This week, The Economist publishes its periodic report on the world economy. The report argues that the digital revolution is opening up a great divide between a skilled and wealthy few and the rest of society. New technology is unable to boost productivity, an effect known as the Solow paradox(1) since the 80’s, and inequality is rising to historic highs. The reasons are not well understood yet and, basically, there are two lines of thought:
- Brynjolfsson and McAfee’s Wait and See(2): The first two industrial revolutions inflicted plenty of pain but ultimately benefited everyone. Technological advances increase productivity only after a long lag. The past four decades have been a period of gestation for ICT during which processing power exploded and costs tumbled, setting the stage for a truly transformational phase that is only just beginning.
- Robert Gordon’s Game Over(3,4): Recent innovation is a lot less impressive than it seems, and not powerful enough to offset the effects of demographic change, inequality and sovereign indebtedness. Progress in ICT is less transformative than any of the three major technologies of the second Industrial Revolution (electrification, cars and wireless communications).
If you want a clue, fashion is on Gordon’s side: for most of the 20th century, America’s cultural landscape—its fashion, art, music, design, entertainment—changed dramatically every 20 years or so. But these days, popular style has been stuck on repeat, consuming the past instead of creating the new.
If you are with Brynjolfsson and McAfee, please do change your look now!
(1) Brynjolfsson, Erik. “The Productivity Paradox of Information Technology.” Commun. ACM 36, no. 12 (December 1993): 66–77. doi:10.1145/163298.163309.
(2) Brynjolfsson, Erik, and Andrew McAfee. The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies. 1 edition. New York: W. W. Norton & Company, 2014.
(3) Gordon, Robert J. Is U.S. Economic Growth Over? Faltering Innovation Confronts the Six Headwinds. Working Paper. National Bureau of Economic Research, August 2012. http://www.nber.org/papers/w18315.
(4) Gordon, Robert J. “The Turtle’s Progress: Secular Stagnation Meets the headwinds1.” Secular Stagnation: Facts, Causes and Cures, 2014, 47.
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