The Second

Machine Age
Erik Brynjolfsson

MIT Sloan School

Director, MIT Initiative on the Digital Economy

@erikbryn

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The Second Machine Age
Changing the world requires two things:
Physical Power: move or transform things
Mental Power: decide where and how

Industrial Revolution = Physical Power

Steam engine (and Internal combustion engine, Electricity)
Mostly a complement to humans

Second Machine Age = Mental Power

Computers, Software, Big Data, Machine Intelligence
Complement or substitute?

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State of Understanding, 2004
Uniquely Human Abilities
- Autonomous mobility and fine motor
control
- Language and complex communication
- Pattern matching and unstructured
problem solving

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Machine Intelligence
Interacting with physical world
Fine and gross motor control
Vision and other senses

Language
Voice recognition
Natural language processing
Creating narratives

Problem Solving
Answering unstructured questions
Rule based analysis
Pattern recognition and classification

Were in the midst of the greatest one-time event in history !

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Machine Intelligence
Interacting with physical world
Fine and gross motor control
Vision and other senses
Language
Voice recognition
Natural language processing
Creating narratives
Problem Solving
Answering unstructured questions
Rule based analysis
Pattern recognition and classification

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Siri
Voice recognition

Lionbridge
Translation

Narrative Science
Authoring News Stories

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Machine Intelligence
Interacting with physical world
Fine and gross motor control
Vision and other senses

Language
Voice recognition
Natural language processing
Creating narratives

Problem Solving
Answering unstructured questions
Rule based analysis
Pattern recognition and classification

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The Digital Frontier

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 Accuracy and Questions Answered on Jeopardy!
100%

90%

80%

70% 11/2010
04/2010
10/2009
Accuracy

60% 05/2009
12/2008
50% 08/2008
05/2008
40%

30% 12/2007

20%
12/2006
10%

0%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Percent Answered
The Digital Frontier

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The Digital Frontier

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What does this mean for the
economy?

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The Bounty

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$300 BILLION PER YEAR

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GDP, Profits, Investment, and Employment
Trends in US GDP, Profits and Investment

Level of GDP, Profits, and Investment (Jan-95 = 100)

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GDP, Profits, Investment, and Employment
Trends in US GDP, Profits, Investment, and
Employment

Level of GDP, Profits, and Investment (Jan-95 = 100)

Employment-Population Ratio
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WHATS GOING ON?

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Our View
Digital technologies change
rapidly, but organizations and
skills arent keeping pace.
As a result, millions of people
are being left behind.

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The Great Decoupling

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The Hard Truth
Digital progress makes the
economic pie bigger.
But there is no economic
law that everyone, or even
most people, will benefit.

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Three Sets of Winners and Losers
1. High Skilled vs. Low & Mid Skilled Workers

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Skill Disparities

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Polarization of the Labor Market
Mid-wage workers have been hit hardest in both
employment and wages

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Three Sets of Winners and Losers
1. High Skilled vs. Low & Mid Skilled Workers

2. Capital vs. Labor

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Capital vs. Labor
Corporate Profits After Tax as % of GDP & Non-Farm Labor Share,
1947-2013
Corporate Profit as % 120
10
Corproate Profits as % of GDP

of GDP 117

Labor Share (2009 = 100)

8 114
111
6
108
4 105
102
2
Labor Share 99
0 of GDP 96
1947 1958 1969 1980 1991 2002 2013

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Source: research.stlouisfed.org
Three Sets of Winners and Losers
1. High Skilled vs. Low & Mid Skilled Workers

2. Capital vs. Labor

3. Superstars vs. Everyone Else

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Superstars

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WHAT IS TO BE DONE?

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The New Grand Challenge
Digital technologies will continue
to accelerate.
Our skills, organizations and
institutions are lagging.
Business as usual wont solve
this problem.
We need to reinvent our economy
and society to keep up with
accelerating technology
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The New Landscape

What challenges and opportunities do you

see?

What are your concerns and questions?

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The Initiative on the Digital Economy

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To learn more, visit:

http://digital.mit.edu/erik

http://digital.mit.edu/ide

http://secondmachineage.com

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