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Home Publications Blogs Beat the Press Inequality and Technology: Did the Robots Do It?

Inequality and Technology: Did the Robots Do It?

Monday, 21 January 2013 07:52

Adam Davidson has an interesting piece in the NYT Magazine on the debate over whether technology is responsible for the growth in inequality over the last three decades or whether the increase has been primarily the result of policies that have redistributed income upward. (As the author of The End of Loser Liberalism: Making Markets Progressive, I am firmly in the latter camp.) The immediate basis for the piece is a new paper by Larry Mishel, John Schmitt, and Heidi Shierholz that questions the widely accepted work of M.I.T. professor David Autor, which attributes rising inequality to the loss of jobs in middle class occupations. (The paper is not yet available, but several of the main points are presented in blog posts here, here, here, and here.)

Davidson does a good job laying out the central issues at one point turning to Frank Levy, another M.I.T. economist, to help define the terrain. Levy points out that while inequality has increased almost everywhere, there are huge differences in the extent of the increase. This suggests that there is a very big role for policy in the rise in inequality in the United States. (We're #1.)

However Davidson's conclusion may mislead readers.

"What do we value more: growth or fairness? That’s a value judgment. And for better or worse, it’s up to us."

The idea that there is tradeoff between growth and inequality does not follow from Levy's comments. It could be the case that policy decisions were aggravating trends in equality rather than alleviating them. For example, increasing the length and scope of patent and copyright protection is a policy that would have the effect of redistributing income upward as would protecting doctors and lawyers from international competition in a context where trade policy is designed to make most workers increasingly exposed to such competition. In these and other cases, it is possible to identify policies that would likely both increase growth and reduce inequality.

Comments (12)Add Comment
Tax Wall Street to Rebuild Every Street
written by Robert Salzberg, January 21, 2013 7:44
A 0.1% financial transactions tax on stock trades with a smaller 0.01% tax on derivatives and credit default swaps would generate enough new revenue to fund a National Infrastructure Bank and State Infrastructure Banks that could then leverage that money to rebuild America's infrastructure.
written by Jennifer, January 21, 2013 8:58
What do we value more: growth or fairness? That’s a value judgment. And for better or worse, it’s up to us.

It would seem it would depend how we define growth. If the "growth" just encourages a small group to manipulate the system--this is what appears to have happened in the financial world and in the drug field with patents--that is hardly "growth" in the way the average person thinks of it. Really all that is happening is a tremendous increase of money is going to a very small population. If a drug company can make a ton of money by milking all that it can out of one particular drug, either by keeping it on patent by any number of laughable claims, or by coming out with a "new" medication which is really the same but just different enough to be able to get a new patent that drug company is not going to "waste" its time by making actual new drugs (that could save lives.) As Joe Nocera stated the other day in a completely different context, money comes before people. As a non-economist I would say that "growth" as an economic term is considered positive only because it is is perceived as broad-based and helping everybody, i.e. fair. As for the decision being "up to us" that I would seriously question. The companies in question have such huge amounts of money and such a hold over the political process it is difficult to see a path to reforming this process.
written by Kat, January 21, 2013 9:10
Adamson writes:
For decades, the Finnish government has offered free education all the way through college. It may have led to high taxes, but many believe it also turned a fairly poor fishing economy into a high-income, technological nation. On the other hand, Greece, Spain and Portugal have so thoroughly protected their workers that they are increasingly unable to compete in the global economy.

So, it seems clear to me where his sympathies lie. What are we to make of such a statement? You would get the idea that the only thing that the Finnish government has done to promote equality is to offer free education.
written by Peter K., January 21, 2013 10:17
This makes me have a less negative view of Davidson. He should do another interview with Elizabeth Warren now that's she's a U.S. Senator.
What is growth?
written by Sandwichman, January 21, 2013 12:49
"In these and other cases it is possible to identify policies that would likely both increase growth and reduce inequality."

I asked my students (upper-level undergrad university) what they thought "growth" referred to. Almost unanimously they thought it meant an increase in the number of jobs. Since the end of WWII, the term growth has become an insidious surrogate for the old idea of "full employment." We need to stop talking about "growth" as if it is a value-free synonym for universal prosperity. It is not. It is a distraction, a cloak of obfuscation that feeds cognitive dissonance.
Adam Davidson
written by Jennifer, January 21, 2013 12:50
While he is capable of useful commentary on occasion nobody should have any allusions about Davidson. http://www.projectshame.com
Wrong link
written by Jennifer, January 21, 2013 12:55
Sorry this is the link http://www.shameproject.com
written by liberal, January 21, 2013 9:58
In these and other cases it is possible to identify policies that would likely both increase growth and reduce inequality.

Other policies? LOL. There's one policy which is (a) the most responsible for inequality of wealth and (b) most responsible for mediocre economic growth. It's called "private ownership of land in the absence of a land value tax that recoups most of the resulting land rent by the government on behalf of the populace which created the rental value to begin with." To the mere tune of 10--20% of GDP. "Slightly" more than (admittedly noxious) IP rent collection.
written by watermelonpunch, January 21, 2013 10:57
I'm also thinking it's the latter... And I thought so before even starting End of Loser Liberalism (1/2-way through it now).

I'm also with Robert Salzberg's comment @#1.

The deal is, that we were ALL supposed to be driving flying cars & not having to clean any toilets by now! ha ha (Well that's what my (older) spouse always says!) Yet that's not the case at all, of course. Even if every household had a Roomba for every baby to ride, it still wouldn't be the case. ha ha

But more seriously, if it was "all about the robots" or even "a lot about the robots", you would see a correlation between technological advancements & inequality... But there's not.
Of course then you point to policy. At which point, the robots become significantly less & less relevant to the issue.

Point being...

What do robots have to do with the price of tea in China?

It's an interesting topic.
It's a phenomenon worth studying.

But I just don't see how it can be used to explain (or excuse) anything in regards to economic growth or economic inequality.

But yeah, what Jennifer said... Maybe what the author meant is that the choice is between growth of profits for the very top, or fairness for all citizens. And I surely agree that choice has been presented, and it's quite clear which option has been repeatedly chosen.

Sandwichman seems to have his finger on a pulse.
I've been saying for ages a lot of the problem with the whole topic of economics having an effect on average people is that the (*&*#!&%#) lingo stands in the way of most useful & accurate communication that can give people informed opinions about these things.
It's like a different language, and there's a language barrier. It isn't a good thing.
New study about land use restrictions and inquality after 1980 may be relevant
written by dbc, January 22, 2013 12:47
This seems like a good place to comment on something I read recently: http://harvardmagazine.com/2013/01/immobile-labor. It's an article about how convergence in income between states has flatlined since 1980:

For 100 years, the United States experienced a steady decline in income disparities between the richest and poorest states—with Mississippi and Alabama, for example, beginning to catch up to the more prosperous Connecticut and New York. But this equalizing trend ceased after 1980. Why? According to Daniel Shoag, assistant professor of public policy at the Kennedy School’s Taubman Center for State and Local Government, housing prices explain a large part of the puzzle. In a recent working paper coauthored with doctoral candidate in economics Peter Ganong, Shoag found that land-use restrictions in high-income locales have created barriers to entry for less-skilled workers, exacerbating inequality and threatening labor mobility—a key component of a healthy economy.

What the found is that direct labor migration could explain 40 percent to 75 percent of the century-long growth in economic equality among states. However, that migration mainly stopped after 1980 -- and the reason for that was a spike in housing prices in high-productivity, high-income areas. Well, what caused that?

What caused housing markets to change? The researchers created an index of regulation that could predict the flexibility of housing supply in different states in response to demand. Using an online database, they measured the number of times the phrase “land use” appeared in appellate court cases by state and year, and found that land-use restrictions became more common nationwide in the 1970s, but that not all states became strict regulators. The frequency of “land use” references in a state’s legal history proved a good predictor of whether a state would develop a high-regulation housing economy with constrained supply. By measuring regulation levels, Shoag and Ganong were able to test their hypothesis: they found that regulations limit housing supply by reducing the number of permits for new construction, and raising prices. This lowers net migration, and thus slows human-capital convergence and income convergence.

The authors have yet to investigate why increased regulation took hold in certain states, but they do know that land restrictions preceded the concentrations of wealth...
New study about land use restrictions and inquality after 1980 may be relevant (2)
written by dbc, January 22, 2013 12:55
So, what does inequality between states have to do with individual inequality? The author's paper, (which is here - http://www.hks.harvard.edu/fs/..._Shoag.pdf) concludes with the following:

These findings have important implications not only for the literature on land-use and regional convergence, but also for the literature on inequality and segregation. A simple back of the envelope calculation shown in Appendix Table 8 finds that cross-state convergence accounted for approximately 30% of the drop in hourly wage inequality from 1940 to 1980 and that had convergence continued apace through 2010, the increase in hourly wage inequality from 1980 to 2010 would have been approximately 10% smaller. The U.S. is increasingly characterized by segregation along economic dimensions, with limited access for most workers to America’s most productive cities. We hope that this paper will highlight the role land use restrictions play in supporting this segregation.

Definitely a finding that is consistent with Dean Baker's theory that public policy is helping to increase inequality, but I don't think this particular mechanism is one he has written about. It would be interesting to get his opinion on the research.

(Aside: how does one get blockquotes to work here?)
It's not that simple...
written by John, January 22, 2013 3:13
Dr. Baker, you're an economist; I'm a computer scientist (i.e., with a PhD). We have different perspectivess, understandably. But both are relevant to this question.

A good analyst doesn't settle on single root causes without investigating potentially confounding factors. And there's certainly at least two major factors here.

If the US had a more purely socialist economy, not only would there be little if any problem with the productivity impact of technology, but there may not be such economic inequality in the first place.

But given the capitalist economic structure we have, it's important to note how technology plays relative to it. That's not at all to blame the technology, at least in my view - it's to understand its role in a broader economic phenomenon.

Technologically-enhanced productivity turns out to enable and exacerbate your own concern. I.e., those policies to which you point - all of which favor capitalism fundamentally - have the effect of devaluing labor by serving as leverage that's widely used against the interests of labor. But make no mistake, first, that those policies are part of the capitalist environment, that there are alternative socialist policies that would not have the same ill effects, and that within this environment of capitalism - along with its policies - technology enables further inequality by favoring the capitalist over labor.

Ask any - any - computer scientist or software developer (I'm primarily the latter, educated as the former) what the primary purpose of information technology broadly defined is - why they do what they do - and they'll tell you it's to reduce or eliminate human labor. But they don't assess that goal economically, by and large, and they have an implicitly utopian mindset that suggests that to the extent technology achieves that fundamental goal, society will adjust to make it a positive one.

That's naive, but no more naive than dismissing the fact that we've been miraculously successful in technological terms, while making none of the advancements toward what need to be accompanying economic and social norms. And the latter is the naivete' of economists, by and large, until recently. The effects of technology are very real, and very profound, but it's the economic and social environment within which they're happening that make them less that totally positive.

All perspectives need to be understood here. There is no single "cause".

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.