabbit was adding one t housand new people each mont h t o it s
net work of approved t ask complet ers.
31
This is encouraging, but t hat same mont h t here were
nearly 4.5 million Americans who had been out of work for at least t went y-seven weeks.
32
Comparisons like t his st rongly suggest t hat crowdsourcing does not yet play a significant role
in reducing unemployment and bringing work t o t he economy as a whole.
This fact does not mean t hat t he peer economy should not be encouraged and support ed.
Quit e t he opposit e. The best solut ionsprobably, in fact , t he only real solut ionst o t he labor
force challenges t hat will arise in t he fut ure will come from market s and capit alism, and from
t he t echnology-enabled creat ions of innovat ors and ent repreneurs. Peer economy companies
are examples of innovat ions t hat increase t he value of human labor rat her t han reducing it .
Because we believe t hat work is so import ant , we believe t hat policy makers should encourage
such creat ions.
Wild Ideas Welcomed
Weve discussed t he fut ure and how t o shape it wit h a variet y of t echnologist s and labor
leaders, wit h economist s and sociologist s, wit h ent repreneurs and ret ail clerks, and even wit h
science-fict ion aut hors, and weve been impressed wit h t he breadt h of ideas offered. This
brainst orming is valuable because we are going t o need more novel and radical ideasmore
out -of-t he-box t hinkingt o deal wit h t he consequences of t echnological progress. Here are a
few of t he ideas weve heard. We include t hem not necessarily t o endorse t hem, but inst ead t o
spur furt her t hinking about what kinds of int ervent ions will be effect ive as machines cont inue
t o race ahead.
Creat e a nat ional mut ual fund dist ribut ing t he ownership of capit al widely and perhaps
inalienably, providing a dividend st ream t o all cit izens and assuring t he capit al ret urns do
not become highly concent rat ed.
Use t axes, regulat ion, cont est s, grand challenges, or ot her incent ives t o t ry t o direct
t echnical change t oward machines t hat augment human abilit y rat her t han subst it ut e for
it , t oward new goods and services and away from labor savings.
Pay people via nonprofit s and ot her organizat ions t o do socially beneficial t asks, as
det ermined by a democrat ic process.
Nurt ure or celebrat e special cat egories of work t o be done by humans only. For inst ance,
care for babies and young children, or perhaps t he dying, might fall int o t his cat egory.
St art a made by humans labeling movement , similar t o t hose now in place for organic
foods, or award credit s for companies t hat employ humans, similar t o t he carbon offset s
t hat can be purchased. If some consumers want ed t o increase t he demand for human
workers, such labels or credit s would let t hem do so.
Provide vouchers for basic necessit ies like food, clot hing, and housing, eliminat ing t he
ext remes of povert y but let t ing t he market manage income above t hat level.
Ramp up hiring by t he government via programs like t he Depression-era Civilian
Conservat ion Corps t o clean up t he environment , build infrast ruct ure, and address ot her
public goods. A variant is t o increase t he role of workfare, i.e., direct payment s t ied t o a
work requirement .
Each of t hese ideas has promising aspect s as well as flaws. We dont doubt t hat t here may be
ot her ideas t hat would be even more effect ive.*
Of course, t heorizing alone has it s limit s. Perhaps t he best advice we can give is t o
encourage policy experiment at ion and seek opport unit ies t o syst emat ically t est ideas and
learn from bot h successes and failures. In fact , t here are individuals, indust ries, and even whole
nat ions where some aspect s of second-machine-age economics are visible t oday. There are
lessons t o be learned. For inst ance: How do lot t ery winners react t o not having t o work
anymore? (Hint : not always well.) What can we learn from indust ries wit h a concent rat ion of
high-income superst ars like professional sport s, mot ion pict ures, and music? What challenges
and opport unit ies do cit izens of nat ions like Norway and t he Unit ed Arab Emirat es face when
t hey have access t o enormous wealt h as a birt hright via sovereign wealt h funds? What were
t he inst it ut ions and incent ives t hat helped some children of wealt hy landowners in t he
sevent eent h cent ury go on t o lead happy, invent ive, and creat ive lives, while ot hers did not ?
In t he coming decade, we will have t he good fort une t o wit ness a wave of ast onishing
t echnologies unleashed. They will require changes in our economic inst it ut ions and int uit ions.
By maximizing t he flexibilit y of our syst ems and ment al models, we will be in t he best posit ion
t o ident ify and implement t hese changes. A willingness t o learn from ot hers ideas and adapt
our own pract icest o have open minds and open syst emswill be t he hallmarks of success.
* The state of Alaska, however, set up a form of guaranteed income for its residents in 1980, when it passed legislation
establishing universal dividends from its Permanent Fund. The Fund was set up in 1976 to manage the states share of its
abundant oil wealth; four years later, Alaskans decided that a portion of this wealth should be distributed each year in the
form of dividend checks.
* Were interested in hearing which ideas you like best, and others you would like to suggest. Contact us at
www.SecondMachineAge.com to share your insights.
The machine does not isolate man from the great problems of nature but plunges him more deeply into them.
Antoine de Saint-Exupery
ITS ONE OF HUMANI TYS most ancient fant asies: t hat someday we can all have our mat erial needs
fulfilled wit hout drudgery, freeing us t o pursue our t rue int erest s, amusement s, or passions.
And t hat someday, no one will have t o t oil at an unpleasant t ask because food, clot hing,
shelt er, and all t he ot her basics for living will be provided by aut omat ed servant s t hat do all our
bidding. It makes for some great st ories. But for most of hist ory, t heyve been just t hat : legends
and myt hs populat ed by fant ast ical aut omat ons made of clay (like t he Jewish golem or Norse
giant Mokkerkalfe, built t o bat t le Thor), gold (in t he Iliad, Homer describes t he servant s and
self-driving t ripods built from t he precious met al by t he god Hephaest us), or leat her and wood
(t he flesh and bone of t he art ificial man made by craft sman Yanshi in t he ancient Chinese Liezi
t ext ). The mat erials change, but t he dream remains t he same.
To at last make real t he dream of human freedom via machine labor, were using silicon,
met al, and plast ic. These are t he key physical ingredient s of t he second machine age, at t he
heart of t he digit al comput ers, cables, and sensors being built and deployed wit h such speed
all around t he world.
What t heyre enabling is somet hing wit hout precedent . For all previous generat ions, when
people t hought of t he best minds of t heir t ime working wit h available mat erials t o make
art ificial helpers, all t hey could come up wit h were st ories.
Our generat ion is different .
Now when we imagine a machine doing a human t ask, we can be confident t hat if t he
aut omat on doesnt already exist t heres at least a good chance t hat someone in a lab or
garage somewhere is t inkering wit h version 0.1. Over t he past t hree years, t he t wo of us have
visit ed a lot of t hese innovat ors and t heir workshops, and weve been ast onished by t he
brilliant t echnologies of t he second machine age.
Aft er surveying t he landscape, we are convinced t hat we are at an inflect ion point t he
early st ages of a shift as profound as t hat brought on by t he Indust rial Revolut ion. Not only are
t he new t echnologies exponent ial, digit al, and combinat orial, but most of t he gains are st ill
ahead of us. In t he next t went y-four mont hs, t he planet will add more comput er power t han it
did in all previous hist ory. Over t he next t went y-four years, t he increase will likely be over a
t housand-fold. Weve already digit ized exabyt es of informat ion, but t he amount of dat a t hat s
being digit ized is growing even fast er t han Moores Law.
Our generat ion will likely have t he good fort une t o experience t wo of t he most amazing
event s in hist ory: t he creat ion of t rue machine int elligence and t he connect ion of all humans
via a common digit al net work, t ransforming t he planet s economics. Innovat ors, ent repreneurs,
scient ist s, t inkerers, and many ot her t ypes of geeks will t ake advant age of t his cornucopia t o
build t echnologies t hat ast onish us, delight us, and work for us. Over and over again, t heyll
show how right Art hur C. Clarke was when he observed t hat a sufficient ly advanced
t echnology can be indist inguishable from magic.
The Risks Well Run
As weve seen, however, not all t he news is good. The middle chapt ers of t his book have
shown t hat while t he bount y brought by t echnology is increasing, so is t he spread. And great er
spread is not t he only possible negat ive consequence of t he coming era of brilliant t echnology.
Our era will face ot her challenges, ones t hat are not root ed in economics.
As we move deeper int o t he second machine age t hese perils, from bot h accident and
malice, will become great er while mat erial want s and needs are likely t o be relat ively less
import ant . We will be increasingly concerned wit h quest ions about cat ast rophic event s,
genuine exist ent ial risks, freedom versus t yranny, and ot her ways t hat t echnology can have
unint ended or unexpect ed side effect s.
The sheer densit y and complexit y of our digit al world brings risk wit h it . Our t echnological
infrast ruct ure is becoming ever more complicat ed and int erlinked. The Int ernet and int ranet s,
for example, now connect not just people and comput ers but also t elevisions, t hermost at s,
burglar alarms, indust rial sensors and cont rols, locomot ives, aut omobiles, and an uncount able
mult it ude of ot her devices. Many of t hese provide feedback t o one anot her, and most rely on a
few common subsyst ems like t he rout ers t hat direct Int ernet t raffic.
Any syst em t his complex and t ight ly coupled has t wo relat ed weaknesses. First , it s subject
t o seeing minor init ial flaws cascade via an unpredict able sequence int o somet hing much larger
and more damaging. Such a cascade, which sociologist Charles Perrow labeled a syst em
accident or normal accident , charact erized t he 1979 melt down of t he Three Mile Island
nuclear plant , t he August 2003 elect rical blackout t hat affect ed fort y-five million people
t hroughout t he U.S. Nort heast , and many ot her incident s.
1
Second, complex, t ight ly coupled syst ems make t empt ing t arget s for spies, criminals, and
t hose who seek t o wreak havoc. A recent example here is t he St uxnet comput er worm, which
may have been incubat ed in government labs. In 2010 St uxnet hobbled at least one Iranian
nuclear facilit y by pervert ing t he cont rol syst ems of it s Siemens indust rial equipment . The
worm ent ered it s t arget sit es and spread t hrough t hem by jumping harmlessly from PC t o PC;
when it spot t ed an opport unit y, it crossed over t o t he Siemens machines and did it s damage
t here.
2
Unt il recent ly, our species did not have t he abilit y t o dest roy it self. Today it does. What s
more, t hat power will reach t he hands of more and more individuals as t echnologies become
bot h more powerful and cheaperand t hus more ubiquit ous. Not all of t hose individuals will be
bot h sane and well int ent ioned. As Bill Joy and ot hers have not ed, genet ic engineering and
art ificial int elligence can creat e self-replicat ing ent it ies.
3
That means t hat someone working in
a basement laborat ory might someday use one of t hese t echnologies t o unleash dest ruct ive
forces t hat affect t he ent ire planet . The same scient ific breakt hroughs in genome sequencing
t hat can be used t o cure disease can also be used t o creat e a weaponized version of t he
smallpox virus.
4
Comput er programs can also self-replicat e, becoming digit al viruses, so t he
same global net work t hat spreads ideas and innovat ions can also spread dest ruct ion. The
physical limit s on how much damage any individual or small group could do are becoming less
and less const rained. Will our abilit y t o det ect and count eract dest ruct ive uses of t echnology
advance rapidly enough t o keep us safe? That will be an increasingly import ant quest ion t o
answer.
George Orwell, William Gibson, and ot hers have described dyst opian scenarios involving t he
loss of freedom and t he use of t echnology t o empower despot ic rulers and cont rol informat ion
flows. Eric Schmidt and Jared Cohen describe some of t hese t echnologies, as well as
count ermeasures, in t heir book, The New Digital Age. The same t ools t hat make it possible t o
monit or t he world in great er det ail also give government s and t heir adversaries t he abilit y t o
monit or what people are doing and who t hey are communicat ing wit h. Theres a genuine
t ension bet ween our abilit y t o know more and our abilit y t o prevent ot hers from knowing about
us. When informat ion was most ly analog and local, t he laws of physics creat ed an aut omat ic
zone of privacy. In a digit al world, privacy requires explicit ly designed inst it ut ions, incent ives,
laws, t echnologies, or norms about which informat ion flows are permit t ed or prevent ed and
which are encouraged or discouraged.
There are myriad ot her ways t hat t echnology can have unexpect ed side effect s, from
addict ive gaming and digit al dist ract ions t o t he cyberbalkanizat ion of int erest groups, from
social isolat ion t o environment al degradat ion.
5
Even seemingly benevolent invent ions, like a
t echnology t hat dramat ically increased longevit y, would creat e enormous social upheaval.*
Is the Singularity Near?
The final, and most far-out , possibilit y is anot her sci-fi st aple: t he development of fully
conscious machines. There are t wo main st rands of t hinkingone dyst opian, one ut opian
about what will happen when comput ers and robot s get real minds. The dyst opian one finds
expression in t he Terminator and Matrix movies and count less ot her pieces of science fict ion. It
makes for compelling ent ert ainment , and it seems more and more plausible as t echnology
cont inues t o advance and demonst rat e human-like capabilit ies. Teamwork, aft er all, is anot her
of t hese capabilit ies, so why wouldnt fut ure versions of Wat son, t he Google aut onomous car,
t he BigDog robot from Bost on Dynamics, drone aircraft , and lot s of ot her smart machines
decide t o work t oget her? And if t hey did, wouldnt t hey soon realize t hat we humans t reat our
t echnologies pret t y poorly, scrapping t hem wit hout a second t hought ? Self-preservat ion alone
would plausibly mot ivat e t his digit al army t o fight against us (perhaps using Siri as an
int erpret er for t he enemy).
In ut opian versions of digit al consciousness, we humans dont fight wit h machines; we join
wit h t hem, uploading our brains int o t he cloud and ot herwise becoming part of a t echnological
singularit y. This is a t erm coined in 1983 by science-fict ion aut hor Vernor Vinge, who predict ed
t hat , We will soon creat e int elligences great er t han our own. . . . When t his happens, human
hist ory will have reached a kind of singularit y, an int ellect ual t ransit ion as impenet rable as t he
knot t ed space-t ime at t he cent er of a black hole, and t he world will pass far beyond our
underst anding.
6
Progress t oward such a singularit y, Vinge and ot hers have argued, is driven by Moores Law.
It s accumulat ed doubling will event ually yield a comput er wit h more processing and st orage
capacit y t han t he human brain. Once t his happens, t hings become highly unpredict able.
Machines could become self-aware, humans and comput ers could merge seamlessly, or ot her
fundament al t ransit ions could occur. Ray Kurzweil, who has done more t han anyone else t o
explain t he power of exponent ial improvement , wrot e in his 2005 book The Singularity Is Near
t hat at current rat es of progress t hese t ransit ions will occur by about 2045.
7
How plausible is
singularit y or t he Terminat or? We honest ly dont know. As wit h all t hings digit al it s wise never
t o say never, but we st ill have a long way t o go.
The science-fict ion capabilit ies of Jeopardy!-champion supercomput ers and aut onomous
cars can be misleading. Because t heyre examples of digit al t echnologies doing human-like
t hings, t hey can lead us t o conclude t hat t he t echnologies t hemselves are becoming human-
like. But t heyre not yet . We humans build machines t o do t hings t hat we see being done in
t he world by animals and people, but we t ypically dont build t hem t he same way t hat nat ure
built us. As AI t railblazer Frederick Jelinek put it beaut ifully, Airplanes dont flap t heir wings.
8
It s t rue t hat scient ist s, engineers, and ot her innovat ors oft en t ake cues from biology as
t heyre working, but it would be a mist ake t o t hink t hat t his is always t he case, or t hat major
recent AI advances have come about because were get t ing bet t er at mimicking human
t hought . Journalist St ephen Baker spent a year wit h t he Wat son t eam t o research his book
Final Jeopardy!. He found t hat , The IBM t eam paid lit t le at t ent ion t o t he human brain while
programming Wat son. Any parallels t o t he brain are superficial, and only t he result of chance.
9
As we were researching t his book we heard similar sent iment s from most of t he innovat ors
we t alked t o. Most of t hem werent t rying t o unravel t he myst eries of human consciousness or
underst and exact ly how we t hink; t hey were t rying t o solve problems and seize opport unit ies.
As t hey did so, t hey somet imes came up wit h t echnologies t hat had human-like skills and
abilit ies. But t hese t ools t hemselves were not like humans at all. Current AI, in short , looks
int elligent , but it s an art ificial resemblance. That might change in t he fut ure. We might st art t o
build digit al t ools t hat more closely mimic our minds, perhaps even drawing on our rapidly
improving capabilit ies for scanning and mapping brains. And if we do, t hose digit al minds will
cert ainly augment ours and might even event ually merge wit h t hem, or become self-aware on
t heir own.
Destined For . . . ?
Even in t he face of all t hese challengeseconomic, infrast ruct ural, biological, societ al, and
exist ent ialwere st ill opt imist ic. To paraphrase Mart in Lut her King, Jr., t he arc of hist ory is long
but it bends t owards just ice.
10
We t hink t he dat a support t his. Weve seen not just vast
increases in wealt h but also, on t he whole, more freedom, more social just ice, less violence, and
less harsh condit ions for t he least fort unat e and great er opport unit ies for more and more
people.
In Charles Dickenss A Christmas Carol , when t he Ghost of Christ mas Fut ure point ed at
Scrooges t ombst one Scrooge asked, Is t his what must be, or what might be? For quest ions
of t echnology and t he fut ure st at e of t he world, it s t he lat t er. Technology creat es possibilit ies
and pot ent ial, but ult imat ely, t he fut ure we get will depend on t he choices we make. We can
reap unprecedent ed bount y and freedom, or great er disast er t han humanit y has ever seen
before.
The t echnologies we are creat ing provide vast ly more power t o change t he world, but wit h
t hat power comes great er responsibilit y. That s why we arent t echnological det erminist s, and
t hat s why we devot ed t hree chapt ers in t his book t o a set of recommendat ions t hat we t hink
will improve t he odds of achieving a societ y wit h shared prosperit y.
But in t he long run, t he real quest ions will go beyond economic growt h. As more and more
work is done by machines, people can spend more t ime on ot her act ivit ies. Not just leisure and
amusement s, but also t he deeper sat isfact ions t hat come from invent ion and explorat ion, from
creat ivit y and building, and from love, friendship, and communit y. We dont have a lot of formal
met rics for t hose kinds of value, and perhaps we never will, but t hey will nonet heless grow in
import ance as we sat isfy our more basic economic needs. If t he first machine age helped
unlock t he forces of energy t rapped in chemical bonds t o reshape t he physical world, t he real
promise of t he second machine age is t o help unleash t he power of human ingenuit y.
Our success will depend not just on our t echnological choices, or even on t he coinvent ion of
new organizat ions and inst it ut ions. As we have fewer const raint s on what we can do, it is t hen
inevit able t hat our values will mat t er more t han ever. Will we choose t o have informat ion widely
disseminat ed or t ight ly cont rolled? Will our prosperit y be broadly shared? What will be t he
nat ure and magnit ude of rewards we give t o our innovat ors? Will we build vibrant relat ionships
and communit ies? Will everyone have t he opport unit ies t o discover, creat e, and enjoy t he best
of life?
In t he second machine age, we need t o t hink much more deeply about what it is we really
want and what we value, bot h as individuals and as a societ y. Our generat ion has inherit ed
more opport unit ies t o t ransform t he world t han any ot her. That s a cause for opt imism, but
only if were mindful of our choices.
Technology is not dest iny. We shape our dest iny.
* Greg Mankiw ponders a thought experiment where a pill is discovered that adds one year of life to anyone who takes it,
but costs $100,000 per pill to producemore than most people could afford. Would we ban it, ration it, or regulate it in
some way?
ACKNOWLEDGMENTS
Theres a general st ory of how t his book came t o be, and a specific one. Many people
cont ribut ed t o each, and some t o bot h.
The general st ory is about our research t o underst and t he nat ure of progress wit h digit al
t echnologies, and it s economic and societ al consequences. As part of t his work, we t alked t o
t wo main t ypes of geek (a label which, t o us, is t he highest praise): t hose who st udy economics
and ot her social sciences, and t hose who build t echnologies. In t he former group Susan At hey,
David Aut or, Zoe Baird, Nick Bloom, Tyler Cowen, Charles Fadel, Chryst ia Freeland, Robert
Gordon, Tom Kalil, Larry Kat z, Tom Kochan, Frank Levy, James Manyika, Richard Murnane,
Robert Put nam, Paul Romer, Scot t St ern, Larry Summers, and Hal Varian have helped our
t hinking enormously. In t he lat t er cat egory are Chris Anderson, Rod Brooks, Pet er Diamandis,
Ephraim Heller, Reid Hoffman, Jeremy Howard, Kevin Kelly, Ray Kurzweil, John Leonard, Tod
Loofbourrow, Hilary Mason, Tim OReilly, Sandy Pent land, Brad Templet on, and Vivek Wadhwa.
All of t hem were incredibly generous wit h t heir t ime and t olerant of our quest ions. We did our
best t o underst and t he insight s t hey shared wit h us, and apologize for what ever mist akes we
made in t rying t o convey t hem in t his book.
Some members of bot h groups came t oget her at an ext raordinary series of lunches at MIT
organized by John Leonard, Frank Levy, Daniela Rus, and Set h Teller t hat assembled people
from t he Economics Depart ment , t he Sloan School of Management , and t he Comput er Science
and Art ificial Int elligence Lab t o t alk about exact ly t he t opics in which we were most int erest ed.
We had t ruly cross-disciplinary conversat ions wit hout any forcing funct ion ot her t han our own
curiosit ies, which have remained st rong enough t o resist t he count less hect oring demands of
academic life.
As t hese lunches indicat e, MIT it self is part of t he general st ory of t his book. It s been t he
ideal professional home for us, and were grat eful for t he support weve received from Sloan, it s
dean David Schmit t lein, and deput y dean S. P. Kot hari. The int ellect s at MIT make it a humbling
place; t he people make it a lovely one.
The specific st ory of t his book st art s wit h an inquiry we got from Raphael Sagalyn who, we
soon learned, is a lion among lit erary agent s (he was int roduced t o us by Joan Powell, Andys
equally illust rious speaking agent ). Rafe want ed t o know if we had any int erest in t urning our
short , self-published e-book Race Against the Machine int o a real book, one wit h a publisher,
an edit or, a hard covert he works. Rafe was far t oo professional t o use t he word real, of
course, but we knew what he meant .
And we were int rigued, because we hadnt st opped t hinking and t alking t o each ot her about
t he ideas in Race Against the Machine even aft er t he book was done. In fact , wed only
become more int erest ed in t he concept s of t echnological progress and it s economic
consequences as a result of t he e-book, and wed enjoyed t he many conversat ions it had
sparked wit h people all over t he world. So it didnt t ake long at all for us t o decide t o work wit h
Rafe t o see if t his int erest was shared by mainst ream publishers.
Amazingly enough, it was, which is how we met our edit or, Brendan Curry, and his colleagues
at W. W. Nort on. Working under t ight deadlines, Brendan and his colleagues Mit chell Kohles
and Tara Powers guided our manuscript int o shape. Were grat eful for t heir advice and keen
at t ent ion, which were delivered wit h grace under pressure.
At t he int ersect ion where our general int erest s met t he specifics of writ ing a book is a set of
colleagues, family, and friends who we simply cant t hank enough. To give us up-close
encount ers wit h t he t echnologies we were writ ing about , Dave Ferrucci and his colleagues at
IBM brought Wat son t o campus, Rod Brooks int roduced us t o Baxt er t he humanoid robot , Carl
Bass at Aut odesk headquart ers let us handle a range of object s made by 3D print ing, and
Bet sy Masiello and Hal Varian worked t heir magic at Google t o get us a ride in one of t heir
driverless cars. Were grat eful for t he st udent s in our classes who served as sounding boards
for many of t he ideas t hat made it int o t his book, and even more t hat didnt make t he cut .
We are part icularly grat eful t o our Digit al Front ier t eam, a self-select ing group of people who
are int erest ed in t he same t hings we are, and who get t oget her periodically t o generat e, share,
and refine ideas, a lot of which made t heir way int o t his book. Mat t Beane, Greg Gimpel, Shan
Huang, Heekyung Kim, Tod Loofbourrow, Frank MacCrory, Max Novendst ern, JooHee Oh,
Shachar Reichman, Guillaume Saint Jacques, Michael Schrage, Dipak Shet t y, Gabriel Unger,
and George West erman helped us explore t he digit al front ier. Mat t and Dipak went above and
beyond t he call by helping us wit h many of t he graphs t hat appear here, as did Gabriel, George,
Greg, Michael, and Tod by giving us det ailed comment s on t he manuscript . Max put in
count less hours under t ight deadline checking fact s. Meghan Hennessey managed Eriks
increasingly crowded work schedule, while Mart ha Pavlakiss st rengt h, courage, and grace as
she bat t led and defeat ed cancer reminded him what really mat t ers in life. Est her Simmons kept
Andy on t rack and on t ime, his family kept him sane, and Tat iana Lingos-Webb const ant ly
gave him reasons t o smile (which is no small t ask at t imes).
Finally, our colleagues at t he MIT Cent er for Digit al Business and Init iat ive on t he Digit al
Economy deserve more t hanks t han we can art iculat e. Tammy Buzzell and Just in Lockenwit z
keep t he place running like clockwork, and execut ive direct or David Verrill cont inues t o ast ound
us wit h everyt hing he does and how easy he makes it all look. Weve said it before, but it bears
repeat ing: no mat t er what skills and abilit ies t echnology ever acquires, it wont come anywhere
near him.
NOTES
Chapt er 1 THE BIG STORIES
1. I an Morri s, Why the West RulesFor Now: The Patterns of History, and What They Reveal About the Future (New York: Farrar, St raus and Gi roux, 2010), p. 73.
2. I bi d., p. 74.
3. I bi d., p. 71.
4. I bi d., p. 112.
5. Karl Jaspers, The Origin and Goal of History. Translated From the German by Michael Bullock (London: Rout l edge K. Paul , 1953), p. 51.
6. Maj or Rel i gi ons of t he Worl d Ranked by Number of Adherent s, 2007, ht t p://www.adherent s.c om/Rel i gi ons_By_Adherent s.ht ml /.
7. Anne Rooney, The History of Mathematics (New York: The Rosen Publ i shi ng Group, 2012), p. 18.
8. Morri s, Why the West RulesFor Now, p. 142.
9. Loui s C. Hunt er and El eut heri an Mi l l s-Hagl ey Foundat i on, A History of Industrial Power in the United States, 17801930: Steam Power (Charl ot t esvi l l e, VA: Uni versi t y Press of Vi rgi ni a,
1979), 60130.
10. Morri s, Why the West RulesFor Now, p. 497.
11. I bi d., p. 492.
12. Mart i n L. Wei t z man, Rec ombi nant Growt h, Quarterly Journal of Economics 113, no. 2 (1998): 33160.
13. Bj rn Lomborg, The Skeptical Environmentalist: Measuring the Real State of the World (Cambri dge, UK: Cambri dge Uni versi t y Press, 2001), p. 165.
Chapt er 2 THE SKILLS OF THE NEW MACHINES
1. Frank Levy and Ri c hard J. Murnane, The New Division of Labor: How Computers Are Creating the Next Job Market (Pri nc et on, NJ: Pri nc et on Uni versi t y Press, 2004).
2. Mi c hael Pol anyi , The Tacit Dimension (Chi c ago, I L: Uni versi t y of Chi c ago Press, 2009), p. 4.
3. Joseph Hooper, DARPAs Debac l e i n t he Desert , Popular Science, June 4, 2004, ht t p://www.popsc i .c om/sc i t ec h/art i c l e/2004-06/darpa-grand-c hal l enge-2004darpas-debac l e-desert .
4. Mary Bet h Gri ggs, 4 Quest i ons About Googl es Sel f -Dri vi ng Car Crash, Popular Mechanics, August 11, 2011, ht t p://www.popul armec hani c s.c om/c ars/news/i ndus t ry/4-quest i ons-
about -googl es-sel f -dri vi ng-c ar-c rash; John Markof f , Googl e Cars Dri ve Themsel ves, i n Traf f i c , New York Times, Oc t ober 9, 2010,
ht t p://www.nyt i mes.c om/2010/10/10/sc i enc e/10googl e.ht ml .
5. Ernest Hemi ngway, The Sun Also Rises (New York: HarperCol l i ns, 2012), p. 72.
6. Levy and Murnane, The New Division of Labor, p. 29.
7. Si ri I s Ac t ual l y I nc redi bl y Usef ul Now, Gizmodo, ac c essed August 4, 2013, ht t p://gi z modo.c om/5917461/si ri -i s-bet t er-now.
8. I bi d.
9. Mi nneapol i s St reet Test : Googl e Get s a B+, Appl es Si ri Get s a D - Appl e 2.0 -Fort une Tec h, CNNMoney, ht t p://t ec h.f ort une.c nn.c om/2012/06/29/mi nneapol i s-st reet -t est -googl e-
get s-a-b-appl es-si ri -get s-a-d/ (ac c essed June 23, 2013).
10. Ni ng Xi ang and Rendel l Torres, Arc hi t ec t ural Ac oust i c s and Si gnal Proc essi ng i n Ac oust i c s: Topi c al Meet i ng on Spat i al and Bi naural Eval uat i on of Perf ormi ng Art s
Spac es I : Measurement Tec hni ques and Bi naural and I nt eraural Model i ng, 2004, ht t p://sc i t a t i on.ai p.org/get pdf /servl et /Get PDFServl et ?f i l et ype=pdf &i d=JASMAN000116000004.
11. As quot ed i n John Markof f , Armi es of Expensi ve Lawyers, Repl ac ed by Cheaper Sof t ware, New York Times, Marc h 4, 2011,
ht t p://www.nyt i mes.c om/2011/03/05/sc i enc e/05l egal .ht ml ?pagewant ed=al l &_r=0.
12. Spri ng Cl eani ng f or Some of Our API s, The Official Google Code Blog, June 3, 2011, ht t p://googl ec ode.bl ogspot .c om/2011/05/spri ng-c l eani ng-f or-some-of -our-api s.ht ml .
13. Dougl as Adams, The Hitchhikers Guide to the Galaxy (New York: Random House, 2007), p. 54.
14. Personal c ommuni c at i on wi t h Sara Buda, Li onbri dge Vi c e Presi dent , I nvest or Rel at i ons and Corporat e Devel opment , Sept ember 2011.
15. Top 10 TV Rat i ngs / Top 10 TV Shows / Ni el sen, Evernote, August 18, 2012, ht t ps://www.evernot e.c om/shard/s13/sh/a4480367-9414-4246-bba4-d588d60e64c e/bb3f
380315c d10deef 79e33a88e56602 (ac c essed June 23, 2013).
16. Meet Wat son, t he Jeopardy! -Pl ayi ng Comput er, TV.com, Dec ember 1, 2004, ht t p://www.t v.c om/news/meet -wat son-t he-j eopardy-pl ayi ng-c omput er-25144/.
17. What s The Most Money Won On Jeopardy?, Celebrity Net Worth, May 20, 2010, ht t p://www.c el ebri t ynet wort h.c om/art i c l es/ent ert ai nment -art i c l es/what s-t he-most -money-won-o/.
18. St ephen Baker, Final Jeopardy: Man Vs. Machine and the Quest to Know Everything (Hought on Mi f f l i n Harc ourt , 2011), p. 19.
19. I BM and Jeopardy! Rel i ve Hi st ory Wi t h Enc ore Present at i on of Jeopardy! , Did You Know . . . , 2013, ht t p://www.j eopardy.c om/showgui de/about t heshow/showhi st ory/.
20. Al l Wat son and human perf ormanc e st at i st i c s f rom Wi l l y Shi h, Bui l di ng Wat son: Not So El ement ary, My Dear! Harvard Busi ness Sc hool Case 612-017, Sept ember 2011
(revi sed Jul y 2012), ht t p://hbr.org/produc t /bui l di ng-wat son-not -so-el ement ary-my-dear/an/612017-PDF-ENG.
21. Aut hors personal researc h.
22. Ken Jenni ngs, My Puny Human Brai n, Slate, February 16, 2011, ht t p://www.sl at e.c om/art i c l es/art s/c ul t urebox/2011/02/my_puny_human_brai n.si ngl e.ht ml .
23. I saac Asi mov, The Voc abul ary of Sc i enc e Fi c t i on, i n Asimov on Science Fiction (New York, Doubl eday, 1981), p. 69.
24. The Robot Pani c of t he Great Depressi on, Slate, November 29, 2011, ht t p://www.sl at e.c om/sl i deshows/t ec hnol ogy/t he-robot -pani c -of -t he-great -depressi on.ht ml (ac c essed June
23, 2013).
25. I saac Asi mov Expl ai ns Hi s Three Laws of Robot s, Open Culture, Oc t ober 31, 2012,
ht t p://www.openc ul t ure.c om/2012/10/i saac _asi mov_expl ai ns_hi s_t hree_l aws_of _robot i c s.ht ml (ac c essed June 23, 2013).
26. Bri an Lam, Honda ASI MO vs. Sl i ppery St ai rs, Dec ember 11, 2006, ht t p://gi z modo.c om/220771/honda-asi mo-vs-sl i ppery-st ai rs?op=showc ust omobj ec t &pos
t I d=220771&i t em=0.
27. Hans Moravec , Mind Children: The Future of Robot and Human Intelligence (Cambri dge, MA: Harvard Uni versi t y Press, 1988), p. 15.
28. Moravec s Paradox, Wikipedia, the Free Encyclopedia, Apri l 28, 2013, ht t p://en.wi ki pedi a.org/w/i ndex.php?t i t l e=Moravec perc ent 27s_paradox&ol di d=540679203.
29. St even Pi nker, The Language Instinct (New York: HarperPerenni al ModernCl assi c s, 2007), p. 19091.
30. Chri st opher Drew, For i Robot , t he Fut ure I s Get t i ng Cl oser, New York Times, Marc h 2, 2012, ht t p://www.nyt i mes.c om/2012/03/03/t ec hnol ogy/f or-i robot -t he-f ut ure-i s-get t i ng-
c l oser.ht ml .
31. Dani el l e Kuc era, Amaz on Ac qui res Ki va Syst ems i n Sec ond-Bi ggest Takeover, Bloomberg, Marc h 19, 2012, ht t p://www.bl oomberg.c om/news/2012-03-19/amaz on-ac qui res-ki va-
syst ems-i n-sec ond-bi ggest -t akeover.ht ml (ac c essed June 23, 2013).
32. Marc DeVi dt s, Fi rst Produc t i on Run of Doubl e Has Sol d Out ! , August 16, 2012, ht t p://bl og.doubl erobot i c s.c om/2012/8/16/wel c ome-doubl e-updat e.
33. DARPA Robot i c s Chal l enge, n.d., ht t p://www.darpa.mi l /Our_Work/TTO/Programs/DARPA_Robot i c s_Chal l enge.aspx.
34. DARPA, Broad Agenc y Announc ement DARPA Robot s Chal l enge Tac t i c al Tec hnol ogy Of f i c e, Apri l 10, 2012, ht t p://www.f bo.gov/ut i l s/vi ew?
i d=74d674ab011d5954c 7a46b9c 21597f 30.
35. For i nst anc e, Philips Vital Signs Camera, n.d., ht t p://www.vi t al si gnsc amera.c om/; St eve Casi mi ro, 2011 Best Out door i Phone AppsBest Weat her Apps, n.d., ht t p://www.advent ure-
j ournal .c om/2011-best -out door-i phone-apps-%E2%80%94-best -weat her-apps/; iSeismometer, n.d., ht t ps://i t unes.appl e.c om/us/app/i sei smomet er/i d304190739?mt =8.
36. SoLoMo, Schotts Vocab Blog, ht t p://sc hot t .bl ogs.nyt i mes.c om/2011/02/22/sol omo/ (ac c essed June 23, 2013).
37. SCI gen An Aut omat i c CS Paper Generat or, ac c essed Sept ember 14, 2013, ht t p://pdos.c sai l .mi t .edu/sc i gen/.
38 Herbert Sc hl angemann, Towards t he Si mul at i on of E-c ommerc e, i n Proceedings of the 2008 International Conference on Computer Science and Software Engineering, vol . 5, CSSE 2008
(Washi ngt on, D.C.: I EEE Comput er Soc i et y, 2008), 114447, doi :10.1109/CSSE.2008.1.
39. Narrat i ve Sc i enc e, Forbes Earni ngs Previ ew: H.J. Hei nz , August 24, 2012, ht t p://www.f orbes.c om/si t es/narrat i vesc i enc e/2012/08/24/f orbes-earni ngs-previ ew-h-j -hei nz -3/.
40. How St ereol i t hography 3-D Layeri ng Works, HowStuffWorks, ht t p://c omput er.howst uf f works.c om/st ereol i t h.ht m (ac c essed August 4, 2013).
41. Cl audi ne Zap, 3D Pri nt er Coul d Bui l d a House i n 20 Hours, August 10, 2012, ht t p://news.yahoo.c om/bl ogs/si deshow/3d-pri nt er-c oul d-bui l d-house-20-hours-224156687.ht ml ; see
al so Samant ha Murphy, Woman Get s Jawbone Made By 3D Pri nt er, February 6, 2012, ht t p://mashabl e.c om/2012/02/06/3d-pri nt er-j awbone/; Great I deas Soar Even Hi gher wi t h 3D
Pri nt i ng, 2013, ht t p://www.st rat asys.c om/resourc es/c ase-st udi es/aerospac e/nasa-mars-rover.
Chapt er 3 MOORES LAW AND THE SECOND HALF OF THE CHESSBOARD
1. G. E. Moore, Crammi ng More Component s ont o I nt egrat ed Ci rc ui t s, Electronics 38, no. 8 (Apri l 19, 1965): 11417, doi :10.1109/j proc .1998.658762.
2. I bi d.
3. Mi c hael Kanel l os, Moores Law t o Rol l on f or Anot her Dec ade, CNET, ht t p://news.c net .c om/2100-1001-984051.ht ml (ac c essed June 26, 2013).
4. Ri c k Merri t t , Broadc om: Ti me t o Prepare f or t he End of Moores Law, EE Times, May 23, 2013, ht t p://www.eet i mes.c om/doc ument .asp?doc _i d=1263256.
5. Adam Sneed, A Bri ef Hi st ory of Warni ngs About t he Demi se of Moores Law, Future Tense bl og, Sl at e.c om, May 3, 2012,
ht t p://www.sl at e.c om/bl ogs/f ut ure_t ense/2012/05/03/mi c hi o_kako_and_a_bri ef _hi st ory_of _warni ngs_about _t he_end_of _moore_s_l aw.ht ml (ac c essed June 26, 2013).
6. Moores Law: The Rul e That Real l y Mat t ers i n Tec h, CNET, Oc t ober 15, 2012, ht t p://news.c net .c om/8301-11386_3-57526581-76/moores-l aw-t he-rul e-t hat -real l y-mat t ers-i n-t ec h/.
7. H. J. R Murray, A History of Chess (Nort hampt on, MA: Benj ami n Press, 1985).
8. Ray Kurz wei l , The Age of Spiritual Machines: When Computers Exceed Human Intelligence (London: Pengui n, 2000), p. 36.
9. See ht t p://www.c uug.ab.c a/~branderr/pmc /012_c oal .ht ml (ac c essed Sept ember 23, 2013).
10. I onut Arghi re, The Pet af l op Barri er I s Down, Goi ng f or t he Exaf l op?, Softpedia, June 10, 2008, ht t p://news.sof t pedi a.c om/news/The-Pet af l op-Barri er-I s-Down-Goi ng-f or-t he-
Exaf l op-87688.sht ml .
11. The Tops i n Fl ops, Scribd, ht t p://www.sc ri bd.c om/doc /88630700/The-Tops-i n-Fl ops (ac c essed June 26, 2013).
12. Mat t Gemmel l , i Pad Mul t i -Touc h, May 9, 2010, ht t p://mat t gemmel l .c om/2010/05/09/i pad-mul t i -t ouc h/.
13. Company News; Cray t o I nt roduc e A Superc omput er, New York Times, February 11, 1988, ht t p://www.nyt i mes.c om/1988/11/02/busi ness/c ompany-news-c ray-t o-i nt roduc e-a-
superc omput er.ht ml (ac c essed June 26, 2013).
14. Thomas Fi ne, The Dawn of Commerc i al Di gi t al Rec ordi ng, ARSC Journal 39 (Spri ng 2008): 117; Jurri en Rai f , St even Sasson Named t o CE Hal l of Fame, Lets Go Digital,
Sept ember 18, 2007, ht t p://www.l et sgodi gi t al .org/en/16859/c e-hal l -of -f ame/.
15. Hendys Law, Ni da Javed, Dec ember 7, 2012, ht t p://prez i .c om/v-rookni pogx/hendys-l aw/.
16. Josep Aul i nas et al ., The SLAM Probl em: A Survey, i n Proceedings of the 2008 Conference on Artificial Intelligence Research and Development: Proceedings of the 11th International Conference
of the Catalan Association for Artificial Intelligence (Amst erdam: I OS Press, 2008), pp. 36371, ht t p://dl .ac m.org/c i t at i on.c f m?i d =1566899.1566949.
17. Dyl an Mc Grat h, Teardown: Ki nec t Has Proc essor af t er Al l , EE Times, November 15, 2010, ht t p://www.eet i mes.c om/el ec t roni c s-news/4210757/TeardownKi nec t -has-proc essor-
af t er-al l .
18. Mi c rosof t Ki nec t Sal es Top 10 Mi l l i on, Set New Gui nness Worl d Rec ord, Mashable, Marc h 9, 2011, ht t p://mashabl e.c om/2011/03/09/ki nec t -10-mi l l i on/ (ac c essed June 26, 2013).
19. Xbox Ki nec t s Game Launc h Li neup Reveal ed, Mashable, Oc t ober 18, 2010, ht t p://mashabl e.c om/2010/10/18/ki nec t -l aunc h-games/ (ac c essed June 26, 2013).
20. Ki nec t Fusi on: The Sel f -Hac k That Coul d Change Everyt hi ng, The Creators Project, August 18, 2011, ht t p://t hec reat orsproj ec t .vi c e.c om/bl og/ki nec t f usi on-t he-sel f -hac k-t hat -
c oul d-c hange-everyt hi ng (ac c essed June 26, 2013).
21. Sarah Kessl er, Ki nec t Fusi on HQ Mi c rosof t Researc h, ht t p://researc h.mi c rosof t .c om/apps/vi deo/dl .aspx?i d=152815 (ac c essed June 26, 2013).
22. Mi c rosof t s Ki nec t Fusi on Researc h Proj ec t Of f ers Real -t i me 3D Rec onst ruc t i on, Wi l d AR Possi bi l i t i es, Engadget, August 9, 2011,
ht t p://www.engadget .c om/2011/08/09/mi c rosof t s-ki nec t f usi on-researc h-proj ec t -of f ers-real -t i me-3d-re/ (ac c essed June 26, 2013).
23. Thomas Whel an et al ., Ki nt i nuous: Spat i al l y Ext ended Ki nec t Fusi on, n.d., ht t p://dspac e.mi t .edu/bi t st ream/handl e/1721.1/71756/MI T-CSAI L-TR-2012-020.pdf ?sequenc e=1.
24. Bret t Sol omon, Vel odyne Creat i ng Sensors f or Chi na Aut onomous Vehi c l e Market , Technology Tell , Jul y 5, 2013, ht t p://www.t ec hnol ogyt el l .c om/i n-c ar-t ec h/4283/vel odyne-
c reat i ng-sensors-f or-c hi na-aut onomous-vehi c l e-market /.
Chapt er 4 THE DIGITIZATION OF JUST ABOUT EVERYTHING
1. Ni c k Wi ngf i el d and Bri an X. Chen, Appl e Keeps Loyal t y of Mobi l e App Devel opers, New York Times, June 10, 2012, ht t p://www.nyt i mes.c om/2012/06/11/t ec hnol ogy/appl e-keeps-
l oyal t y-of -mobi l e-app-devel opers.ht ml .
2. How Was t he I dea f or Waz e Creat ed?, ht t p://www.waz e.c om/f aq/ (ac c essed June 27, 2013).
3. Dani el Fel dman, Waz e Hi t s 20 Mi l l i on Users! , Jul y 5, 2012, ht t p://www.waz e.c om/bl og/waz e-hi t s-20-mi l l i on-users/.
4. Carl Shapi ro and Hal R. Vari an, Information Rules: A Strategic Guide to the Network Economy (Bost on, MA: Harvard Busi ness Sc hool Press, 1998), p. 3.
5. Jul es Verne, Works of Jules Verne (New York: V. Parke, 1911), ht t p://arc hi ve.org/det ai l s/worksof j ul esvern01vernuof t .
6. Shapi ro and Vari an, Information Rules, p. 21.
7. Fri endst er, Wikipedia, ht t p://en.wi ki pedi a.org/w/i ndex.php?t i t l e=Fri endst er&ol di d=559301831 (ac c essed June 27, 2013); Hi st ory of Wi ki pedi a, Wikipedia,
ht t p://en.wi ki pedi a.org/w/i ndex.php?t i t l e=Hi st ory_of _Wi ki pedi a&ol di d=561664870 (ac c essed June 27, 2013); Bl ogger (servi c e), Wikipedia, ht t p://en.wi ki pedi a.org/w/i ndex.php?
t i t l e=Bl ogger_(servi c e)&ol di d=560541931 (ac c essed June 27, 2013).
8. Top Si t es, Alexa: The Web Information Company, ht t p://www.al exa.c om/t opsi t es (ac c essed Sept ember 8, 2012).
9. I BM Wat son Vanqui shes Human Jeopardy Foes, PCWorld, February 16, 2011, ht t p://www.pc worl d.c om/art i c l e/219893/i bm_wat son_vanqui shes_human_j eopardy_f oes.ht ml .
10. I BMs Wat son Memori z ed t he Ent i re Urban Di c t i onary, Then Hi s Overl ords Had t o Del et e I t , The Atlantic, January 10, 2013,
ht t p://www.t heat l ant i c .c om/t ec hnol ogy/arc hi ve/2013/01/i bms-wat son-memori z ed-t he-ent i re-urban-di c t i onary-t hen-hi s-overl ords-had-t o-del et e-i t /267047/.
11. Kevi n J. OBri en, Tal k t o Me, One Mac hi ne Sai d t o t he Ot her, New York Times, Jul y 29, 2012, ht t p://www.nyt i mes.c om/2012/07/30/t ec hnol ogy/t al k-t o-me-one-mac hi ne-sai d-t o-t he-
ot her.ht ml .
12. VNI Forec ast Hi ghl i ght s, Cisco, ht t p://www.c i sc o.c om/web/sol ut i ons/sp/vni /vni _f orec ast _hi ghl i ght s/i ndex.ht ml (ac c essed June 28, 2013).
13. VNI Forec ast Hi ghl i ght s, Cisco, ht t p://www.c i sc o.c om/web/sol ut i ons/sp/vni /vni _f orec ast _hi ghl i ght s/i ndex.ht ml (ac c essed June 28, 2013).
14. I nf ographi c , The Dawn of t he Zet t abyt e Era, Cisco Blogs, ht t p://bl ogs.c i sc o.c om/news/t he-dawn-of -t he-z et t abyt e-era-i nf ographi c / (ac c essed June 28, 2013).
15. Russ Rowl et t , How Many? A Di c t i onary of Uni t s of Measurement , Apri l 16, 2005, ht t p://www.unc .edu/~rowl et t /uni t s/pref i xes.ht ml .
16. Rumi Chunara, Jason R. Andrews, and John S. Brownst ei n, Soc i al and News Medi a Enabl e Est i mat i on of Epi demi ol ogi c al Pat t erns Earl y i n t he 2010 Hai t i an Chol era
Out break, American Journal of Tropical Medicine and Hygiene 86, no. 1 (2012): 3945, doi :10.4269/aj t mh.2012.11-0597.
17. Si t aram Asur and Bernardo A. Huberman, Predicting the Future with Social Media, arXi v e-pri nt , Cornel l Uni versi t y Li brary, Marc h 29, 2010, ht t p://arxi v.org/abs/1003.5699.
18. Jenni f er Howard, Googl e Begi ns t o Sc al e Bac k I t s Sc anni ng of Books From Uni versi t y Li brari es, Chronicle of Higher Education, Marc h 9, 2012,
ht t p://c hroni c l e.c om/art i c l e/Googl e-Begi ns-t o-Sc al e-Bac k/131109/.
19. Cul t uromi c s, ht t p://www.c ul t uromi c s.org/ (ac c essed June 28, 2013).
20. Jean-Bapt i st e Mi c hel et al ., Quant i t at i ve Anal ysi s of Cul t ure Usi ng Mi l l i ons of Di gi t i z ed Books, Science 331, no. 6014 (2011): 17682, doi :10.1126/sc i enc e.1199644.
21. St eve Lohr, For Todays Graduat e, Just One Word: St at i st i c s, New York Times, August 6, 2009, ht t p://www.nyt i mes.c om/2009/08/06/t ec hnol ogy/06st at s.ht ml .
22. Boyan Brodari c , Field Data Capture and Manipulation Using GSC Fieldlog V3.0, U.S. Geol ogi c al Survey Open-Fi l e Report 97-269 (Geol ogi c al Survey of Canada, Oc t ober 7, 1997),
ht t p://pubs.usgs.gov/of /1997/of 97-269/brodari c .ht ml .
2 3 . Selective Availability (Nat i onal Coordi nat i on Of f i c e f or Spac e-Based Posi t i oni ng, Navi gat i on, and Ti mi ng, February 17, 2012),
ht t p://www.gps.gov/syst ems/gps/moderni z at i on/sa/.
Chapt er 5 INNOVATION: DECLINING OR RECOMBINING?
1. Henry Sout hgat e, Many Thoughts of Many Minds: Being a Treasury of Reference Consisting of Selections from the Writings of the Most Celebrated Authors . . . (Gri f f i n, Bohn, and Company, 1862),
p. 451.
2. Paul R. Krugman, The Age of Diminished Expectations: U.S. Economic Policy in the 1990s (Cambri dge, MA: MI T Press, 1997), p. 11.
3. Joseph Al oi s Sc humpet er, Business Cycles: A Theoretical, Historical, and Statistical Analysis of the Capitalist Process (Phi l adel phi a, NJ: Porc upi ne Press, 1982), p. 86.
4. Robert J. Gordon, Is U.S. Economic Growth Over? Faltering Innovation Confronts the Six Headwinds, Worki ng Paper (Nat i onal Bureau of Ec onomi c Researc h, August 2012),
ht t p://www.nber.org/papers/w18315.
5. I bi d.
6. Tyl er Cowen, The Great Stagnation: How America Ate All the Low-hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better (New York: Dut t on, 2011).
7. Gavi n Wri ght , Revi ew of Hel pman (1998), Journal of Economic Literature 38
(Marc h 2000): 16162.
8. Boyan Jovanovi c and Pet er L. Rousseau, General Purpose Tec hnol ogi es, i n Handbook of Economic Growth, ed. Phi l i ppe Aghi on and St even N. Durl auf , vol . 1, Part B
(Amst erdam: El sevi er, 2005), 11811224, ht t p://www.sc i enc edi rec t .c om/sc i enc e/art i c l e/pi i /S157406840501018X.
9. Al exander J. Fi el d, Does Economic History Need GPTs? (Roc hest er, NY: Soc i al Sc i enc e Researc h Net work, 2008), ht t p://papers.ssrn.c om/abst rac t =1275023.
10. Gordon, Is U.S. Economic Growth Over?, p. 11.
11. Cowen, The Great Stagnation, l oc at i on 520.
12. Gordon, Is U.S. Economic Growth Over?, p. 2.
13. Kary Mul l i s, The Pol ymerase Chai n Reac t i on (Nobel Lec t ure, Dec ember 8, 1993), ht t p://www.nobel pri z e.org/nobel _pri z es/c hemi st ry/l aureat es/1993/mul l i s-l ec t ure.ht ml ?
pri nt =1.
14. W. Bri an Art hur, The Nature of Technology: What It Is and How It Evolves (New York: Si mon and Sc hust er, 2009), p. 122.
15. Paul Romer, Ec onomi c Growt h, Library of Economics and Liberty, 2008, ht t p://www.ec onl i b.org/l i brary/Enc /Ec onomi c Growt h.ht ml .
16. I bi d.
17. Assoc i at ed Press, Number of Ac t i ve Users at Fac ebook over t he Years, Yahoo! Finance, ht t p://f i nanc e.yahoo.c om/news/number-ac t i ve-users-f ac ebook-over-years-214600186
f i nanc e.ht ml (ac c essed June 29, 2013).
18. Mart i n L. Wei t z man, Rec ombi nant Growt h, Quarterly Journal of Economics 113, no. 2 (1998): 33160.
19. I bi d., 357.
20. Eri c Raymond, The Cat hedral and t he Baz aar, Sept ember 11, 2000, ht t p://www.c at b.org/esr/wri t i ngs/homest eadi ng/c at hedral -baz aar/.
21. NASA Announc es Wi nners of Spac e Li f e Sc i enc es Open I nnovat i on Compet i t i on, NASA Johnson Space Center Johnson News,
ht t p://www.nasa.gov/c ent ers/j ohnson/news/rel eases/2010/J10-017.ht ml (ac c essed June 29, 2013).
22. St even Domec k, NASA Chal l enge Pavi l i on Resul t s, 2011,
ht t p://www.nasa.gov/pdf /651444mai n_I nnoCent i ve%20NASA%20Chal l enge%20Resul t s%20CoECI _D1_0915%20t o%200955.pdf .
23. Lars Bo Jeppesen and Kari m Lahkani , Margi nal i t y and Probl em Sol vi ng Ef f ec t i veness i n Broadc ast Searc h, Organization Science 20 (2013),
ht t p://dash.harvard.edu/bi t st ream/handl e/1/3351241/Jeppesen_Margi nal i t y.pdf ?sequenc e=2.
24. Predi c t i ng Li abi l i t y f or I nj ury f rom Car Ac c i dent s, Kaggle, 2013, ht t p://www.kaggl e.c om/sol ut i ons/c asest udi es/al l st at e.
25. Carl sberg Brewery Harnesses Desi gn I nnovat i on Usi ng Af f i nnova, Affinnova, ht t p://www.af f i nnova.c om/suc c ess-st ory/c arl sberg-breweri es/ (ac c essed August 6, 2013).
Chapt er 6 ARTIFICIAL AND HUMAN INTELLIGENCE IN THE SECOND MACHINE AGE
1. John Markof f , I srael i St art -Up Gi ves Vi sual l y I mpai red a Way t o Read, New York Times, June 3, 2013, ht t p://www.nyt i mes.c om/2013/06/04/sc i enc e/i srael i -st art -up-gi ves-vi sual l y-
i mpai red-a-way-t o-read.ht ml .
2. Press Announc ement s FDA Approves Fi rst Ret i nal I mpl ant f or Adul t s wi t h Rare Genet i c Eye Di sease, WebContent, February 14, 2013,
ht t p://www.f da.gov/NewsEvent s/Newsroom/PressAnnounc ement s/uc m339824.ht m.
3. Wheel c hai r Makes t he Most of Brai n Cont rol , MIT Technology Review, Sept ember 13, 2010, ht t p://www.t ec hnol ogyrevi ew.c om/news/420756/wheel c hai r-makes-t he-most -of -brai n-
c ont rol /.
4. I BM Wat son Hel ps Fi ght Canc er Wi t h Evi denc e-based Di agnosi s and Treat ment Suggest i ons, Memorial Sloan-Kettering Cancer Center, January 2013, ht t p://www-
03.i bm.c om/i nnovat i on/us/wat son/pdf /MSK_Case_St udy_I MC14794.pdf .
5. Davi d L. Ri mm, C-Pat h: A Wat son-Li ke Vi si t t o t he Pat hol ogy Lab, Science Translational Medicine 3, no. 108 (2011): 108f s8108f s8.
6. Andrew H. Bec k et al ., Syst emat i c Anal ysi s of Breast Canc er Morphol ogy Unc overs St romal Feat ures Assoc i at ed wi t h Survi val , Science Translational Medicine 3, no. 108 (2011):
108ra113108ra113, doi :10.1126/sc i t ransl med.3002564.
7. Jul i an Li nc ol n Si mon, The Ultimate Resource (Pri nc et on, NJ: Pri nc et on Uni versi t y Press, 1981), p. 196.
8. Jul i an Li nc ol n Si mon, The Ultimate Resource 2 (rev. ed., Pri nc et on, NJ: Pri nc et on Uni versi t y Press, 1998), p. xxxvi i i .
9. Worl d Bank, Information and Communications for Development 2012: Maximizing Mobile (Washi ngt on, DC: Worl d Bank Publ i c at i ons, 2012).
10. Robert Jensen, The Di gi t al Provi de: I nf ormat i on (Tec hnol ogy), Market Perf ormanc e, and Wel f are i n t he Sout h I ndi an Fi sheri es Sec t or, Quarterly Journal of Economics 122, no. 3
(2007): 879924, doi :10.1162/qj ec .122.3.879.
11. Eri c a Koc hi , How The Fut ure of Mobi l e Li es i n t he Devel opi ng Worl d, TechCrunch, May 27, 2012, ht t p://t ec hc runc h.c om/2012/05/27/mobi l e-devel opi ng-worl d/.
12. Margueri t e Reardon, Smart phones t o Out sel l Feat ure Phones i n 2013 f or Fi rst Ti me, CNET, Marc h 4, 2013, ht t p://news.c net .c om/8301-1035_3-57572349-94/smart phones-t o-
out sel l -f eat ure-phones-i n-2013-f or-f i rst -t i me/.
13. Jonat han Rosenbl at t , Anal yz i ng Your Dat a on t he AWS Cl oud (wi t h R), R-statistics Blog, Jul y 22, 2013, ht t p://www.r-st at i st i c s.c om/2013/07/anal yz i ng-your-dat a-on-t he-aws-
c l oud-wi t h-r/.
14. Carl Bass, Weve Reac hed I nf i ni t ySo St art Creat i ng, Wired UK, February 22, 2012, ht t p://www.wi red.c o.uk/magaz i ne/arc hi ve/2012/03/i deas-bank/weve-reac hed-i nf i ni t y.
15. Noam Cohen, Survi vi ng Wi t hout Newspapers, New York Times, June 7, 2009, ht t p://www.nyt i mes.c om/2009/06/07/weeki nrevi ew/07c ohen.ht ml .
Chapt er 7 COMPUTING BOUNTY
1. Whi l e t he rat e has f l uc t uat ed wi t h rec essi on, over l onger peri ods i t has been remarkabl y st eady. I n f ac t , i n 1957, t he ec onomi st Ni c hol as Kal dor summari z ed what was known
about ec onomi c growt h at t he t i me i n a c l assi c art i c l e: A Model of Ec onomi c Growt h, Economic Journal 67, no. 268 (1957): 591624. Hi s observat i ons, i nc l udi ng t he rel at i vel y
c onst ant growt h rat es of key vari abl es, suc h as wage growt h and t he amount of c api t al per worker, c ame t o be known as t he Kal dor Fac t s.
2. Bret Swanson,Tec hnol ogy and t he Growt h I mperat i ve, The American, Marc h 26, 2012, ht t p://www.ameri c an.c om/arc hi ve/2012/marc h/t ec hnol ogy-and-t he-growt h-i mperat i ve
(ac c essed Sept 23, 2013).
3. Congressi onal Budget Of f i c e, The 2013 Long-Term Budget Outlook, Sept ember 2013, p. 95. ht t p://www.c bo.gov/si t es/def aul t /f i l es/c bof i l es/at t ac hment s/44521-LTBO2013.pdf .
4. Robert Sol ow, Wed Bet t er Wat c h Out , New York Times Book Review, Jul y 12, 1987.
5. Eri k Brynj ol f sson, The Produc t i vi t y Paradox of I nf ormat i on Tec hnol ogy, Communications of the ACM 36, no. 12 (1993): 6677, doi :10.1145/163298.163309.
6. See, e.g., Eri k Brynj ol f sson and Lori n Hi t t , Paradox Lost : Fi rm Level Evi denc e on t he Ret urns t o I nf ormat i on Syst ems, Management Science 42, no. 4 (1996): 54158. See al so
Brynj ol f sson and Hi t t , Beyond Comput at i on: I nf ormat i on Tec hnol ogy, Organi z at i onal Transf ormat i on and Busi ness Perf ormanc e, Journal of Economic Perspectives 14, no. 4
(2000): 2348, whi c h summari z es muc h of t he l i t erat ure on t hi s quest i on.
7. Dal e W. Jorgenson, Mun S. Ho, and Kevi n J. St i roh, Wi l l t he U.S. Produc t i vi t y Resurgenc e Cont i nue?, Current Issues in Economics and Finance (2004),
ht t p://i deas.repec .org/a/f i p/f ednc i /y2004i dec nv.10no.13.ht ml .
8. C. Syverson, Wi l l Hi st ory Repeat I t sel f ? Comment s on I s t he I nf ormat i on Tec hnol ogy Revol ut i on Over? International Productivity Monitor 25 (2013): 3740.
9. Comput er and Dynamo: The Modern Produc t i vi t y Paradox i n a Not -Too-Di st ant Mi rror, Center for Economic Policy Research, no. 172, St anf ord Uni versi t y, Jul y 1989,
ht t p://www.dkl evi ne.c om/arc hi ve/ref s4115.pdf .
10. For i nst anc e, Mat eri al s Resourc e Pl anni ng (MRP) syst ems, whi c h begat Ent erpri se Resourc e Pl anni ng (ERP), and t hen Suppl y Chai n Management (SCM), Cust omer
Rel at i onshi p Management (CRM), and, more rec ent l y, Busi ness I nt el l i genc e (BI ), Anal yt i c s and many ot her l arge-sc al e syst ems.
11. Todd Traub, Wal -Mart Used Tec hnol ogy t o Bec ome Suppl y Chai n Leader, Arkansas Business, ht t p://www.arkansasbusi ness.c om/art i c l e/85508/wal -mart -used-t ec hnol ogy-t o-
bec ome-suppl y-c hai n-l eader (ac c essed Jul y 20, 2013).
12. Thi s i s c onsi st ent wi t h a si mi l ar anal ysi s by Ol i ner and Si c hel (2002), who wrot e, bot h t he use of i nf ormat i on t ec hnol ogy and t he ef f i c i enc y gai ns assoc i at ed wi t h t he
produc t i on of i nf ormat i on t ec hnol ogy were c ent ral f ac t ors i n [ t he produc t i vi t y] resurgenc e. Ol i ner, Si c hel , and St i roh (2007) al so f ound t hat I T was a key f ac t or i n t hi s
resurgenc e. Dal e Jorgenson, Mun Ho, and Kevi n St i roh, Wi l l t he U.S. Produc t i vi t y Resurgenc e Cont i nue? Federal Reserve Bank of New York: Current I ssues i n Ec onomi c s and
Fi nanc e, Dec ember 2004, ht t p://www.newyorkf ed.org/researc h/c urrent _i ssues/c i 10-13/c i 10-13.ht ml .
Susan Housman, an ec onomi st at t he Upj ohn I nst i t ut e has argued t hat t he enormous produc t i vi t y gai ns of t he c omput er produc i ng i ndust ri es unf ai rl y skew t he
produc t i vi t y of t he manuf ac t uri ng sec t or (ht t p://www.mi nneapol i sf ed.org/publ i c at i ons_papers/pub_di spl ay.c f m?i d=4982). She says, The c omput er i ndust ry i s smal l i t onl y
ac c ount s f or about 12 perc ent of manuf ac t uri ngs val ue added. But i t has an out si z ed ef f ec t on manuf ac t uri ng st at i st i c s. . . . But we f i nd t hat wi t hout t he c omput er i ndust ry,
growt h i n manuf ac t uri ng real val ue added f al l s by t wo-t hi rds and produc t i vi t y growt h f al l s by al most hal f . I t doesnt l ook l i ke a st rong sec t or wi t hout c omput ers. However, we
see t he gl ass as hal f -f ul l , and wel c ome t he c ont ri but i on of c omput ers even as ot her sec t ors l ag.
13. See K. J. St i roh, I nf ormat i on Tec hnol ogy and t he U.S. Produc t i vi t y Revi val : What Do t he I ndust ry Dat a Say?, American Economic Review 92, no. 5 (2002): 155976; and D. W.
Jorgenson, M. S. Ho, and J. D. Samuel s, I nf ormat i on Tec hnol ogy and U.S. Produc t i vi t y Growt h: Evi denc e f rom a Prot ot ype I ndust ry Produc t i on Ac c ount , Journal of Productivity
Analysis, 36, no. 2 (2011): 15975, espec i al l y t abl e 5, whi c h shows t he t ot al f ac t or produc t i vi t y growt h was about t en t i mes hi gher i n I T-usi ng sec t ors t han i n sec t ors t hat di d not
use I T ext ensi vel y.
14. See E. Brynj ol f sson and L. M. Hi t t , Comput i ng Produc t i vi t y: Fi rm-l evel Evi denc e, Review of Economics and Statistics 85, no. 4 (2003): 793808. Si mi l arl y, St anf ord Uni versi t ys
Ni c hol as Bl oom, Harvard Uni versi t ys Raf ael a Sadun, and t he London Sc hool of Ec onomi c s John Van Reenen f ound t hat Ameri c an f i rms were part i c ul arl y adept at
i mpl ement i ng management prac t i c es t hat maxi mi z ed t he val ue of I T, and t hi s l ead t o measurabl e produc t i vi t y i mprovement s, as doc ument ed. See N. Bl oom, R. Sadun, and J.
Van Reenen Ameri c ans Do I T Bet t er: U.S. Mul t i nat i onal s and t he Produc t i vi t y Mi rac l e (No. w13085), Nat i onal Bureau of Ec onomi c Researc h, 2007.
15. Andrew Mc Af ee, Pharmac y Servi c e I mprovement at CVS (A), Harvard Business Review, Case St udy, 2005, ht t p://hbr.org/produc t /pharmac y-servi c e-i mprovement -at -c vs-
a/an/606015-PDF-ENG.
16. Eri k Brynj ol f sson, Lori n Hi t t , and Shi nkyu Yang, I nt angi bl e Asset s: Comput ers and Organi z at i onal Capi t al , Brookings Papers on Economic Activity, 2002,
ht t p://ebusi ness.mi t .edu/researc h/papers/138_Eri k_I nt angi bl e_Asset s.pdf .
17. More det ai l s c an be f ound i n Eri k Brynj ol f sson and Adam Saunders, Wired for Innovation: How Information Technology Is Reshaping the Economy (Cambri dge, MA; London: MI T Press,
2013).
18. Ac c ordi ng t o t he U.S. Bureau of Labor St at i st i c s, produc t i vi t y growt h averaged 2.4 perc ent bet ween 2001 and 2010, 2.3 perc ent bet ween 1991 and 2000, 1.5 perc ent bet ween 1981
and 1990, and 1.7 perc ent bet ween 1971 and 1980.
Chapt er 8 BEYOND GDP
1. Joel Wal df ogel , Copyri ght Prot ec t i on, Tec hnol ogi c al Change, and t he Qual i t y of New Produc t s: Evi denc e f rom Rec orded Musi c Si nc e Napst er, Worki ng Paper (Nat i onal
Bureau of Ec onomi c Researc h, Oc t ober 2011), ht t p://www.nber.org/papers/w17503.
2. Al bert Gore, The Future: Six Drivers of Global Change (New York: Random House, 2013), p. 45.
3. The Engl i sh Wi ki pedi a has over 2.5 bi l l i on words, whi c h i s over f i f t y t i mes as many as Encyclopaedia Britannica. Wi ki pedi a: Si z e Compari sons, Wikipedia, the Free Encyclopedia,
Jul y 4, 2013, ht t p://en.wi ki pedi a.org/w/i ndex.php?t i t l e=Wi ki pedi a:Si z e_c ompari sons&ol di d=562880212 (ac c essed August 17, 2013).
4. Ac t ual l y, 90 perc ent of apps on smart phones are now f ree. Al ex Coc ot as, Ni ne Out Of Ten Apps On Appl es App St ore Are Free, Business Insider, Jul y 19, 2013,
ht t p://www.busi nessi nsi der.c om/ni ne-out -of -10-apps-are-f ree-2013-7#i xz z 2c oj AAOCy (ac c essed August 17, 2013).
5. Canni bal i z at i on of SMS servi c es by f ree over-t he-t op (OTT) servi c e i s est i mat ed t o c ost t el ephone c ompani es over $30 bi l l i on i n 2013, ac c ordi ng t o t he anal yst group Ovum.
Graeme Phi l i pson, Soc i al Messagi ng t o Cost Tel c os $30 Bi l l i on i n Lost SMS Revenues, IT Wire, May 2, 2013, ht t p://www.i t wi re.c om/i t -i ndust ry-news/st rat egy/59676-soc i al -
messagi ng-t o-c ost -t el c os-$30-bi l l i on-i n-l ost -sms-revenues (ac c essed August 17, 2013). I n t heory, t he hardworki ng st at i st i c i ans at t he Bureau of Ec onomi c Anal ysi s t ry t o
ac c ount f or qual i t y-adj ust ed pri c e c hanges. I n prac t i c e, t hi s works f or smal l c hanges but not f or hi ghl y di srupt i ve i nt roduc t i ons of new produc t s and servi c es. What s more,
somet i mes i nc reases i n GDP ref l ec t dec l i nes i n our wel l -bei ng. For i nst anc e, an i nc rease i n c ri me mi ght prompt more spendi ng on burgl ar al arms, pol i c e servi c es, and
pri sons. Every dol l ar spent on t hese ac t i vi t i es i nc reases GDP, but of c ourse t he nat i on woul d be bet t er of f wi t h l ess c ri me and l ess need f or t hi s ki nd of spendi ng.
6. See ht t p://arc hi ve.org/st ream/c at al ogno12400sear#page/370/mode/2up (ac c essed Sept ember 15, 2013).
7. Try t he 1912 Sears c at al og (p. 873), where i t s pri c ed at j ust 72 c ent s; see ht t p://arc hi ve.org/st ream/c at al ogno12400sear#page/872/mode/2up.
8. I t t urns out t hat you get a sl i ght l y di f f erent answer dependi ng on whet her you t ry t o repl i c at e t he happi ness t hat you had i n 1993 usi ng t he 2013 c at al og, or repl i c at e t he
happi ness of t he 2013 c at al og usi ng t he 1993 c at al og. Tec hni c al l y t hi s i s t he di f f erenc e bet ween what ec onomi st s c al l t he Paasc he and Laspeyres Pri c e i ndexes. An al t ernat i ve
i s t o c ont i nual l y adj ust t he basket of goods bei ng c onsi dered, whi c h i s t he approac h used i n so-c al l ed c hai ned pri c e i ndexes. The c hoi c e of pri c e i ndex, whi l e subt l e, c an
l ead t o hundreds of bi l l i ons of dol l ars i n di f f erenc es over t i me, as i n t he c ase of i ndexi ng Soc i al Sec uri t y payment s f or c hanges i n t he c ost of l i vi ng.
9. I n pri nc i pl e, when t he exac t same good i s avai l abl e f or a l ower pri c e, t he nomi nal GDP woul d f al l , but t he real GDP woul d not , wi t h t he di f f erenc e bei ng ref l ec t ed i n t he pri c e
i ndex. I n prac t i c e, c hanges i n c onsumpt i on l i ke t hi s are not pi c ked up i n c hanges i n pri c e i ndexes, and t hus of f i c i al numbers f or bot h nomi nal and real GDP f al l .
10. Eri k Brynj ol f sson, The Cont ri but i on of I nf ormat i on Tec hnol ogy t o Consumer Wel f are, Information Systems Research 7, no. 3 (1996): 281300, doi :10.1287/i sre.7.3.281.
11. Eri k Brynj ol f sson and Joo Hee Oh, The At t ent i on Ec onomy: Measuri ng t he Val ue of Free Goods on t he I nt ernet , i n NBER Conf erenc e on t he Ec onomi c s of Di gi t i z at i on,
St anf ord, 2012, ht t p://c onf erenc e.nber.org/c onf er//2012/EoDs12/Brynj ol f sson_Oh.pdf .
12. Hal Vari an, Ec onomi c Val ue of Googl e, Marc h 29, 2011,
ht t p://c dn.orei l l yst at i c .c om/en/asset s/1/event /57/The%20Ec onomi c %20I mpac t %20of %20Googl e%20Present at i on.pdf (ac c essed August 23, 2013). Yan Chen, Grac e YoungJoo
Jeon, and Yong-Mi Ki m, A Day wi t hout a Searc h Engi ne: An Experi ment al St udy of Onl i ne and Of f l i ne Searc h, ht t p://yanc hen.peopl e.si .umi c h.edu/.
13. Emi l Prot al i nski , 10.5 Bi l l i on Mi nut es Spent on Fac ebook Dai l y, Exc l udi ng Mobi l e, ZDNet, ht t p://www.z dnet .c om/bl og/f ac ebook/10-5-bi l l i on-mi nut es-spent -on-f ac ebook-
dai l y-exc l udi ng-mobi l e/11034 (ac c essed Jul y 23, 2013).
14. Dani el Wel d, I nt ernet Enabl ed Human Comput at i on, Jul y 22, 2013, Sl i de 49, ht t ps://doc s.googl e.c om/vi ewer?
a=v&q=c ac he:HKa8bKFJkRQJ:www.c s.washi ngt on.edu/educ at i on/c ourses/c se454/10au/sl i des/13-
hc omp.ppt +f ac ebook+hours+panama+c anal +ahn&hl =en&gl =us&pi d=bl &src i d=ADGEESj O16Vz -
Mrt g5P2gFvRC82qOoJvsHNVmr56N1XbswDpmqoxb1pUMLoJac AgvNdPRk5OCU0gPCj Lbf _3SI vu4oi qCYAqywUkC18VLBdwi E2SwTQrGJXOxuxZFpu_gy6Jrmz At ri 0&si g=AHI Et bQnKVDd9ybDuAJQJMI MhD8R_oNt 8Q.
15. For a good overvi ew, see Cl i ve Thompson, For Cert ai n Tasks, t he Cort ex St i l l Beat s t he CPU, Wired, June 25, 2007.
16. Nat i onal Sc i enc e Foundat i on, I ndust ry, Tec hnol ogy, and t he Gl obal Market pl ac e, Science and Engineering Indicators 2012, 2012,
ht t p://www.nsf .gov/st at i st i c s/sei nd12/c 6/c 6h.ht m#s2 (ac c essed Jul y 27, 2013).
17. Mi c hael Luc a, Revi ews, Reput at i on, and Revenue: The Case of Yel p.c om, Harvard Busi ness Sc hool Worki ng Paper (Harvard Busi ness Sc hool , 2011),
ht t p://i deas.repec .org/p/hbs/wpaper/12-016.ht ml (ac c essed Sept ember 12, 2013).
18. Ral ph Turvey, Revi ew of : Toward a More Ac c urat e Measure of t he Cost of Li vi ng: Fi nal Report t o t he Senat e Fi nanc e Commi t t ee f rom t he Advi sory Commi t t ee t o St udy t he
Consumer Pri c e I ndex. by Mi c hael J. Boski n; El l en R. Dul l berger; Robert J. Gordon, Economic Journal 107, no. 445 (1997): 191315, doi :10.2307/2957930.
19. Jonat han Rot hwel l et al ., Pat ent i ng Prosperi t y: I nvent i on and Ec onomi c Perf ormanc e i n t he Uni t ed St at es and I t s Met ropol i t an Areas, February 2013,
ht t p://www.brooki ngs.edu/researc h/report s/2013/02/pat ent i ng-prosperi t y-rot hwel l (ac c essed Sept ember 12, 2013).
20. See Carol Corrado, Chuc k Hul t en, and Dan Si c hel , I nt angi bl e Capi t al and Ec onomi c Growt h, NBER Worki ng Paper No. 11948, 2006, ht t p://www.nber.org/papers/w11948.
21. Eri k Brynj ol f sson, Lori n Hi t t , and Shi nkyu Yang, I nt angi bl e Asset s: Comput ers and Organi z at i onal Capi t al , Brooki ngs Papers on Ec onomi c Ac t i vi t y, 2002,
ht t p://ebusi ness.mi t .edu/researc h/papers/138_Eri k_I nt angi bl e_Asset s.pdf (ac c essed August 18, 2013); Eri k Brynj ol f sson and Lori n M. Hi t t , Comput i ng Produc t i vi t y: Fi rm-Level
Evi denc e, SSRN Sc hol arl y Paper (Roc hest er, NY: Soc i al Sc i enc e Researc h Net work, 2003), ht t p://papers.ssrn.c om/abst rac t =290325.
22. Ri c k Burgess, One Mi nut e on t he I nt ernet : 640TB Dat a Transf erred, 100k Tweet s, 204 Mi l l i on E-mai l s Sent , TechSpot, ht t p://www.t ec hspot .c om/news/52011-one-mi nut e-on-t he-
i nt ernet -640t b-dat a-t ransf erred-100k-t weet s-204-mi l l i on-e-mai l s-sent .ht ml (ac c essed Jul y 23, 2013).
23. Fac ebook Newsroom, ht t p://newsroom.f b.c om/c ont ent /def aul t .aspx?NewsAreaI d=21 (ac c essed Jul y 23, 2013).
24. Dal e Jorgenson and Barbara Fraumeni , The Ac c umul at i on of Human and Nonhuman Capi t al , 194884, i n The Measurement of Saving, Investment, and Wealth (Chi c ago, I L:
Uni versi t y of Chi c ago Press f or Nat i onal Bureau of Ec onomi c Researc h, 1989), p. 230, ht t p://www.nber.org/c hapt ers/c 8121.pdf .
25. Adam Smi t h, An Inquiry into the Nature and Causes of the Wealth of Nations, ed. Edwi n Cannan (Li brary of Ec onomi c s and Li bert y, 1904),
ht t p://www.ec onl i b.org/l i brary/Smi t h/smWN20.ht ml (ac c essed Sept ember 23, 2013).
26. Ana Ai z c orbe, Moyl an Carol , and Robbi ns Carol , Toward Bet t er Measurement of I nnovat i on and I nt angi bl es, BEA Bri ef i ng, January 2009,
ht t p://www.bea.gov/sc b/pdf /2009/01%20January/0109_i nnovat i on.pdf .
27. As quot ed i n GDP: One of t he Great I nvent i ons of t he 20t h Cent ury, January 2000 Survey of Current Busi ness,
ht t p://www.bea.gov/sc b/ac c ount _art i c l es/general /0100od/mai nt ext .ht m.
28. Joseph E. St i gl i t z , GDP Fet i shi sm, Project Syndicate, ht t p://www.proj ec t -syndi c at e.org/c omment ary/gdp-f et i shi sm (ac c essed Jul y 23, 2013).
29. Human Devel opment I ndex (HDI ), Human Development Reports, 2012, ht t p://hdr.undp.org/en/st at i st i c s/hdi / (ac c essed Jul y 23, 2013).
30. Pol i c yA Mul t i di mensi onal Approac h, Oxford Poverty & Human Development Initiative, 2013, ht t p://www.ophi .org.uk/pol i c y/mul t i di mensi onal -povert y-i ndex/.
31. DHS Overvi ew, Measure DHS: Demographic and Health Surveys, 2013, ht t p://www.measuredhs.c om/What -We-Do/Survey-Types/DHS.c f m (ac c essed Sept ember 11, 2013).
32. Joseph St i gl i t z , Amart ya Sen, and Jean-Paul Fi t oussi , Report by t he Commi ssi on on t he Measurement of Ec onomi c Perf ormanc e and Soc i al Progress, Council on Foreign
Relations, August 25, 2010, ht t p://www.c f r.org/worl d/report -c ommi ssi on-measurement -ec onomi c -perf ormanc e-soc i al -progress/p22847 (ac c essed August 9, 2013).
33. See t he Soc i al Progress I ndex at ht t p://www.soc i al progressi mperat i ve.org/dat a/spi .
34. See t he Wel l -Bei ng I ndex at ht t p://www.wel l -bei ngi ndex.c om/.
35. See t he MI T Bi l l i on Pri c es Proj ec t at ht t p://bpp.mi t .edu.
36. See, f or exampl e, Hyunyoung Choi and Hal Vari an, Predi c t i ng t he Present wi t h Googl e Trends, Google Inc., Apri l 10, 2009,
ht t p://st at i c .googl euserc ont ent .c om/ext ernal _c ont ent /unt rust ed_dl c p/www.googl e.c om/en/us/googl ebl ogs/pdf s/googl e_predi c t i ng_t he_present .pdf (ac c essed Sept ember 11,
2013); Lynn Wu and Eri k Brynj ol f sson, The Fut ure of Predi c t i on: How Googl e Searc hes Foreshadow Housi ng Pri c es and Sal es, SSRN Sc hol arl y Paper (Roc hest er, NY: Soc i al
Sc i enc e Researc h Net work, 2013), ht t p://papers.ssrn.c om/abst rac t =2022293.
Chapt er 9 THE SPREAD
1. Jonat han Good, How Many Phot os Have Ever Been Taken?, 1000memories, Sept ember 15, 2011, ht t p://bl og.1000memori es.c om/94-number-of -phot os-ever-t aken-di gi t al -and-
anal og-i n-shoebox (ac c essed August 10, 2013).
2. I bi d.
3. Tomi Ahonen, Cel ebrat i ng 30 Years of Mobi l e Phones, Thank You NTT of Japan, Communities Dominate Brands, November 13, 2009, ht t p://c ommuni t i es-
domi nat e.bl ogs.c om/brands/2009/11/c el ebrat i ng-30-years-of -mobi l e-phones-t hank-you-nt t -of -j apan.ht ml (ac c essed Sept ember 11, 2013).
4. Good, How Many Phot os Have Ever Been Taken?
5. Crai g Smi t h, By t he Numbers: 12 I nt erest i ng I nst agram St at s, Digital Marketing Ramblings . . . , June 23, 2013, ht t p://expandedrambl i ngs.c om/i ndex.php/i mport ant -i nst agram-
st at s/ (ac c essed August 10, 2013).
6. Leena Rao, Fac ebook Wi l l Grow Headc ount Qui c kl y I n 2013 To Devel op Money-Maki ng Produc t s, Tot al Expenses Wi l l Jump By 50 Perc ent , TechCrunch, January 30, 2013,
ht t p://t ec hc runc h.c om/2013/01/30/z uc k-f ac ebook-wi l l -grow-headc ount -qui c kl y-i n-2013-t o-devel op-f ut ure-money-maki ng-produc t s/ (ac c essed August 10, 2013).
7. Brad St one and Ashl ee Vanc e, Fac ebooks Next Bi l l i on: A Q&A Wi t h Mark Zuc kerberg, Bloomberg Businessweek, Oc t ober 4, 2012, ht t p://www.busi nessweek.c om/art i c l es/2012-10-
04/f ac ebooks-next -bi l l i on-a-q-and-a-wi t h-mark-z uc kerberg (ac c essed Sept ember 11, 2013).
8. Kodaks Growt h and Dec l i ne: A Ti mel i ne, Rochester Business Journal, January 19, 2012, ht t p://www.rbj .net /pri nt _art i c l e.asp?aI D=190078.
9. Ac c ordi ng t o an anal ysi s of 2006 t ax ret urns i n t he Uni t ed St at es by Emmanuel Saez of Uni versi t y of Cal i f orni a, Berkel ey.
9. Ac c ordi ng t o an anal ysi s of 2006 t ax ret urns i n t he Uni t ed St at es by Emmanuel Saez of Uni versi t y of Cal i f orni a, Berkel ey.
10. I n c ont rast , l i f e expec t anc y f or men and women wi t h more t han a hi gh sc hool educ at i on i nc reased duri ng t hi s peri od.
11. Syl vi a Al l egret t o, The St at e of Worki ng Ameri c as Weal t h, 2011, Bri ef i ng Paper No. 292, Ec onomi c Pol i c y I nst i t ut e, Washi ngt on, D.C.
12. See f or exampl e, Josh Bi vens, I nequal i t y, Exhi bi t A: Wal mart and t he Weal t h of Ameri c an Fami l i es, Working Economics, Ec onomi c Pol i c y I nst i t ut e bl og,
ht t p://www.epi .org/bl og/i nequal i t y-exhi bi t -wal -mart -weal t h-ameri c an/ (ac c essed Sept ember 17, 2013).
13. Lui sa Krol l , I nsi de t he 2013 Forbes 400: Fac t s and Fi gures On Ameri c as Ri c hest , Forbes, Sept ember 16, 2013, ht t p://www.f orbes.c om/si t es/l ui sakrol l /2013/09/16/i nsi de-t he-2013-
f orbes-400-f ac t s-and-f i gures-on-ameri c as-ri c hest / (ac c essed Sept ember 16, 2013).
14. About one-t hi rd of t he di f f erenc e ref l ec t ed t ec hni c al di f f erenc es i n t he way out put pri c es are c al c ul at ed when used i n produc t i vi t y c al c ul at i ons versus t he c onsumer pri c es
used i n c al c ul at i ng i nc ome. I n addi t i on, about 12 perc ent was due t o t he growt h of nonwage benef i t s suc h as heal t h c are. See Lawrenc e Mi shel , The Wedges bet ween
Produc t i vi t y and Medi an Compensat i on Growt h, Ec onomi c Pol i c y I nst i t ut e, Apri l 26, 2012, ht t p://www.epi .org/publ i c at i on/i b330-produc t i vi t y-vs-c ompensat i on/. When l ooki ng
at househol d i nc ome, about 20 perc ent of t he dec l i ne ref l ec t s t he f ac t t hat househol ds are somewhat smal l er t han t hey were t hi rt y years ago.
15. Dat a f rom t he Organi z at i on f or Ec onomi c Cooperat i on and Devel opment (OECD) show t hat i nc ome i nequal i t y i nc reased i n sevent een of t went y-t wo nat i ons i nc l udi ng
Mexi c o, t he Uni t ed St at es, I srael , Uni t ed Ki ngdom, I t al y, Aust ral i a, New Zeal and, Japan, Canada, Germany, Net herl ands, Luxembourg, Fi nl and, Sweden, Cz ec h Republ i c ,
Norway, and Denmark. See An Overvi ew of Growi ng I nc ome I nequal i t i es i n t he OECD Count ri es: Mai n Fi ndi ngs, f rom t he OECD, 2011,
ht t p://www.oec d.org/soc i al /soc /49499779.pdf .
16. See, f or i nst anc e, Robert M. Sol ow, Tec hni c al Change and t he Aggregat e Produc t i on Func t i on, Review of Economics and Statistics 39, no. 3 (1957): 31220, doi :10.2307/1926047.
17. See Davi d H. Aut or, Lawrenc e F. Kat z , and Al an B. Krueger, Comput i ng I nequal i t y: Have Comput ers Changed t he Labor Market ?, Worki ng Paper (Nat i onal Bureau of
Ec onomi c Researc h, Marc h 1997), ht t p://www.nber.org/papers/w5956; F. Levy and R. J. Murnane, The New Division of Labor: How Computers Are Creating the Next Job Market (Pri nc et on, NJ:
Pri nc et on Uni versi t y Press, 2012); D. Aut or, The Pol ari z at i on of Job Opport uni t i es i n t he U.S. Labor Market , The Brooki ngs I nst i t ut i on,
ht t p://www.brooki ngs.edu/researc h/papers/2010/04/j obs-aut or (ac c essed August 10, 2013); and Daron Ac emogl u and Davi d Aut or, Ski l l s, Tasks and Tec hnol ogi es: I mpl i c at i ons
f or Empl oyment and Earni ngs, Worki ng Paper (Nat i onal Bureau of Ec onomi c Researc h, June 2010), ht t p://www.nber.org/papers/w16082.
18. Daron Ac emogl u and Davi d Aut or, Ski l l s, Tasks and Tec hnol ogi es: I mpl i c at i ons f or Empl oyment and Earni ngs, Handbook of Labor Economics 4 (2011): 10431171.
19. See Di gest of Educ at i on St at i st i c s, 1999, Nat i onal Cent er f or Educ at i on St at i st i c s, ht t p://nc es.ed.gov/programs/di gest /d99/d99t 187.asp (ac c essed August 10, 2013).
20. See T. F. Bresnahan, E. Brynj ol f sson, and L. M. Hi t t , I nf ormat i on Tec hnol ogy, Workpl ac e Organi z at i on, and t he Demand f or Ski l l ed Labor: Fi rm-l evel Evi denc e, Quarterly
Journal of Economics, 117, no. 1 (2002): 33976. See al so E. Brynj ol f sson, L. M. Hi t t , and S. Yang, I nt angi bl e Asset s: Comput ers and Organi z at i onal Capi t al , Brooki ngs Papers on
Ec onomi c Ac t i vi t y, 2002, pp. 13798.
21. See Brynj ol f sson, Hi t t , and Yang, I nt angi bl e Asset s: Comput ers and Organi z at i onal Capi t al , and Eri k Brynj ol f sson, Davi d Fi t oussi , and Lori n Hi t t , The I T I c eberg:
Measuri ng t he Tangi bl e and I nt angi bl e Comput i ng Asset s, Worki ng Paper (Oc t ober 2004).
22. E. Brynj ol f sson and L. M. Hi t t , Comput i ng Produc t i vi t y: Fi rm-l evel Evi denc e, Review of Economics and Statistics 8, no. 4 (2003): 793808.
23. Ti mot hy F. Bresnahan, Eri k Brynj ol f sson, and Lori n M. Hi t t , I nf ormat i on Tec hnol ogy, Workpl ac e Organi z at i on, and t he Demand f or Ski l l ed Labor: Fi rm-Level Evi denc e,
Quarterly Journal of Economics 117, no. 1 (2002): 33976, doi :10.1162/003355302753399526.
24. Reengi neeri ng c onsul t ant s l i ke t o t el l t he st ory of how, i n t he sevent eent h c ent ury, c ows roamed around Bost on Common and t he nei ghbori ng areas. Over t i me, t hese c ow
pat hs bec ame wel l -worn, and as shops and homes were c onst ruc t ed, peopl e used t he same pat hs f or t hei r c art s and c arri ages. Event ual l y c obbl est ones were i nst al l ed, and by
t he t went i et h c ent ury most of t he pat hs had been paved over wi t h asphal t , wi t h no more c ows t o be seen. As anyone whos t ri ed t o dri ve i n Bost on c an apprec i at e, havi ng t raf f i c
f l ow desi gned by c ows may not be t he best way t o l ay out a modern c i t y.
25. See Davi d Aut or, The Pol ari z at i on of Job Opport uni t i es i n t he U.S. Labor Market , Brooki ngs I nst i t ut i on (Apri l 2010), ht t p://www.brooki ngs.edu/researc h/papers/2010/04/j obs-
aut or (ac c essed August 10, 2013); and Daron Ac emogl u and Davi d Aut or, Ski l l s, Tasks and Tec hnol ogi es: I mpl i c at i ons f or Empl oyment and Earni ngs, Worki ng Paper
(Nat i onal Bureau of Ec onomi c Researc h, June 2010), ht t p://www.nber.org/papers/w16082.
26. See N. Jai movi c h and H. E. Si u, The Trend i s t he Cyc l e: Job Pol ari z at i on and Jobl ess Rec overi es (No. w18334), Nat i onal Bureau of Ec onomi c Researc h, 2012.
27. As Hans Moravec put i t , i t i s c omparat i vel y easy t o make c omput ers exhi bi t adul t l evel perf ormanc e on i nt el l i genc e t est s or pl ayi ng c hec kers, and di f f i c ul t or i mpossi bl e
t o gi ve t hem t he ski l l s of a one-year-ol d when i t c omes t o perc ept i on and mobi l i t y. Hans Moravec , Mind Children: The Future of Robot and Human Intelligence (Cambri dge, MA: Harvard
Uni versi t y Press, 1988).
28. See c hapt er 6 i n Jonat han Sc haef f er, One Jump Ahead: Computer Perfection at Checkers (New York: Spri nger, 2009), ht t p://publ i c .ebl i b.c om/EBLPubl i c /Publ i c Vi ew.do?
pt i I D=418209.
29. Quot ed i n Dani el Crevi er, AI: The Tumultuous History of the Search for Artificial Intelligence (New York: Basi c Books, 1993), p. 108.
30. Jac k Copel and, A Bri ef Hi st ory of Comput i ng, June 2000, ht t p://www.al ant ur i ng.net /t uri ng_arc hi ve/pages/Ref erenc e%20Art i c l es/Bri ef Hi st of Comp.ht ml .
31. The mobi l e phone c hess game Poc ket Fri t z won t he Copa Merc osur t ournament i n Buenos Ai res, Argent i na, i n 2009. Breakt hrough Perf ormanc e by Poc ket Fri t z 4 i n Buenos
Ai res, Chess News, ht t p://en.c hessbase.c om/Home/TabI d/211/Post I d/4005719/breakt hrough-perf ormanc e-by-poc ket -f ri t z -4-i n-buenos-ai res.aspx (ac c essed August 10, 2013).
32. St eve Musi l , Foxc onn Report edl y I nst al l i ng Robot s t o Repl ac e Workers CNET, November 13, 2012, ht t p://news.c net .c om/8301-1001_3-57549450-92/f oxc onn-report edl y-i nst al l i ng-
robot s-t o-repl ac e-workers/ (ac c essed November 13, 2012).
33. Rod Brooks gave f our dol l ars per hour as t he approxi mat e c ost of Baxt er i n response t o a quest i on at t he Tec honomy 2012 Conf erenc e i n Tuc son, Ari z ona, on November 12,
2012, duri ng a panel di sc ussi on wi t h Andrew Mc Af ee.
34. Karl Marx, Capital: A Critique of Political Economy (New York: Modern Li brary, 1906), pp. 7089.
35. See Dal e Jorgenson, A New Architecture for the U.S. National Accounts (Chi c ago, I L: Uni versi t y of Chi c ago Press, 2006).
36. Susan Fl ec k, John Gl aser, and Shawn Sprague, The Compensat i on-Produc t i vi t y Gap: A Vi sual Essay, Monthly Labor Review (January 2011),
ht t p://www.bl s.gov/opub/ml r/2011/01/art 3f ul l .pdf , p. 57-69.
37. L. Karabarbouni s and B. Nei man, The Gl obal Dec l i ne of t he Labor Share (No. w19136), Nat i onal Bureau of Ec onomi c Researc h, 2013.
38. See ht t p://w3.epi -dat a.org/t emp2011/Bri ef i ngPaper324_FI NAL %283%29.pdf .
39. See ht t p://bl ogs.wsj .c om/ec onomi c s/2011/09/28/i t s-man-vs-mac hi ne-and-man-i s-l osi ng/.
40. See, e.g., Luc i an A. Bebc huk and Yani v Gri nst ei n, The Growt h of Exec ut i ve Pay, Oxford Review of Economic Policy 21 (2005): 283303; Harvard Law and Ec onomi c s Di sc ussi on
Paper No. 510. Avai l abl e at SSRN, ht t p://papers.ssrn.c om/abst rac t =648682 (ac c essed August 10, 2013).
Chapt er 10 THE BIGGEST WINNERS: STARS AND SUPERSTARS
1. NikeYou Dont Win Silver, You Lose Gold, 2012, ht t p://www.yout ube.c om/wat c h?v=ZnLCeXMHz Bs&f eat ure=yout ube_gdat a_pl ayer.
2. I n most c ases, t he wi nner does not l i t eral l y t ake al l of t he market . Perhaps wi nner-t ake-most woul d be a more ac c urat e desc ri pt i on. But f or bet t er or worse, i n t he c ompet i t i on
f or c onc ept -nami ng among ec onomi st s, wi nner-t ake-al l has won al most al l t he market share, so t hat s what we wi l l use.
3. Emmanuel Saez , St ri ki ng I t Ri c her: The Evol ut i on of Top I nc omes i n t he Uni t ed St at es, January 23, 2013, ht t p://el sa.berkel ey.edu/~saez /saez -USt opi nc omes-2011.pdf .
4. Why The Haves Have So Muc h : NPR, NPR.org, Oc t ober 29, 2011, ht t p://www.npr.org/2011/10/29/141816778/why-t he-haves-have-so-muc h (ac c essed August 11, 2013).
5. Al ex Tabarrok, Wi nner Take-Al l Ec onomi c s, Marginal Revolution, Sept ember 13, 2010, ht t p://margi nal revol ut i on.c om/margi nal revol ut i on/2010/09/wi nner-t ake-al l -ec onomi c s.ht ml .
6. St even N. Kapl an and Joshua Rauh, I t s t he Market : The Broad-Based Ri se i n t he Ret urn t o Top Tal ent , Journal of Economic Perspectives 27, no. 3 (2013): 3556.
7. Davi d St rei t f el d, As Boom Lures App Creat ors, Tough Part I s Maki ng a Li vi ng, New York Times, November 17, 2012, ht t p://www.nyt i mes.c om/2012/11/18/busi ness/as-boom-l ures-
app-c reat ors-t ough-part -i s-maki ng-a-l i vi ng.ht ml .
8. Heekyung Ki m and Eri k Brynj ol f sson, CEO Compensat i on and I nf ormat i on Tec hnol ogy, ICIS 2009 Proceedings, January 1, 2009, ht t p://ai sel .ai snet .org/i c i s2009/38.
9. See Xavi er Gabai x and August i n Landi er, Why Has CEO Pay I nc reased so Muc h?, SSRN Sc hol arl y Paper (Roc hest er, NY: Soc i al Sc i enc e Researc h Net work, May 8, 2006),
ht t p://papers.ssrn.c om/abst rac t =901826.
10. Robert H. Frank and Phi l i p J. Cook, The Winner-take-all Society: Why the Few at the Top Get so Much More Than the Rest of Us (New York: Pengui n Books, 1996).
11. Sherwi n Rosen, The Ec onomi c s of Superst ars, American Economic Review 71, no. 5 (1981): 84558, doi :10.2307/1803469.
12. D. Rush, Googl e buys Waz e map app f or $1.3bn, Guardian (UK), June 11, 2013, ht t p://www.t heguardi an.c om/t ec hnol ogy/2013/j un/11/googl e-buys-waz e-maps-bi l l i on.
13. You c an see t he vi deo and dat a on number of vi ewi ngs at ht t ps://www.yout ube.c om/wat c h?v=OYpwAt nywTk.
14. See Roy Jones and Hai m Mendel son on t hi s poi nt : I nf ormat i on Goods vs. I ndust ri al Goods: Cost St ruc t ure and Compet i t i on, Management Science 57, no. 1 (2011): 16476,
doi :10.1287/mnsc .1100.1262.
15. Very l ow margi nal c ost s c an al so make massi ve bundl i ng more prof i t abl e. That s one reason why c abl e TV t ends t o be sol d i n bundl es rat her t han l a c art e, and why
Mi c rosof t Of f i c e was abl e t o wi n market share f rom more f oc used produc t s. Bundl i ng benef i t s bot h superst ars and ni c he provi ders by c reat i ng a more c ompl et e produc t
of f eri ng and i nc reasi ng sal es t o c onsumers wi t h di f f erent opi ni ons about t he val ues of t he bundl ed produc t s. But market s i n whi c h bundl i ng i s c ommon al so t end t o be
wi nner-t ake-al l market s. See Yanni s Bakos and Eri k Brynj ol f sson, Management Science 45, no. 12 (1999); Yanni s Bakos and Eri k Brynj ol f sson, Bundl i ng and Compet i t i on on t he
I nt ernet , Marketing Science 19, no. 1 (2000): 6382, doi :10.1287/mksc .19.1.63.15182.
16. See Mi c hael D. Smi t h and Eri k Brynj ol f sson, Consumer Dec i si on-maki ng at an I nt ernet Shopbot : Brand St i l l Mat t ers, NBER (Dec ember 1, 2001): 54158.
17. Cat heri ne Rampel l , Col l ege Degree Requi red by I nc reasi ng Number of Compani es, New York Times, February 19, 2013, ht t p://www.nyt i mes.c om/2013/02/20/busi ness/c ol l ege-
degree-requi red-by-i nc reasi ng-number-of -c ompani es.ht ml .
18. We di sc uss t hi s more i n our art i c l e I nvest i ng i n t he I T That Makes a Compet i t i ve Di f f erenc e, Jul y 2008, ht t p://hbr.org/2008/07/i nvest i ng-i n-t he-i t -t hat -makes-a-c ompet i t i ve-
di f f erenc e.
19. Al f red Marshal l , Principles of Economics, 8t h edi t i on, New York: Mac mi l l an, 1947, p. 685.
20. See, e.g., ht t p://www.koomey.c om/books.ht ml or ht t p://www.j ohnt reed.c om/FCM.ht ml .
21. We di sc uss t hi s i n more det ai l i n a Harvard Business Review art i c l e (A. Mc Af ee and E. Brynj ol f sson, I nvest i ng i n t he I T That Makes a Compet i t i ve Di f f erenc e: St udi es of
Corporat e Perf ormanc e Reveal a Growi ng Li nk bet ween Cert ai n Ki nds of Tec hnol ogy I nvest ment s and I nt ensi f yi ng Compet i t i veness, Harvard Business Review [ 2006] : 98103) and
a researc h paper (E. Brynj ol f sson, A. Mc Af ee, M. Sorel l , and F. Zhu, Sc al e wi t hout Mass: Busi ness Proc ess Repl i c at i on and I ndust ry Dynami c s, MI T Cent er f or Di gi t al
Busi ness Worki ng Paper, 2008).
22. More f ormal l y, power l aws are c harac t eri z ed by t he f ormul a f(x) = axk. For i nst anc e, t he sal es of a book at Amaz on, f(x) are a f unc t i on of t he rank of t he book, x, rai sed t o t he
power k. A ni c e c harac t eri st i c of power l aws i s t hat t hey f orm a st rai ght l i ne when graphed on a l og-l og sc al e, wi t h t he sl ope of t he l i ne gi ven by t he exponent , k.
23. Eri k Brynj ol f sson, Yu Jef f rey Hu, and Mi c hael D. Smi t h, Consumer Surpl us i n t he Di gi t al Ec onomy: Est i mat i ng t he Val ue of I nc reased Produc t Vari et y at Onl i ne
Booksel l ers, SSRN Sc hol arl y Paper (Roc hest er, NY: Soc i al Sc i enc e Researc h Net work, June 1, 2003), ht t p://papers.ssrn.c om/abst rac t =400940.
24. I n ot her words, so-c al l ed bl ac k swan event s are more c ommon i f t he underl yi ng di st ri but i on i s a power l aw t han i f i t s a normal di st ri but i on.
25. Tec hni c al l y, t he bul k of t he i nc omes are best desc ri bed by a l og-normal di st ri but i on, a vari ant of t he t radi t i onal normal di st ri but i on, whi l e t he best f i t f or t he t op i nc omes
i s a power l aw.
26. Present at i on by Ki m Tai pal e at t he 21st Annual Aspen I nst i t ut e Roundt abl e on I nf ormat i on Tec hnol ogy, August 1, 2013.
27. I f youre a nerd, you may know t hat i n some c ases t he mean of t he power-l aw di st ri but i on i s ac t ual l y i nf i ni t e. Spec i f i c al l y, when t he exponent i n t he di st ri but i on ( k i n t he
above equat i on) i s l ess t han t wo, t he mean of t he di st ri but i on i s i nf i ni t e.
28. See Dol l ars and Sense Part Two: MLB Pl ayer Sal ary Anal ysi s, Purple Row, ht t p://www.purpl erow.c om/2009/4/23/848870/dol l ars-and-sense-part -t wo-ml b (ac c essed August 10,
2013). The di spari t y woul d l i kel y be even great er i f one c onsi dered t he endorsement deal s t hat t he superst ars get .
Chapt er 11 IMPLICATIONS OF THE BOUNTY AND THE SPREAD
1. The Worl ds Bi l l i onai res: 25t h Anni versary Ti mel i ne, Forbes, 2012, ht t p://www.f orbes.c om/spec i al -report /2012/bi l l i onai res-25t h-anni versary-t i mel i ne.ht ml (ac c essed August 7,
2013); I nc ome, Povert y and Heal t h I nsuranc e Coverage i n t he Uni t ed St at es: 2011, U.S. Census Bureau Publ i c I nf ormat i on Of f i c e, Sept ember 12, 2012,
ht t p://www.c ensus.gov/newsroom/rel eases/arc hi ves/i nc ome_weal t h/c b12-172.ht ml (ac c essed August 9, 2013).
2. N. G. Manki w, Def endi ng t he One Perc ent , Journal of Economic Perspectives, June 8, 2013, ht t p://sc hol ar.harvard.edu/f i l es/manki w/f i l es/def endi ng_t he_one_perc ent _0.pdf .
3. Fel i x Sal mon, Krugman vs. Summers: The Debat e, Reuters BlogsFelix Salmon, November 15, 2011, ht t p://bl ogs.reut ers.c om/f el i x-sal mon/2011/11/15/krugman-vs-summers-t he-
debat e/ (ac c essed August 10, 2013).
4. Donal d J. Boudreaux and Mark J. Perry, The Myt h of a St agnant Mi ddl e Cl ass, Wall Street Journal, January 23, 2013,
ht t p://onl i ne.wsj .c om/art i c l e/SB10001424127887323468604578249723138161566.ht ml .
5. Mark J. Perry, Thanks t o Tec hnol ogy, Ameri c ans Spend Dramat i c al l y Less on Food Than They Di d 3 Dec ades Ago, AEIdeas, Apri l 7, 2013, ht t p://www.aei -
i deas.org/2013/04/t ec hnol ogy-i nnovat i on-and-aut omat i on-have-l owered-t he-c ost -of -our-f ood-and-i mproved-t he-l i ves-of -al l -ameri c ans/.
6. Sc ot t Wi nshi p, Myt hs of I nequal i t y and St agnat i on, The Brooki ngs I nst i t ut i on, Marc h 27, 2013, ht t p://www.brooki ngs.edu/researc h/opi ni ons/2013/03/27-i nequal i t y-myt hs-
wi nshi p (ac c essed August 10, 2013).
7. Jared Bernst ei n, Three Quest i ons About Consumer Spendi ng and t he Mi ddl e Cl ass, Bureau of Labor St at i st i c s, June 22, 2010, ht t p://www.bl s.gov/c ex/duf 2010bernst ei n1.pdf .
8. Annamari a Lusardi , Dani el J. Sc hnei der, and Pet er Tuf ano, Fi nanc i al l y Fragi l e Househol ds: Evi denc e and I mpl i c at i ons, Worki ng Paper (Nat i onal Bureau of Ec onomi c
Researc h, May 2011), ht t p://www.nber.org/papers/w17072.
9. Jason Mat t hew DeBac ker et al ., Ri si ng I nequal i t y: Transi t ory or Permanent ? New Evi denc e f rom a Panel of U.S. Tax Ret urns 1987-2006, SSRN Sc hol arl y Paper (Roc hest er,
NY: Soc i al Sc i enc e Researc h Net work, January 2, 2012), ht t p://papers.ssrn.c om/abst rac t =1747849.
10. Robert D. Put nam, Crumbl i ng Ameri c an Dreams, Opinionator, New York Times bl og, August 3, 2013, ht t p://opi ni onat or.bl ogs.nyt i mes.c om/2013/08/03/c rumbl i ng-ameri c an-
dreams/.
11. Repai ri ng t he Rungs on t he Ladder, The Economist, February 9, 2013, ht t p://www.ec onomi st .c om/news/l eaders/21571417-how-prevent -vi rt uous-meri t oc rac y-ent renc hi ng-i t sel f -
t op-repai ri ng-rungs (ac c essed August 10, 2013).
12. Daron Ac emogl u and James A. Robi nson, The Probl em wi t h U.S. I nequal i t y, Huffington Post, Marc h 11, 2012, ht t p://www.huf f i ngt onpost .c om/daron-ac emogl u/us-
i nequal i t y_b_1338118.ht ml (ac c essed August 13, 2013).
13. John Bat es Cl ark, Essentials of Economic Theory as Applied to Modern Problem of Industry and Public Policy, (London: Mac mi l l an, 1907), p. 45.
14. W. M. Lei serson, The Problem of Unemployment Today 31, Political Science Quarterly (1916), ht t p://arc hi ve.org/det ai l s/j st or-2141701, p. 12.
15. John Maynard Keynes, Essays in Persuasion (New York: W. W. Nort on & Company, 1963), p. 358.
16. Li nus Paul i ng, The Triple Revolution (Sant a Barbara, CA: Ad Hoc Commi t t ee on t he Tri pl e Revol ut i on, 1964),
ht t p://osul i brary.oregonst at e.edu/spec i al c ol l ec t i ons/c ol l /paul i ng/peac e/papers/1964p.7-02.ht ml .
17. Wassi l y Leont i ef , Nat i onal Perspec t i ve: The Def i ni t i on of Probl ems and Opport uni t i es, The Long-Term Impact of Technology on Employment and Unemployment (Nat i onal Ac ademy
of Engeneeri ng, 1983): 37.
18. Ri c hard M. Cyert and Davi d C. Mowery, eds., Technology and Employment: Innovation and Growth in the U.S. Economy (Nat i onal Ac ademi es Press, 1987),
ht t p://www.nap.edu/c at al og.php?rec ord_i d=1004.
19. Raghuram Raj an, Paol o Vol pi n, and Lui gi Zi ngal es, The Ec l i pse of t he U.S. Ti re I ndust ry, Worki ng Paper (Cent er f or Ec onomi c St udi es, U.S. Census Bureau, 1997),
ht t p://i deas.repec .org/p/c en/wpaper/97-13.ht ml .
20. Wi l l i am D. Nordhaus, Do Real Out put and Real Wage Measures Capt ure Real i t y? The Hi st ory of Li ght i ng Suggest s Not , Cowl es Foundat i on Di sc ussi on Paper (Cowl es
Foundat i on f or Researc h i n Ec onomi c s, Yal e Uni versi t y, 1994), ht t p://i deas.repec .org/p/c wl /c wl dpp/1078.ht ml .
21. I n one paper, Eri k est i mat ed t hat t he el ast i c i t y of demand f or c omput er hardware was about 1.1, i mpl yi ng t hat eac h 1 perc ent i nc rease i n pri c e l ed t o a 1.1 perc ent i nc rease
i n demand, so as a resul t t ot al spendi ng i nc reased as t ec hnol ogy made c omput ers more ef f i c i ent . See Eri k Brynj ol f sson, The Cont ri but i on of I nf ormat i on Tec hnol ogy t o
Consumer Wel f are, Information Systems Research 7, no. 3 (1996): 281300.
22. Thi s i s an exampl e of Says Law, whi c h st at es t hat demand and suppl y are al ways kept i n bal anc e.
23. John Maynard Keynes, Ec onomi c Possi bi l i t i es f or Our Grandc hi l dren, Keynes on Possibilities, 1930, ht t p://www.ec on.yal e.edu/smi t h/ec on116a/keynes1.pdf .
24. Ti m Krei der, The Busy Trap, Opinionator, June 30, 2012, ht t p://opi ni onat or.bl ogs.nyt i mes.c om/2012/06/30/t he-busy-t rap/.
25. Nobel Pri z e wi nner Joe St i gl i t z has argued t hat rapi d aut omat i on of agri c ul t ure, suc h as vi a gasol i ne-engi ne t rac t ors, i s part of t he expl anat i on f or t he hi gh
unempl oyment of t he 1930s. See Joseph E. St i gl i t z , The Price of Inequality: How Todays Divided Society Endangers Our Future (New York: W. W. Nort on & Company, 2013).
26. Wassi l y Leont i ef , Tec hnol ogi c al Advanc e, Ec onomi c Growt h, and t he Di st ri but i on of I nc ome, Population and Development Review 9, no. 3 (Sept ember 1, 1983), 40310.
27. Mi c hael Spenc e, The Next Convergence: The Future of Economic Growth in a Multispeed World (New York: Mac mi l l an, 2011).
28. D. Aut or, D. Dorn, and G. H. Hanson, The Chi na Syndrome: Loc al Labor Market Ef f ec t s of I mport Compet i t i on i n t he Uni t ed St at es, American Economic Review (f ort hc omi ng,
Dec ember 2013).
29. J. Bani st er and G. Cook, Chi nas Empl oyment and Compensat i on Cost s i n Manuf ac t uri ng t hrough 2008, Monthly Labor Review 134, no. 3 (2011): 3952. A c l oser l ook at t he
Chi nese st at i st i c s suggest t hat t he c l assi f i c at i on met hods have c hanged somewhat over t i me, so t he exac t c hanges i n empl oyment may be somewhat di f f erent t han report ed,
but t he general t rend seems c l ear.
Chapt er 12 LEARNING TO RACE WITH MACHINES
1. Comput ers Are Usel ess. They Can Onl y Gi ve You Answers, Quote Investigator, November 5, 2011, ht t p://quot ei nvest i gat or.c om/2011/11/05/c omput ers-usel ess/.
2. D. T. Max, The Pri nc es Gambi t , The New Yorker, Marc h 21, 2011, ht t p://www.newyorker.c om/report i ng/2011/03/21/110321f a_f ac t _max.
3. Garry Kasparov, The Chess Mast er and t he Comput er, New York Review of Books, February 11, 2010, ht t p://www.nybooks.c om/art i c l es/arc hi ves/2010/f eb/11/t he-c hess-mast er-and-
t he-c omput er/.
4. Chess Quot es, ht t p://www.c hessquot es.c om/pl ayer-karpov (ac c essed Sept ember 12, 2013).
5. Kasparov, The Chess Mast er and t he Comput er.
6. Evan Esar, 20,000 Quips & Quotes (Barnes and Nobl e, 1995), p. 654.
7. Kevi n Kel l y, Bet t er t han Human: Why Robot s Wi l l and Must Take Our Jobs, Wired, Dec ember 24, 2012.
8. Zaras approac h i s desc ri bed i n more det ai l i n a Harvard Busi ness Case St udy by Andy and t wo c ol l eagues: Andrew Mc Af ee, Vi nc ent Dessai n, and Anders Sj man, Zara: I T
f or Fast Fashi on, Harvard Busi ness Sc hool , 2007 (Case number 604081-PDF-ENG).
9. John Ti mbs, The Mi rror of Li t erat ure, Amusement , and I nst ruc t i on (London: John Li mbi rd, 1825), p. 75.
10. Sugat a Mi t ra, Bui l d a Sc hool i n t he Cl oud, TED, vi deo on TED.c om, February 2013, ht t p://www.t ed.c om/t al ks/sugat a_mi t ra_bui l d_a_sc hool _i n_t he_c l oud.ht ml .
11. I bi d.
12. Pet er Si ms, The Mont essori Maf i a, Wall Street Journal, Apri l 5, 2011, ht t p://bl ogs.wsj .c om/i deas-market /2011/04/05/t he-mont essori -maf i a/.
13. Ri c hard Arum and Josi pa Roksa, Academically Adrift: Limited Learning on College Campuses (Chi c ago, I L: Uni versi t y of Chi c ago Press, 2010); Ri c hard Arum, Josi pa Roksa, and
Est her Cho, I mprovi ng Undergraduat e Learni ng: Fi ndi ngs and Pol i c y Rec ommendat i ons f rom t he SSRC-CLA Longi t udi nal Proj ec t , Soc i al Sc i enc e Researc h Counc i l , 2008,
ht t p://www.ssrc .org/publ i c at i ons/vi ew/D06178BE-3823-E011-ADEF-001CC477EC84/.
14. Ernest T. Pasc arel l a and Pat ri c k T. Terenz i ni , How College Affects Students: A Third Decade of Research, 1st ed. (San Franc i sc o: Jossey-Bass, 2005), 602.
15. Mi c hael Noer, One Man, One Comput er, 10 Mi l l i on St udent s: How Khan Ac ademy I s Rei nvent i ng Educ at i on, Forbes, November 19, 2012,
ht t p://www.f orbes.c om/si t es/mi c hael noer/2012/11/02/one-man-one-c omput er-10-mi l l i on-st udent s-how-khan-ac ademy-i s-rei nvent i ng-educ at i on/.
16. Wi l l i am J. Bennet , I s Sebast i an Thruns Udac i t y t he Fut ure of Hi gher Educ at i on? CNN, Jul y 5, 2012, ht t p://www.c nn.c om/2012/07/05/opi ni on/bennet t -udac i t y-
educ at i on/i ndex.ht ml .
17. Davi d Aut or, The Pol ari z at i on of Job Opport uni t i es i n t he U.S. Labor Market : I mpl i c at i ons f or Empl oyment and Earni ngs, Brooki ngs I nst i t ut i on, Apri l 2010,
ht t p://www.brooki ngs.edu/researc h/papers/2010/04/j obs-aut or.
18. Cat heri ne Rampel l , Li f e I s O.K., I f You Went t o Col l ege, Economix bl og, New York Times, May 3, 2013, ht t p://ec onomi x.bl ogs.nyt i mes.c om/2013/05/03/l i f e-i s-o-k-i f -you-went -t o-
c ol l ege/.
19. Cat heri ne Rampel l , Col l ege Degree Requi red by I nc reasi ng Number of Compani es, New York Times, February 19, 2013, ht t p://www.nyt i mes.c om/2013/02/20/busi ness/c ol l ege-
degree-requi red-by-i nc reasi ng-number-of -c ompani es.ht ml .
20. Met a Brown et al ., Gradi ng St udent Loans, Liberty Street Economics bl og, Federal Reserve Bank of New York, Marc h 5, 2012,
ht t p://l i bert yst reet ec onomi c s.newyorkf ed.org/2012/03/gradi ng-st udent -l oans.ht ml ?
ut m_sourc e=f eedburner&ut m_medi um=f eed&ut m_c ampai gn=Feed:+Li bert ySt reet Ec onomi c s+(Li bert y+St reet +Ec onomi c s).
21. Ti m Hornyak, Towel -f ol di ng Robot Wont Do t he Di shes, CNET, Marc h 31, 2010, ht t p://news.c net .c om/8301-17938_105-10471898-1.ht ml .
22. Nat e Si l ver, The Signal and the Noise: Why So Many Predictions FailBut Some Dont, 1st ed. (New York: Pengui n, 2012).
Chapt er 13 POLICY RECOMMENDATIONS
1. Empl oyment Level , Economic ResearchFederal Reserve Bank of St. Louis (U.S. Depart ment of Labor, Bureau of Labor St at i st i c s, August 2, 2013),
ht t p://researc h.st l oui sf ed.org/f red2/seri es/LNU02000000.
2. Cl audi a Gol di n and Lawrenc e F. Kat z , The Race Between Education and Technology (Cambri dge, MA: Bel knap Press of Harvard Uni versi t y Press, 2010).
3. PI SA 2009 Key Fi ndi ngs, OECD, ht t p://www.oec d.org/pi sa/pi saproduc t s/pi sa2009/pi sa2009keyf i ndi ngs.ht m (ac c essed August 12, 2013).
4. Mart i n West , Gl obal Lessons f or I mprovi ng U.S. Educ at i on, Sept ember 29, 2011, ht t p://www.i ssues.org/28.3/west .ht ml .
5. Marc el l a Bombardi eri , Prof essors Take Lessons f rom Onl i ne Teac hi ng, Boston Globe, June 9, 2013, ht t p://www.bost ongl obe.c om/met ro/2013/06/08/prof essors-t ake-l essons-f rom-
onl i ne-t eac hi ng/K5XTNA8N1c VGLQ8JJW5PCL/st ory.ht ml (ac c essed August 19, 2013).
6. Raj Chet t y, John N. Fri edman, and Jonah E. Roc kof f , The Long-Term I mpac t s of Teac hers: Teac her Val ue-Added and St udent Out c omes i n Adul t hood, NBER Worki ng Paper
(Nat i onal Bureau of Ec onomi c Researc h, 2011), ht t p://i deas.repec .org/p/nbr/nberwo/17699.ht ml .
7. Ray Fi sman, Do Chart er Sc hool s Work?, Slate, May 22, 2013,
ht t p://www.sl at e.c om/art i c l es/news_and_pol i t i c s/t he_di smal _sc i enc e/2013/05/do_c hart er_sc hool s_work_a_new_st udy_of _bost on_sc hool s_says_yes.si ngl e.ht ml (ac c essed
August 12, 2013).
8. Ol ga Khaz an, Heres Why Ot her Count ri es Beat t he U.S. i n Readi ng and Mat h, Washington Post, Dec ember 11, 2012,
ht t p://www.washi ngt onpost .c om/bl ogs/worl dvi ews/wp/2012/12/11/heres-why-ot her-c ount ri es-beat -t he-u-s-i n-readi ng-and-mat h/ (ac c essed August 12, 2013).
9. See, f or i nst anc e, Mi l es Ki mbal l s prai se of t he Knowl edge i s Power Program: Conf essi ons of a Suppl y-Si de Li beral , Jul y 23, 2012,
ht t p://bl og.suppl ysi del i beral .c om/post /27813547755/magi c -i ngredi ent -1-more-k-12-sc hool (ac c essed August 12, 2013).
10. B. Hol mst rom and P. Mi l grom, Mul t i t ask Pri nc i pal -Agent Anal yses: I nc ent i ve Cont rac t s, Asset Ownershi p, and Job Desi gn, Journal of Law, Economics & Organization 7, no. 24
(1991).
11. Joseph Al oi s Sc humpet er, The Theory of Economic Development: An Inquiry Into Profits, Capital, Credit, Interest, and the Business Cycle (Pi sc at away, NJ: Transac t i on Publ i shers, 1934).
12. I bi d., p. 66.
13. Press Rel ease, U.S. Job Growt h Dri ven Ent i rel y by St art ups, Ac c ordi ng t o Kauf f man Foundat i on St udy, Reut ers, Jul y 7, 2010,
ht t p://www.reut ers.c om/art i c l e/2010/07/07/i dUS165927+07-Jul -2010+MW20100707.
14. John Hal t i wanger et al ., Busi ness Dynami c s St at i st i c s Bri ef i ng: Job Creat i on, Worker Churni ng, and Wages at Young Busi nesses, SSRN Sc hol arl y Paper (Roc hest er, NY:
Soc i al Sc i enc e Researc h Net work, November 1, 2012), ht t p://papers.ssrn.c om/abst rac t =2184328.
15. Kauf f man I ndex of Ent repreneuri al Ac t i vi t y, Ewi ng Mari on Kauf f man Foundat i on, 2012, ht t p://www.kauf f man.org/researc h-and-pol i c y/kauf f man-i ndex-of -ent repreneuri al -
ac t i vi t y.aspx.
16. Vi vek Wadhwa, AnnaLee Saxeni an, and Franc i s Dani el Si c i l i ano, Then and Now: Ameri c as New I mmi grant Ent repreneurs, Part 7, St anf ord Publ i c Law Worki ng Paper No.
2159875; Roc k Cent er f or Corporat e Governanc e at St anf ord Uni versi t y Worki ng Paper No. 127, SSRN Sc hol arl y Paper (Roc hest er, NY: Soc i al Sc i enc e Researc h Net work,
Oc t ober 1, 2012), ht t p://papers.ssrn.c om/abst rac t =2159875.
17. Leora Kl apper, Luc Laeven, and Raghuram Raj an, Ent ry Regul at i on as a Barri er t o Ent repreneurshi p, Journal of Financial Economics 82, no. 3 (2006): 591629,
doi :10.1016/j .j f i nec o.2005.09.006.
18. Researc h and Devel opment : Essent i al Foundat i on f or U.S. Compet i t i veness i n a Gl obal Ec onomy, i n A Companion to Science and Engineering Indicators 2008 (Nat i onal Sc i enc e
Board, January 2008), ht t p://www.nsf .gov/st at i st i c s/nsb0803/st art .ht m.
19. I n her new book, The Entrepreneurial State, Mari ana Maz z uc at o ni c el y i l l ust rat es t hi s poi nt , not i ng t hat eac h of t he c ore t ec hnol ogi es i n Appl es breakt hrough i Phone were
based on government -f unded researc h, i nc l udi ng c el l ul ar t el ephony, t he I nt ernet , GPS, mi c roc hi ps, c apac i t i ve sensors, t he t ouc hsc reen, and even Si ri . See Mari ana
Maz z uc at o, The Entrepreneurial State: Debunking Public vs. Private Sector Myths (New York: Ant hem Press, 2013).
20. I f t hat f ac t made you worry t hat you may owe bac k royal t i es f rom your publ i c perf ormanc e at t hat rest aurant l ast week, you may be i n l uc k. The t wo mi l l i on dol l ars a year i n
l i c ensi ng f ees c ol l ec t ed by t he owner of t he Happy Bi rt hday c opyri ght i s bei ng c hal l enged and may be overt urned. See Jac ob Gol dst ei n, Thi s One Page Coul d End The
Copyri ght War Over Happy Bi rt hday, NPR, June 17, 2013, ht t p://www.npr.org/bl ogs/money/2013/06/17/192676099/t hi s-one-page-c oul d-end-t he-c opyri ght -war-over-happy-bi rt hday.
21. Thi s l i st i s drawn f rom Tom Kal i l s Grand Chal l enges present at i on. A c opy i s avai l abl e at ht t p://www2.i t i f .org/2012-grand-c hal l enges-kal i l .pdf (ac c essed August 9, 2013). See
al so I mpl ement at i on of Federal Pri z e Aut hori t y: Progress Report by t he U.S. Of f i c e of Sc i enc e and Tec hnol ogy Pol i c y, Marc h 2012, avai l abl e at
ht t p://www.whi t ehouse.gov/si t es/def aul t /f i l es/mi c rosi t es/ost p/c ompet es_report _on_pri z es_f i nal .pdf (ac c essed Sept ember 18, 2013).
22. For a det ai l ed l i st , see t he appendi x of Mc Ki nsey and Company, And t he Wi nner I s . . . Researc h Report , 2009, ht t p://mc ki nseyonsoc i et y.c om/downl oads/report s/Soc i al -
I nnovat i on/And_t he_wi nner_i s.pdf (ac c essed Sept ember 18, 2013).
23. 2013 Report Card f or Ameri c as I nf rast ruc t ure, ASCE, 2013, ht t p://www.i nf rast ruc t urereport c ard.org/a/#p/home (ac c essed August 12, 2013).
24. See Mat t hew Ygl esi as, The Col l apse of Publ i c I nvest ment , Moneybox bl og, Slate, May 7, 2013,
ht t p://www.sl at e.c om/bl ogs/moneybox/2013/05/07/publ i c _sec t or_i nvest ment _c ol l apse.ht ml (ac c essed August 12, 2013); and t he underl yi ng dat a at Real St at e & Loc al
Consumpt i on Expendi t ures & Gross I nvest ment , 3 Dec i mal , Economic ResearchFederal Reserve Bank of St. Louis (U.S. Depart ment of Commerc e: Bureau of Ec onomi c Anal ysi s,
Jul y 31, 2013), ht t p://researc h.st l oui sf ed.org/f red2/seri es/SLCEC96.
25. Si emens CEO on US Ec onomi c Out l ook, CNBC, Marc h 14, 2013, ht t p://vi deo.c nbc .c om/gal l ery/?vi deo=3000154454 (ac c essed August 12, 2013).
26. John Maynard Keynes, The General Theory of Employment, Interest, and Money, Oc t ober 21, 2012, ht t p://ebooks.adel ai de.edu.au/k/keynes/j ohn_maynard/k44g/.
27. Pet er B. Di xon and Maureen T. Ri mmer, Rest ri c t i on or Legal i z at i on? Measuri ng t he Ec onomi c Benef i t s of I mmi grat i on Ref orm, Cat o I nst i t ut e, August 13, 2009,
ht t p://www.c at o.org/publ i c at i ons/t rade-pol i c y-anal ysi s/rest ri c t i on-or-l egal i z at i on-measuri ng-ec onomi c -benef i t s-i mmi grat i on-ref orm (ac c essed Dec ember 14, 2012); Robert
Lync h and Pat ri c k Oakf ord, The Ec onomi c Ef f ec t s of Grant i ng Legal St at us and Ci t i z enshi p t o Undoc ument ed I mmi grant s, Cent er f or Ameri c an Progress, Marc h 20, 2013,
ht t p://www.ameri c anprogress.org/i ssues/i mmi grat i on/report /2013/03/20/57351/t he-ec onomi c -ef f ec t s-of -grant i ng-l egal -st at us-and-c i t i z enshi p-t o-undoc ument ed-i mmi grant s/
(ac c essed August 12, 2013).
28. Davi d Card, The I mpac t of t he Mari el Boat l i f t on t he Mi ami Labor Market , Worki ng Paper (Nat i onal Bureau of Ec onomi c Researc h, August 1989),
ht t p://www.nber.org/papers/w3069.
29. Rac hel M. Fri edberg, The I mpac t of Mass Mi grat i on on t he I srael i Labor Market , Quarterly Journal of Economics 116, no. 4 (2001): 13731408, doi :10.1162/003355301753265606.
30. Amy Sherman, Jeb Bush Says I l l egal I mmi grat i on I s Net Zero, Miami Herald, Sept ember 3, 2012, ht t p://www.mi ami heral d.c om/2012/09/01/2980208/j eb-bush-says-i l l egal -
i mmi grat i on.ht ml .
31. Gordon F. De Jong et al ., The Geography of I mmi grant Ski l l s: Educ at i onal Prof i l es of Met ropol i t an Areas, Brooki ngs I nst i t ut i on, June 9, 2011,
ht t p://www.brooki ngs.edu/researc h/papers/2011/06/i mmi grant s-si nger.
32. St at e and Count y Qui c kFac t s, Uni t ed St at es Census Bureau, June 27, 2013, ht t p://qui c kf ac t s.c ensus.gov/qf d/st at es/00000.ht ml ; Vi vek Wadhwa et al ., Ameri c as New
I mmi grant Ent repreneurs: Part I , SSRN Sc hol arl y Paper, Duke Sc i enc e, Tec hnol ogy & I nnovat i on Paper No. 23 (Roc hest er, NY: Soc i al Sc i enc e Researc h Net work, January 4,
2007), ht t p://papers.ssrn.c om/abst rac t =990152.
33. The New Ameri c an Fort une 500, Part nershi p f or a New Ameri c an Ec onomy, June 2011, ht t p://www.renewourec onomy.org/si t es/al l /t hemes/pnae/i mg/new-ameri c an-f ort une-500-
j une-2011.pdf .
34. Mi c hael Kremer, The O-Ri ng Theory of Ec onomi c Devel opment , Quarterly Journal of Economics 108, no. 3 (1993): 55175, doi :10.2307/2118400.
35. Vi vek Wadhwa et al ., Ameri c as New I mmi grant Ent repreneurs: Part I , SSRN Sc hol arl y Paper, Duke Sc i enc e, Tec hnol ogy & I nnovat i on Paper No. 23 (Roc hest er, NY: Soc i al
Sc i enc e Researc h Net work, January 4, 2007), ht t p://papers.ssrn.c om/abst rac t =990152; Darrel l West , I nsi de t he I mmi grat i on Proc ess, Huffington Post, Apri l 15, 2013,
ht t p://www.huf f i ngt onpost .c om/darrel l -west /i nsi de-t he-i mmi grat i on-pr_b_3083940.ht ml (ac c essed August 12, 2013).
36. Ni c k Lei ber, Canada Launc hes a St art up Vi sa t o Lure Ent repreneurs, Bloomberg Businessweek, Apri l 11, 2013, ht t p://www.busi nessweek.c om/art i c l es/2013-04-11/c anada-
l aunc hes-a-st art up-vi sa-t o-l ure-ent repreneurs.
37. Greg Manki w, Rogof f Joi ns t he Pi gou Cl ub, Greg Mankiws Blog, Sept ember 16, 2006, ht t p://gregmanki w.bl ogspot .c om/2006/09/rogof f -j oi ns-pi gou-c l ub.ht ml ; Ral ph Nader and
Toby Heaps, We Need a Gl obal Carbon Tax, Wall Street Journal, Dec ember 3, 2008, ht t p://onl i ne.wsj .c om/art i c l e/SB122826696217574539.ht ml .
38. P. A. Di amond and E. Saez , The Case f or a Progressi ve Tax: From Basi c Researc h t o Pol i c y Rec ommendat i ons, Journal of Economic Perspectives 25, no. 4 (2011): 16590.
39. To be more prec i se, he ac t ual l y f ound t hat on average, hi gher t axes were c orrel at ed wi t h somewhat faster growt h. See Menz i e Chi nn, Dat a on Tax Rat es, by Qui nt i l es,
Econbrowser, Jul y 12, 2012, ht t p://www.ec onbrowser.c om/arc hi ves/2012/07/dat a_on_t ax_rat .ht ml .
Chapt er 14 LONG-TERM RECOMMENDATIONS
1. Crai g Toml i n, SXSW 2012 Li ve Bl og Creat e More Val ue Than You Capt ure, Useful Usability, Marc h 12, 2012, ht t p://www.usef ul usabi l i t y.c om/sxsw-2012-l i ve-bl og-c reat e-more-
val ue-t han-you-c apt ure/.
2. Si r Wi nst on Churc hi l l and Robert Rhodes James, Winston S. Churchill: His Complete Speeches, 18971963: 19431949 (Chel sea House Publ i shers, 1974), p. 7,566.
3. Mart i n Lut her Ki ng, Jr., Where Do We Go from Here: Chaos or Community? (New York: Harper & Row, 1967), p. 162.
4. Jyot sna Sreeni vasan, Poverty and the Government in America: A Historical Encyclopedia, 1st ed. (Sant a Barbara, CA: ABC-CLI O, 2009), p. 269.
5. WGBH Ameri c an Experi enc e . Ni xon | PBS, American Experience, ht t p://www.pbs.org/wgbh/ameri c anexperi enc e/f eat ures/general -art i c l e/ni xon-domest i c / (ac c essed August 12,
2013).
6. Vol t ai re, Candide, t rans. Franc oi s-Mari e Arouet (Mi neol a, NY: Dover Publ i c at i ons, 1991), p. 86.
7. Dani el H. Pi nk, Drive: The Surprising Truth About What Motivates Us (New York: Ri ver-head Books, 2011).
8. Sarah OConnor, Amaz on Unpac ked, Financial Times, February 8, 2013, ht t p://www.f t .c om/i nt l /c ms/s/2/ed6a985c -70bd-11e2-85d0-00144f eab49a.ht ml #sl i de0.
9. Don Pec k, How a New Jobl ess Era Wi l l Transf orm Ameri c a, The Atlantic, Marc h 2010, ht t p://www.t heat l ant i c .c om/magaz i ne/arc hi ve/2010/03/how-a-new-j obl ess-era-wi l l -t ransf orm-
ameri c a/307919/?si ngl e_page=t rue.
10. Ji m Cl i f t on, The Coming Jobs War (New York: Gal l up Press, 2011).
11. Wi l l i am Jul i us Wi l son, When Work Disappears: The World of the New Urban Poor, 1st ed. (New York: Vi nt age, 1997).
12. Charl es Murray, Coming Apart: The State of White America, 19602010 (New York: Crown Forum, 2013, repr.).
13. Murray argues t hat harmf ul c hanges i n val ues are t he most i mport ant expl anat ory f ac t or. As he wri t es, The det eri orat i on of soc i al c api t al i n l ower-c l ass whi t e Ameri c a
st ri ps t he peopl e who l i ve t here of one of t he mai n resourc es t hrough whi c h Ameri c ans have pursued happi ness. The same may be sai d of t he det eri orat i on i n marri age,
i ndust ri ousness, honest y, and rel i gi osi t y. These are not aspec t s of human l i f e t hat may or may not be i mport ant , dependi ng on personal pref erenc es. Toget her, t hey make up
t he st uf f of l i f e (p. 253).
14. I nt ervi ew wi t h Mi l t on Fri edman, Newsfront, NET, May 8, 1968; quot ed i n Gordonskene, Mi l t on Fri edman Expl ai ns The Negat i ve I nc ome Tax1968, Newstalgia, Dec ember 6, 2011,
ht t p://newst al gi a.c rooksandl i ars.c om/gordonskene/mi l t on-f ri edman-expl ai ns-negat i ve-i nc o.
15. Raj Chet t y et al ., The Ec onomi c I mpac t s of Tax Expendi t ures: Evi denc e From Spat i al Vari at i on Ac ross t he U.S., Whi t e Paper, 2013,
ht t p://obs.rc .f as.harvard.edu/c het t y/t ax_expendi t ure_soi _whi t epaper.pdf .
16. Ci t i Communi t y Devel opment Marks Nat i onal EI TC Awareness Day wi t h Rel ease of Money Mat t ers Publ i c at i on, News, Ci t i group I nc ., January 25, 2013,
ht t p://www.c i t i group.c om/c i t i /news/2013/130125a.ht m.
17. Gas Guz z l er Tax, Fuel Economy, Uni t ed St at es Envi ronment al Prot ec t i on Agenc y, ht t p://www.epa.gov/f uel ec onomy/guz z l er/ (ac c essed August 12, 2013).
18. Hi st ory of t he I nc ome Tax i n t he Uni t ed St at es, Infoplease, 2007, ht t p://www.i nf opl ease.c om/i pa/A0005921.ht ml .
19. Robert on Wi l l i ams, The Numbers: What Are t he Federal Government s Sourc es of Revenue? The Tax Policy Briefing Book: A Citizens Guide for the Election, and Beyond (Tax Pol i c y
Cent er: Urban I nst i t ut e and Brooki ngs I nst i t ut i on, Sept ember 13, 2011), ht t p://www.t axpol i c yc ent er.org/bri ef i ng-book/bac kground/numbers/revenue.c f m.
20. I n t he Uni t ed St at es, onl y i nc ome bel ow $113,700 was t axed f or Soc i al Sec uri t y i n 2013. See Soc i al Sec uri t y and Medi c are Tax Rat es; Maxi mum Taxabl e Earni ngs, Social
Security: The Official Website of the U.S. Social Security Administration, February 6, 2013, ht t p://ssa-c ust hel p.ssa.gov/app/answers/det ai l /a_i d/240/~/soc i al -sec uri t y-and-medi c are-t ax-
rat es%3B-maxi mum-t axabl e-earni ngs.
21. Even when a t ax or benef i t i s nomi nal l y pai d f or by t he empl oyer, muc h of i t wi l l ul t i mat el y be borne by t he empl oyee i n t he f orm of l ower wages or even l ac k of empl oyment .
See Mel ani e Berkowi t z , The Heal t h Care Ref orm Bi l l Bec omes Law: What I t Means f or Empl oyers, Monster: Workforce Management, n.d., ht t p://hi ri ng.monst er.c om/hr/hr-best -
prac t i c es/workf orc e-management /empl oyee-benef i t s-management /heal t h-c are-ref orm.aspx.
22. Bruc e Bart l et t , The Benefit and The Burden: Tax ReformWhy We Need It and What It Will Take (New York: Si mon & Sc hust er, 2012).
23 St eve Lohr, Comput er Al gori t hms Rel y I nc reasi ngl y on Human Hel pers, New York Times, Marc h 10, 2013, ht t p://www.nyt i mes.c om/2013/03/11/t ec hnol ogy/c omput er-al gori t hms-
rel y-i nc reasi ngl y-on-human-hel pers.ht ml .
24. Jason Pont i n, Art i f i c i al I nt el l i genc e, Wi t h Hel p From t he Humans, New York Times, Marc h 25, 2007, ht t p://www.nyt i mes.c om/2007/03/25/busi ness/yourmoney/25St ream.ht ml .
25. Gregory M. Lamb, When Workers Turn i nt o Turkers, Christian Science Monitor, November 2, 2006, ht t p://www.c smoni t or.c om/2006/1102/p13s02-wmgn.ht ml .
26. Pont i n, Art i f i c i al I nt el l i genc e, Wi t h Hel p From t he Humans.
27. Daren C. Brabham, Crowdsourc i ng as a Model f or Probl em Sol vi ng An I nt roduc t i on and Cases, Convergence: The International Journal of Research into New Media Technologies 14,
no. 1 (2008): 7590, doi :10.1177/1354856507084420.
28. Al yson Shont el l , Founder Q&A: Make a Boat l oad of Money Doi ng Your Nei ghbors Chores on TaskRabbi t , Business Insider, Oc t ober 27, 2011,
ht t p://www.busi nessi nsi der.c om/t askrabbi t -i nt ervi ew-2011-10 (ac c essed August 12, 2013).
29. Tomi o Geron, Ai rbnb and t he Unst oppabl e Ri se of t he Share Ec onomy, Forbes, January 23, 2013, ht t p://www.f orbes.c om/si t es/t omi ogeron/2013/01/23/ai rbnb-and-t he-
unst oppabl e-ri se-of -t he-share-ec onomy/ (ac c essed August 12, 2013).
30. Johnny B., TaskRabbi t Names Googl e Vet eran St ac y Brown-Phi l pot as Chi ef Operat i ng Of f i c er, TaskRabbit Blog, January 14, 2013, ht t ps://www.t askrabbi t .c om/bl og/t askrabbi t -
news/t askrabbi t -names-googl e-vet eran-st ac y-brown-phi l pot -as-c hi ef -operat i ng-of f i c er/ (ac c essed August 12, 2013).
31. Johnny B., TaskRabbi t Wel c omes 1,000 New TaskRabbi t s Eac h Mont h, TaskRabbit Blog, Apri l 23, 2013, ht t ps://www.t askrabbi t .c om/bl og/t askrabbi t -news/t askrabbi t -wel c omes-
1000-new-t askrabbi t s-eac h-mont h/.
32. Empl oyment Si t uat i on News Rel ease, Bureau of Labor St at i st i c s, May 3, 2013, ht t p://www.bl s.gov/news.rel ease/empsi t .ht m.
Chapt er 15 TECHNOLOGY AND THE FUTURE
1. Charl es Perrow, Normal Accidents: Living with High-Risk Technologies (Pri nc et on, NJ: Pri nc et on Uni versi t y Press, 1999); Interim Report on the August 14, 2003 Blackout (New York
I ndependent Syst em Operat or, January 8, 2004), ht t p://www.hks.harvard.edu/hepg/Papers/NYI SO.bl ac kout .report .8.Jan.04.pdf .
2. St even Cherry, How St uxnet I s Rewri t i ng t he Cybert errori sm Pl aybook, IEEE Spectrum podc ast , Oc t ober 13, 2010, ht t p://spec t rum.i eee.org/podc ast /t el ec om/sec uri t y/how-
st uxnet -i s-rewri t i ng-t he-c ybert errori sm-pl aybook.
3. Bi l l Joy, Why t he Fut ure Doesnt Need Us, Wired, Apri l 2000, ht t p://www.wi red.c om/wi red/arc hi ve/8.04/j oy_pr.ht ml .
4. The c ost s of gene sequenc i ng are droppi ng even more qui c kl y t han t hose of c omput i ng. A c omprehensi ve di sc ussi on of t he genomi c s revol ut i on i s f ar beyond t he sc ope of
t hi s book; we ment i on i t here si mpl y t o hi ghl i ght t hat i t i s real , and l i kel y t o bri ng prof ound c hanges i n t he years and dec ades t o c ome. See Kri s Wet t erst rand, DNA
Sequenc i ng Cost s: Dat a f rom t he NHGRI Genome Sequenc i ng Program (GSP), Nat i onal Human Genome Researc h I nst i t ut e, Jul y 16, 2013,
ht t p://www.genome.gov/sequenc i ngc ost s/.
5. On gami ng, see Ni c hol as Carr, The Shallows: What the Internet Is Doing to Our Brains (New York: W. W. Nort on & Company, 2011); on c yberbal kani z at i on, see Marshal l van Al st yne
and Eri k Brynj ol f sson, El ec t roni c Communi t i es: Gl obal Vi l l ages or Cyberbal kani z at i on? ICIS 1996 Proceedings, Dec ember 31, 1996, ht t p://ai sel .ai snet .org/i c i s1996/5; and El i
Pari ser, The Filter Bubble: How the New Personalized Web Is Changing What We Read and How We Think (New York: Pengui n, 2012); on soc i al i sol at i on see Sherry Turkl e, Alone Together: Why
We Expect More from Technology and Less from Each Other (New York: Basi c Books, 2012); and Robert D. Put nam, Bowling Alone: The Collapse and Revival of American Community, 1st ed. (New
York: Si mon & Sc hust er, 2001); f i nal l y, on envi ronment al degradat i on, see Al bert Gore, The Future: Six Drivers of Global Change, 2013.
6. Chad Brooks, What I s t he Si ngul ari t y? TechNewsDaily, Apri l 29, 2013, ht t p://www.t ec hnewsdai l y.c om/17898-t ec hnol ogi c al -si ngul ari t y-def i ni t i on.ht ml .
7. To i mprove t he odds t hat he wi l l be al i ve t o see t he si ngul ari t y (hel l be ni net y-seven i n 2045), Kurz wei l has put hi msel f on a sel f -engi neered di et t hat i nc l udes t aki ng 150
nut ri t i onal suppl ement s every day. See Kri st en Phi l i pkoski , Ray Kurz wei l s Pl an: Never Di e, Wired, November 18, 2002, ht t p://www.wi red.c om/c ul t ure/l i f est yl e/news/2002/11/56448.
8. St eve Lohr, Creat i ng Art i f i c i al I nt el l i genc e Based on t he Real Thi ng, New York Times, Dec ember 5, 2011, ht t p://www.nyt i mes.c om/2011/12/06/sc i enc e/c reat i ng-art i f i c i al -
i nt el l i genc e-based-on-t he-real -t hi ng.ht ml .
9. Garet h Cook, Wat son, t he Comput er Jeopardy! Champi on, and t he Fut ure of Art i f i c i al I nt el l i genc e, Scientific American, Marc h 1, 2011,
ht t p://www.sc i ent i f i c ameri c an.c om/art i c l e.c f m?i d=wat son-t he-c omput er-j eopa.
10. Mart i n Lut her Ki ng Jr., Sermon at Templ e I srael of Hol l ywood, February 26, 1965, ht t p://www.ameri c anrhet ori c .c om/speec hes/ml kt empl ei srael hol l ywood.ht m.
ILLUSTRATION SOURCES
Fi g ure 1. 1 and 1. 2 Human Soc i al Devel opment I ndex f i gures f rom I an Morri s, Why the West Rules . . . For Now: The Patterns of History, and What They Reveal About the Future (New York:
Pi c ador, 2011).
Worl dwi de human popul at i on f i gures are an average of est i mat es f rom t he U.S. Census Bureaus Hi st ori c al Est i mat es of Worl d Popul at i on,
ht t p://www.c ensus.gov/popul at i on/i nt ernat i onal /dat a/worl dpop/t abl e_hi st ory.php.
Worl d popul at i on f or 2000 f rom t he CI A Worl d Fac t book
3. 1 Aut hors own
3. 2 Aut hors own
3. 3 Superc omput er speeds:
ht t p://www.ri ken.j p/en/pr/publ i c at i ons/ri ken_researc h/2006/
ht t p://www.i nt el .c om/pressroom/ki t s/qui c kref yr.ht m
ht t p://www.green500.org/home.php
Hard dri ve c ost :
ht t p://www.ri ken.j p/en/pr/publ i c at i ons/ri ken_researc h/2006/
ht t p://www.i nt el .c om/pressroom/ki t s/qui c kref yr.ht m
ht t p://www.green500.org/home.php
Superc omput er energy ef f i c i enc y:
ht t p://ed-t hel en.org/c omp-hi st /CRAY-1-HardRef Man/CRAY-1-HRM.ht ml
ht t p://www.green500.org/home.php
Transi st ors per c hi p:
ht t p://www.i nt el .c om/pressroom/ki t s/qui c kref yr.ht m
Downl oad speed:
ht t p://www.akamai .c om/st at eof t hei nt ernet /
7. 1 U.S. Bureau of Ec onomi c Anal ysi s
7. 2 Chad Syverson, Wi l l Hi st ory Repeat I t sel f ? Comment s on I s t he I nf ormat i on Tec hnol ogy Revol ut i on Over?, International Productivity Monitor 25 (2013), 3740. John W. Kendri c k,
Produc t i vi t y Trends i n t he Uni t ed St at es, Nat i onal Bureau of Ec onomi c Researc h, 1961. Davi d M. Byrne, St ephen D. Ol i ner, and Dani el E. Si c hel , I s t he I nf ormat i on
Tec hnol ogy Revol ut i on Over?, International Productivity Monitor 25 (Spri ng 2013), 2036.
9. 1 ht t p://researc h.st l oui sf ed.org/f red2/graph/?i d=USARGDPC
ht t p://www.c ensus.gov/hhes/www/i nc ome/dat a/hi st ori c al /peopl e/
9. 2 D. Ac emogl u and Davi d Aut or, Ski l l s, t asks and t ec hnol ogi es: I mpl i c at i ons f or empl oyment and earni ngs, Handbook of Labor Economics 4 (2011), 10431171.
9. 3 ht t p://researc h.st l oui sf ed.org/f red2/graph/?i d=GDPCA
ht t p://researc h.st l oui sf ed.org/f red2/graph/?i d=A055RC0A144NBEA
ht t p://researc h.st l oui sf ed.org/f red2/graph/?i d=W270RE1A156NBEA
10. 1 N/A
11. 1 ht t p://researc h.st l oui sf ed.org/f red2/seri es/USPRI V
ht t p://researc h.st l oui sf ed.org/f red2/graph/?i d=USARGDPH
INDEX
Academically Adrift: Limited Learning on College Campuses (Arum and Roksa)
Acemoglu, Daron
Affinnova
Aftercollege.com
Agarwal, Anant
Age of Spiritual Machines, The: When Computers Exceed Human Intelligence (Kurzweil)
Agrarian Justice (Paine)
agriculture:
development of
inelastic demand in
Ahn, Luis von
Aiden, Erez Lieberman
Airbnb.com
Alaska, income guarantee plan in
algorithms
Allegretto, Sylvia
Allstate
Amazon
Amazon Web Services
American Society of Civil Engineers (ASCE)
Android
animals, domestication of
Apple
Arthur, Brian
artificial intelligence (AI)
future of
SLAM problem in
uses of
see also robots
Arum, Richard
ASCI Red
ASIMO
Asimov, Isaac
Asur, Sitaram
Athens, ancient
ATMs
Audi
Australia, immigrant entrepreneurship in
Autodesk
automation:
future of
labor market effects of
in manufacturing
Autor, David
Baker, Stephen
Barnes & Noble
Bartlett, Albert A.
Bartlett, Bruce
Bass, Carl
batteries
Baxter
Beane, Matt
Bebchuk, Lucian
Beck, Andrew
Bed Bath & Beyond
Berners-Lee, Tim
Bernstein, Jared
Bezos, Jeff
Bhutan
BigDog
Black Death
Blecharczyk, Nathan
Blogger
books:
digitization of
Internet retailing of
Boskin Commission
Boston Dynamics
Boudreaux, Donald
bounty
digitization and
productivity growth and
spread vs.
Brabham, Daren
Brain Gain: Rethinking U.S. Immigration Policy (West)
breast cancer
Bresnahan, Tim
Brin, Sergey
broadband
Brookings Institution
Brooks, Rodney
browsers
Brynjolfsson, Erik
Buddha
Bureau of Economic Analysis, U.S. (BEA)
business:
burdens and mandates on
computer use in; see also information technology (IT)
Moores Law in
process changes in
regulation of
robot use in; see also automation
see also manufacturing
business cycles
Busque, Leah
Byrne, Donald
California, University of, at Berkeley
call centers
Canada, immigrant entrepreneurship in
Capek, Karel
capital:
bargaining power associated with
intangible
labors replacement by
nonhuman
capital, human
see also superstars
capital, organizational
capitalism
Card, David
Carlsberg breweries
Carnegie Mellon University
Case, Steve
Cato Institute
Cavallo, Alberto
Center for American Progress
Chesky, Brian
chess
Chetty, Raj
Chile, immigrant entrepreneurship in
China:
automation in
capitalism in
manufacturing employment in
Chinn, Menzie
choice modeling
Christmas Carol, A (Dickens)
Chunara, Rumi
Churchill, Winston
circuits, integrated
Cisco Systems
cities, plunder and conquest of
Clark, John Bates
Clarke, Arthur C.
Cleveland Clinic
Clifton, Jim
Clinton, Bill
cochlear implants
Cohen, Jared
Cohen, Peter
Collegiate Learning Assessment (CLA)
Columbus, Christopher
Coming Apart (Murray)
Coming Jobs War, The (Clifton)
Commerce Department, U.S.
communication, complex
communications, engineering breakthroughs in
computer grading
computers:
business use of; see also information technology (IT)
complex communication by
consumer surplus associated with
early economic arguments about
evolution of
information processing by
language translation by
M2M communication by
Moores Law application to
pattern recognition by
personal
productivity gains linked to
real-world capabilities of
skill acquisition and
writing by
see also artificial intelligence (AI); automation; digitization
computer search
computer viruses
Confucius
consumer products
consumer surplus
content, user-generated
see also social media
Cook, Philip
Cook, Scott
copyrights
cotton gin
Cowen, Tyler
C-Path
Cragin, Bruce
Craigslist
Cramming More Components onto Integrated Circuits (Moore)
Cray-2 supercomputer
creativity
see also innovation
crowdsourcing
Cuba
culturomics
Curtis, William
CVS
David, Paul
DeBacker, Jason
Deep Blue
Defense Advanced Research Projects Agency (DARPA):
driverless car challenge of
robotics challenge of
Defense Department, U.S.
Demographic and Health Surveys
Dershowitz, Alan
developing world:
effect of automation on
productivity improvement in
technology in
Diamond, Peter
digitization:
beneficial effects of
of books
bounty created by
challenges of
competitive effects of
constraints in
economic consequences of; see also bounty; goods, digital, economics of; spread
economic data made available by
economic properties of
in education
executive pay linked to
as general purpose technology
innovation debate about
labor complements to
labor market effects of; see also winner-take-all markets
logarithmic scaling of
market domination due to; see also winner-take-all markets
metrics of
network effects in
niche services created by
physical goods improvement and
and Pigovian taxes
rapid progress in; see also technological progress
recombinant innovation and
scientific benefits of
ubiquity of
wealth associated with; see also superstars
see also global digital network; second machine age
Doerr, John
Donner, Jan Hein
Dorn, David
Double, telepresence provided by
Double Robotics
Drive (Pink)
driving:
digitization of
see also Google driverless car
Dropbox
Dyer, Jeffrey
Dyson, Freeman
Earned Income Tax Credit (EITC)
Eastman, George
Eastman Kodak
economic growth:
acceleration of
debates concerning
effects of
employment linked to
government role in
limitations on
recombinant innovation and
and tax rates
see also gross domestic product (GDP); productivity
economic rents
economics, common ground in
Economics: An Introductory Analysis (Samuelson)
Economist
Edison, Thomas
education
college
feedback in
inequality and
teacher salaries and accountability in
technology in
Einstein, Albert
Eisenhower, Dwight
electrical power
Electronics
El-Ouazzane, Remi
e-mail
empires
employment:
benefits of
of college graduates
and entrepreneurship
globalization and
historical data on
productivity decoupled from
searching for
technological implications for
see also labor
Encyclopaedia Britannica
energy:
demand elasticity for
falling prices in
Engadget
engineering
entrepreneurship
Europe, productivity improvement in
European Union
exponential growth
eyes:
digital
see also vision, computer-aided
Facebook
factor price equalization
Fairlie, Robert
FDA
fiber-optic cable
Field, Alexander
Final Jeopardy! (Baker)
FindTheBest.com
Finland, income inequality in
first machine age, see Industrial Revolution
Fischer, Bobby
Fitoussi, Jean-Paul
Fleck, Susan
Flickr
floating point operations
Forbes
Forbes
Forbes.com
Ford, Henry
Foxconn
Frank, Robert
Fraumeni, Barbara
Friedberg, Rachel
Friedman, John
Friedman, Milton
Friendster
Fryer, Roland
Galbraith, John Kenneth
Gallup-Healthways Well-Being Index
Gallup organization
Gandhi, Mahatma
Gates, Bill
Gebbia, Joe
General Conference on Weights and Measures
General Problem Solver,
general purpose technologies (GPTs)
genetic engineering
GeoFluent
George, Henry
Germany, income inequality in
Gibson, William
Gizmodo
Glaser, John
global digital network
entertainment on
information access via
innovation fostered by
weaknesses of
see also Internet; World Wide Web
globalization
Goldin, Claudia
goods, digital:
economics of
GDPs omission of
reproduction costs of
goods, non-rival
goods, physical, effect of digitization on
Google
search terms on
Google driverless car
Google Translate
Gordon, Robert
Gou, Terry
government, U.S.:
GPS satellites maintained by
see also economic growth, government role in
GPS
Graetz, Michael
graphics, digital
graphs, logarithmic
Great Depression
Great Recession
Great Stagnation, The (Cowen)
Greenspan, Alan
Greenstein, Shane
Greenwood, Jeremy
Gregersen, Hal
Grimbergen
gross domestic product (GDP):
alternative metrics to
effect of Great Recession on
increases in
omissions from
U.S. growth in
see also economic growth; productivity
Guo, Terry
Hall, David
Haltiwanger, John
Hanson, Gordon
Hanushek, Eric
Hayek, Friedrich
health, human:
improvements in
measurements of
Health Affairs
health care coverage
hearing, computer-aided
Heim, Bradley
Hemingway, Ernest
Hendren, Nathaniel
Hendy, Barry
Hewlett Foundation
HireArt
Hitchhikers Guide to the Galaxy, The (Adams)
Hitt, Lorin
Holmstrom, Bengt
Homo sapiens
Honda
Hoover, Herbert
housing, online data on
How College Affects Students (Pascarella and Terenzini)
HTML
Hu, Jeffrey
Hubbard, Elbert
Huberman, Bernardo
Hulu
human development index
humanity, social development of
Hyatt, Henry
IBM
iChat
IDC
ideation, see creativity
immigration
income:
average
basic
negative taxes on
normal distributions in
see also wages
Industrial Revolution
negative consequences of
see also Second Industrial Revolution
inequality:
consequences of
education and
political
see also spread
inflation indexes
information, control of
information and communication technology (ICT)
see also global digital network
Information Rules (Shapiro and Varian)
information technology (IT):
demand elasticity in
intangible assets associated with
productivity correlated with
infrastructure
technological
Innocentive
innovation
benefits of
complementary
economic measurement of
effect of digitization on
entrepreneurships role in
government support of
impact of spread on
open; see also crowdsourcing
organizational
population growth and
prizes for
productivity linked to
recombinant
slowing down of
unstable competitive effects of
see also creativity
Instagram
Intel
intellectual property
International Conference on Computer Science and Software Engineering
Internet
collective projects on
comparison sites on
consumer surplus created by
creation of
education on
housing data on
retailing on
sharing economy on
time accounting for
traffic on
user costs of
user-generated content on; see also social media
see also global digital network; World Wide Web
Intuit
iOS
iPad
iPhone
iRobot
Israel
iTunes
Jaimovich, Nir
Japan, productivity improvement in
Jaspers, Karl
Jelinek, Frederick
Jennings, Ken
Jensen, Robert
Jeopardy!
Jeppesen, Lars Bo
Jevons paradox
Jobs, Steve
Johnson, Lyndon
Jorgenson, Dale
Joy, Bill
Kaggle
Kalil, Tom
Kane, Tim
Kaplan, Steve
Karabarbounis, Loukas
Karpov, Anatoly
Kasparov, Garry
Katz, Lawrence
Kauffman Foundation
Kayak
Kelly, Kevin
Kelvin, Lord
Kennedy, Robert F.
Kerala, India
Keynes, John Maynard
Khan, Salman
Khan Academy
Kia
Kim, Heekyung
Kinect
KinectFusion
King, Martin Luther, Jr.
Kintinuous
Kiva
Klapper, Leora
Kline, Patrick
Knack
Kochan, Tom
Kopecky, Karen
Kremer, Michael
Krieger, Mike
Krueger, Alan
Krugman, Paul
Kurzweil, Ray
Kuznets, Simon
labor:
capital replacement of
churn in
crowdsourcing of
demand elasticity and
digital partnerships with
digitization and; see also winner-take-all markets
incentives for
input limits on
non-digitized
recessions and
skill matrix for
see also employment; productivity; wages
labor, skilled:
benefits of technology for
contribution of immigration to
creation of
labor, unskilled:
declining wages of
technologys replacement of
Laeven, Luc
Lakhani, Karim
land taxes
Leiserson, William
Leonard, John
Leontief, Wassily
Levine, Uri
Levy, Frank
Lickel, Charles
LIDAR
Liebling, A. J.
Lindbergh, Charles
LinkedIn
Lionbridge
living standards, calculation of
Lohr, Steve
London, congestion charging in
Longitude Prize
Loria, Roberto
Luca, Michael
Ludd, Ned
Luddite Fallacy
Lusardi, Annamaria
Lyft
machine-to-machine (M2M) communication
Macintosh
Madigan, Kathleen
Mandel, Michael
Mankiw, Greg
manufacturing:
automation in
importance of infrastructure to
inelastic demand in
organizational coinventions in
U.S. employment in
wages in
maps, digital
Marberry, Mike
Marbles, Jenna
Mariel boatlift
Marshall, Alfred
Marx, Karl
massive online open courses (MOOCs)
McAfee, Andrew
McCarthy, John
McDevitt, Ryan
McFadden, Daniel
McKinsey
Mechanical Turk
medicine:
AI use in
automation in
diagnostic
Memorial Sloan-Kettering Cancer Center
meta-ideas,
Michel, Jean-Baptiste
Microsoft
Milgrom, Paul
military, U.S., robot use by
Minsky, Marvin
MIT, Computer Science and Artificial Intelligence Lab at
Mitchell, Tom
Mitra, Sugata
MITx
Monster.com
Montessori, Maria
Monthly Labor Review
Moore, Gordon
Moores Law
in business
in computing
persistence of
spread of
Moravec, Hans
Moravecs paradox
Morris, Ian
mortgages
Mullis, Kary
multidimensional poverty index
Munster, Gene
Murnane, Richard
Murray, Charles
music, digitization of
Nader, Ralph
Narrative Science
NASA
National Academy of Sciences
National Association of Realtors
National Bureau of Economic Research
National Review
Nature of Technology, The (Arthur)
Neiman, Brent
New Digital Age, The (Schmidt and Cohen)
New Division of Labor, The (Levy and Murnane)
Newell, Al
new growth theory
New York Times
Next Convergence, The (Spence)
Nike
Nixon, Richard
Nordhaus, William
numbers:
development of
large
Occupy movement
oDesk
Oh, Joo Hee
Olshansky, S. Jay
OpenTable
OrCam
OReilly, Tim
Organization for Economic Co-operation and Development (OECD)
Orteig Prize
Orwell, George
Oswald, Andrew
Page, Larry
Paine, Thomas
Pandora
Partnership for a New American Economy
Pascarella, Ernest
pattern recognition
Pauling, Linus
peer economy
Perrow, Charles
Perry, Mark
philosophy, transformative
phones, mobile:
in developing world
see also smartphones
photography
photo sharing
Picasso, Pablo
Pigou, Arthur
Pigovian taxes
Pink, Daniel
Pinker, Steven
Pinterest
Pivot Power
Plutarch
Polanyi, Michael
pollution
polymerase chain reaction (PCR)
Popular Science
Porter, Michael
Powerbook G4
Power Law distributions
Principles of Economics (Mankiw)
printing, 3D
privacy, in digital vs. analog world
productivity:
decoupling of employment from
decoupling of wages from
effect of spread on
in electricity era
growth of
innovation linked to
intangible goods effect on
mid-1990s U.S. increase in
new paths to
post-1970 U.S. decline in
post-2000 U.S. growth in
see also economic growth; gross domestic product (GDP); labor
productivity, capital
productivity, multifactor
productivity, total factor
publishing, digitization and
Putnam, Robert
Quirky
R
Race Against the Machine (Brynjolfsson and McAfee)
Rajan, Raghuram
Rampell, Catherine
Raymond, Eric
reading
AI capabilities in
Reagan, Ronald
regulation:
of business
of peer economy
religion
rents, economic
resource curse
Rethink Robotics
retinal implants
Rhapsody
Ricardo, David
Rigobon, Roberto
Robinson, James
Robotics, Three Laws of
robots:
business use of; see also automation
rapid progress in
sensory equipment for
skills acquisition by; see also Moravecs paradox
towel-folding
see also artificial intelligence (AI)
Rockoff, Jonah
Roksa, Josipa
Romer, Paul
Roomba
Roosevelt, Franklin D.
Rosen, Sherwin
Rowling, J. K.
Rule of 70
Russell, Bertrand
Rutter, Brad
Saez, Emmanuel
Saint-Exupery, Antoine de
Samueli, Henry
Samuelson, Paul
Sandia National Laboratories
Saxenian, AnnaLee
Schmidt, Eric
Schneider, Daniel J.
Schreyer, Peter
Schumpeter, Joseph
science:
effect of digitization on
government support of
prizes in
rapid progress in
science fiction
robots in
SCIgen
Sears
Second Industrial Revolution
second machine age:
career opportunities in
characteristics of
complementary innovations in
economic data relevant to
intangible assets of
interventions for
key advances of
long-term recommendations for
mental power boosted by
metrics of
second machine age (continued)
policy recommendations for
Power Law distributions in
reality of
values of
see also digitization
SecondMachineAge.com
self-organizing learning environments (SOLEs)
semiconductors
Sen, Amartya
senses, human
sensorimotor skills
sensors, digital
Shabtai, Ehud
Shakespeare, William
Shannon, Claude
Shapiro, Carl
Shinar, Amir
Siciliano, Francis
SIGGRAPH conference
Silicon Valley
Simon, Herbert
Simon, Julian
Sims, Peter
Singapore:
education system in
Electronic Road Pricing System in
singularity
Singularity Is Near, The (Kurzweil)
Siri
Siu, Henry
Sixteenth Amendment
Skype
smartphone applications
smartphones
Smith, Adam
Smith, Michael
social media
Social Progress Index
Social Security
Socrates
software
open source
solar flares
Solow, Robert
Sony PlayStation 3
South Korea, education system in
Soviet Union
speech recognition
Spence, Michael
Spiegel, Eric
Spotify
Sprague, Shawn
spread
bounty vs.
in education
productivity consequences of
in wages
see also inequality
SRI International
standardized testing
Star Trek
Startup America Partnership
steam engine
Stern, Scott
Stiglitz, Joseph
Stiroh, Kevin
Stuxnet
Summers, Lawrence
superstars
social acceptability of
taxation of
see also winner-take-all markets
Sweden, income inequality in
Systrom, Kevin
Syverson, Chad
Tabarrok, Alex
Taipale, Kim
Taiwan, automation in
Target
TaskRabbit
taxes
consumption
on economic rents
negative income
payroll
Pigovian
value-added
Tea Party
technological progress
adjusting to
combinatorial nature of
digitization in
economic theories about
employment implications of
exponential nature of; see also innovation; Moores Law
future of
halting of
interventions suggested for
side effects of
technology:
in developing world
history of
major advances in
see also digitization; general purpose technologies (GPTs)
Teilhard de Chardin, Pierre
teraflop
Terenzini, Patrick
Thackeray, William Makepeace
Theory of Economic Development, The (Schumpeter)
Thrun, Sebastian
Time
Tinbergen, Jan
Tobin, James
Tolkien, J. R. R.
Topalov, Veselin
TopCoder
traffic congestion
translation services, online
transportation
Trebek, Alex
tribbles
TripAdvisor
Tufano, Peter
TurboTax
tweets
Twitter
United Airlines
United Kingdom, immigrant entrepreneurship in
United Nations
United States:
average workweek in
college students in
Earned Income Tax Credit in
education in
financial hardship in
GDP growth in
Great Recessions effects on
immigration reform in
income distribution in
income guarantee plans in
infrastructure in
intellectual property regime in
life expectancy in
living standard in
manufacturing employment in
mid-1990s productivity increase in
patenting in
political inequality in
post-1970 productivity decline in
post-2000 productivity growth in
productivity improvement in
social mobility in
tax rates in
tax system in
traffic congestion in
unemployment in
workforce in
Urban Dictionary
uShip
value-added tax (VAT)
Varian, Hal
Velodyne
Venkatraman, Venkat
Victorians, educational system of
Vinge, Vernor
visas, H1B
vision, computer-aided
Voltaire
Wadhwa, Vivek
wages:
decoupling of productivity from
globalization and
immigrations effect on
in manufacturing
Power Law distributions in
relative performance determinants of
spread in; see also winner-take-all markets
see also income
Wagner, Kyle
Waldfogel, Joel
Wales, Jimmy
Wall Street Journal
Walmart
Walton, Sam
Watson
Watson, Thomas, Sr.
Watt, James
wavelength division multiplexing (WDM)
Waze
Weitzman, Martin
West, Darrell
West, Martin
wheelchairs, AI technology in
When Work Disappears (Wilson)
Why Nations Fail (Acemoglu and Robinson)
Why the West RulesFor Now (Morris)
Wikipedia
Wilson, William Julius
winner-take-all markets
Winner-Take-All Society, The (Frank and Cook)
Winship, Scott
Woessmann, Ludger
Wolff, Ed
Wordsworth, William
World Bank
World Wide Web
see also global digital network; Internet
Wright, Gavin
writing:
by computers
development of
Wu, Lynn
Xbox
Y2K bug
Yang, Shinkyu
Yelp
YouTube
Zara
More Praise for The Second Machine Age
Brynjolfsson and McAfee are right : we are on t he cusp of a dramat ically different world
brought on by t echnology. The Second Machine Age is t he book for anyone who want s t o
t hrive in it . Ill encourage all of our ent repreneurs t o read it , and hope t heir compet it ors dont .
Marc Andreessen, cofounder of
Net scape and Andreessen Horowit z
What globalizat ion was t o t he economic debat es of t he lat e 20t h cent ury, t echnological
change is t o t he early 21st cent ury. Long aft er t he financial crisis and great recession have
receded, t he issues raised in t his import ant book will be cent ral t o our lives and our polit ics.
Lawrence H. Summers, Charles W. Eliot
Universit y Professor at Harvard Universit y
Technology is overt urning t he worlds economies, and The Second Machine Age is t he best
explanat ion of t his revolut ion yet writ t en.
Kevin Kelly, senior maverick for Wired
and aut hor of What Technology Wants
Brynjolfsson and McAfee t ake us on a whirlwind t our of innovat ors and innovat ions around t he
world. But t his isnt just casual sight seeing. Along t he way, t hey describe how t hese
t echnological wonders came t o be, why t hey are import ant , and where t hey are headed.
Hal Varian, chief economist at Google
In t his opt imist ic book Brynjolfsson and McAfee clearly explain t he bount y t hat await s us from
int elligent machines. But t hey argue t hat creat ing t he bount y depends on finding ways t o race
with t he machine rat her t han racing against t he machine. That means people like me need t o
build machines t hat are easy t o mast er and use. Ult imat ely, t hose who embrace t he new
t echnologies will be t he ones who benefit most .
Rodney Brooks, chairman and
CTO of Ret hink Robot ics, Inc
New t echnologies may bring about our economic salvat ion or t hey may t hreat en our very
livelihoods . . . or t hey may do bot h. Brynjolfsson and McAfee have writ t en an import ant book
on t he t echnology-driven opport unit ies and challenges we all face in t he next decade. Anyone
who want s t o underst and how amazing new t echnologies are t ransforming our economy
should st art here.
Aust an Goolsbee, professor of economics at t he Universit y
of Chicago Boot h School of Business and former
chairman of t he Council of Economic Advisers
Aft er reading t his book, your world view will be flipped: youll see t hat collect ive int elligence will
come not only from net worked brains but also from massively connect ed and int elligent
machines. In t he near fut ure, t he best job t o have will be t he one you would do for free.
Nicholas Negropont e, cofounder of t he
MIT Media Lab, founder of One Lapt op
per Child, and aut hor of Being Digital
The Second Machine Age helps us all bet t er underst and t he new age we are ent ering, an age
in which by working wit h t he machine we can unleash t he full power of human ingenuit y. This
provocat ive book is bot h grounded and visionary, wit h highly approachable economic analyses
t hat add dept h t o t heir vision. A must -read.
John Seely Brown, coaut hor of
The Power of Pull and A New Culture of Learning
Brynjolfsson and McAfee do an amazing job of explaining t he progression of t echnology,
giving us a glimpse of t he fut ure, and explaining t he economics of t hese advances. And t hey
provide sound policy prescript ions. Their book could also have been t it led Exponent ial
Economics 101it is a must -read.
Vivek Wadhwa, direct or of research at Duke
Universit ys Prat t School of Engineering
and aut hor of The Immigrant Exodus
Also by Erik Brynjolfsson and Andrew McAfee
RACE AGAINST THE MACHINE
How t he Digit al Revolut ion Is Accelerat ing Innovat ion,
Driving Product ivit y, and Irreversibly Transforming Employment
and t he Economy
Also by Erik Brynjolfsson
WIRED FOR INNOVATION
Also by Andrew McAfee
ENTERPRISE 2.0
New Collaborat ive Tools for your Organizat ions Toughest Challenges
Copyright 2014 by Erik Brynjolfsson and Andrew McAfee
All rights reserved
First Edition
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