Ricochet is the best place on the internet to discuss the issues of the day, either through commenting on posts or writing your own for our active and dynamic community in a fully moderated environment. In addition, the Ricochet Audio Network offers over 50 original podcasts with new episodes released every day.
The Autonomous Revolution
In the years since I joined Ricochet as an almost charter member, I’ve had close to a dozen books published, including one Business Book of the Year. I’ve never really talked about them on Ricochet, preferring instead to mostly comment on other member’s postings — especially on items relating to the arts. However, last week I published a book that I think might be of interest to my fellow members. Here’s the book.
I’m posting this only because in support of the marketing of the book my co-author (the legendary VC Bill Davidow) and I have been writing a series of essays on topics from the book for various publications. One ran a couple weeks ago in Salon. Others will be appearing in other locations in the weeks ahead. Below is the piece that appeared last Saturday as the LinkedIn weekend essay. It drew tremendous response … enough to drive the book to a category #1 best-seller on Amazon. I hope you find it intriguing. I look forward to your comments — and if there is enough interest, I’ll post one or two more.
We’re living in two economies, and they are tearing us apart
By William H. Davidow and Michael S. Malone
Hidden behind the good economic news is a disturbing new phenomenon – one more far-reaching — and disturbing — than the latest up or down of the business cycle. It is that our economy is now increasingly bipolar, with a traditional economy at one end and a virtual one at the other.
We see this most vividly during the holiday shopping season, where Cyber-Monday Web sales increasingly outstrip Black Friday in-store sales three days before. But this is only the most celebrated manifestation of this change in the economy. The reality is far more pervasive — and it portends a massive transformation in modern society. One for which we are unprepared.
It all seems benign; even an improvement over what came before. After all, why fight your way through a crowded store, or burn gasoline driving to a store — only to find the item sold out? It is so much easier to just find the item on Amazon, press the order button and find it at your door in a day or two. Increasingly, even perishables such as groceries are being ordered the same way.
As with much of the digital revolution, a lot of this change has crept up on us quietly. One day it isn’t there and the next it is. Somehow, almost without noticing, we have fully assimilated it into our lives — and can’t imagine (or if we are older, scarcely remember) what life was like before the Internet, smartphones, social networks, digital music, network-only television, analog automobiles, robots. . .and all of the other accepted aspects of 21st century life.
We chalk all of this up to the evolution of technology, and we thank our lucky stars that we live in the era of Moore’s Law, which delivers thrilling new products and services every few years.
We call these changes substitutional equivalences — meaning that we have substituted one technology for another that appears, on its surface, to provide the same experience — only cheaper, faster, smarter and more efficient. And we are the lucky recipients of these changes.
But these substitutional equivalences are not the same as what they have replaced. Indeed, many are fundamentally different — not least because they exist and operate in cyberspace, not in the physical world. And the virtual world is very different place: with a very different purpose, rules and impact on the human brain. Moreover, these virtual products and services increasingly exhibit their own intelligence and autonomy . . .and are getting better at both by the year.
In other words, these products and services are not merely evolutionary improvements over what came before, but revolutionary new creations. Individually, these discrete revolutions are usually so rewarding — Wow! Look at all the new apps for my phone! — that we can easily overlook their often less-than-positive consequences (social isolation, rewiring our kids’ brains, a surveillance state, etc.)
But, put all of these discrete technologies together, and multiply their effects by billions of users, and the result is a massive cultural and civilization shift that is already happening around us. We call this a Social Phase Change: a cultural transformation that is so sweeping that it changes everything — including all the rules we live by. It is an event so profound that it has only happened twice in human history: the agricultural and industrial revolutions. We believe we have now entered the third such transformation: an Autonomous Revolution, in which we increasingly hand over our future to intelligent machines.
These Social Phase Changes are wrenching experiences, presenting enormous challenges to humanity — and often producing vast blood-letting and misery. They also offer the possibility of huge advances in human existence: longer lives, greater wealth and increased happiness. But getting to this better world will mean making our way successfully through a minefield.
We are already in that dangerous zone. And one of the first challenges we face, one that is already upon us, is an increasingly bipolar economy.
What that means is that we have today, having emerged over the last quarter-century, an economy that is characterized by a traditional economy that operates under long-established rules in the real world . . .and a second economy, an Autonomous Economy, with very different rules, that operates in cyberspace — and promises to become even larger than the traditional one. In the process, the two economies are pulling in opposite directions, and doing so, tearing the Old Order apart.
In particular, the traditional economy is biased toward inflation. By comparison, the Autonomous Economy is biased toward deflation. The traditional economy provides us with most of the basic necessities of life — food, shelter, health care, clothing, transportation, and energy. Money spent on these necessities accounts for almost 80 percent of middle-class expenditures. And the costs of all of them are rising.
Conversely, the Autonomous Economy increasingly provides the higher-level options of life: entertainment, education, employment, interpersonal relations, and community. These offerings perpetually improve and grow more valuable to the user, yet simultaneously plummet in price. That solitary transistor of 1956 has become the microprocessor of 2020 containing billions of transistors — for the same price. The $3500 desktop computer is now the $700 laptop computer with 100X the processing power. And most stunning of all, is the growing pervasiveness of freeware, from on-line games to social networks.
The presence of this growing alternative economy may be exciting, but it also disguises the fact that the traditional economy hasn’t really changed — and in that world things are getting worse. The problem is non-monetizable productivity — unlike in the real world, the productivity gains in the Autonomous Economy don’t translate to increased incomes for average folks. That’s why, even as the numbers look may look good in GDP calculations, those gains aren’t reflected in worker’s lives.
In fact, just the opposite is true. Between 2012 and 2014, the median home price rose by 17.3 percent, while weekly wages rose by only 1.3 percent. According to the U.S. Department of Agriculture, food prices rose 31 percent between 2005 and 2014, or about 8 percent more than inflation. The cost of health insurance has risen by more than 54 percent in the past five years.
The middle class, in particular, is mired in this bipolar trough. Real median household income is below the level it was in 2000—$56,671 versus $57,372. Since 2000, the number of lower-income families has increased from 31 percent to 34 percent of the population, while the number of middle-income families has declined from 45 percent to 43 percent. The average weekly hours worked by production employees has declined from 38.8 in the 1960s to 33.7 today. Inflation-adjusted annual earnings for production employees peaked in the 1970s and is down by 14.6 percent.
This situation is only going to get worse as automation and artificial intelligence increasingly assume traditional jobs, not just blue-collar ones, but professions. The estimates of the job losses that are to come are staggering. A study by Frey and Osborne looked at 702 occupations and concluded that 47 percent of American jobs might be automated in the future. Another study, by McKinsey, estimates that 400 to 800 million jobs around the world — and a third of current jobs in the U.S. — will be lost to automation by 2030. Already, human beings are being squeezed out of entire job categories — an estimated 2 million people in the U.S. are displaced every year by productivity improvements.
The future? Imagine that our entire economy looks like Amazon, Google, Facebook, and Netflix, companies that are highly productive thanks to virtualization and intelligent machines. Those companies require $600,000 to $1 million increases in income to create a new job, not the $150,000 we find in the average corporate job today. GDP would have to grow at a rate of between 6.8 percent and 11.3 percent to absorb all those displaced workers. No modern developed economy has ever maintained that level of growth. While those companies may create dozens of billionaires and thousands of millionaires, they cannot save the middle class.
What is particularly disconcerting about this jobs scenario is what is missing compared to the past. Two hundred years ago, when jobs were vanishing in agriculture, they were on the rise in the manufacturing. Then, as the latter area matured, new jobs were created in the service industries.
Eighty percent of the U.S. workforce, 104 million people all-told, now work in services. But as more and more of those jobs are automated, we need a new area of economic growth to absorb those excess workers. Unfortunately, that area appears to be the burgeoning workerless segment – millions of people rendered ZEV’s — Zero Economic Value citizens, who will never find work, no matter their skills.
Will the bread and circuses of consumer technology — wall-sized TV screens, virtual vacations, autonomous vehicles, drone deliveries — make up for radically reduced disposable income and wealth, for lives without the purposefulness of The Good Job? Will they find a meaningful life in another way?
Perhaps jobs created by the new infrastructure that needs to be built, or a new wave of jobs created by entrepreneurs, will forestall this crisis for another generation. But make no mistake: the Autonomous Revolution is coming — and all of the rules are about to change. We need to prepare, now.
Thanks Obamacare!
A fascinating read Mr. Malone. I hope you keep writing here on the subject. I’m no economist but let me play devil’s advocate here. Could this split be a transitional phenomena rather something that is locked in? After all, more and more people are buying off the internet. I don’t see that a cultural/economic split any longer, and the other issues you mention may require a time period for the rest of society to catch up. For instance, take rear view cameras in cars today. They are universal but at first they only got into the more expensive cars. It took time to disseminate. Just a thought.
The first idea to come to mind, although not necessarily the correct one, is to reduce the labor pool. You could drop the work week to 20 hours, retire at 35, something along those lines. By the time you’re 35 you have figured out with finality whether you have a career, or a job. Most people have jobs and won’t miss them, at least in my opinion.
I am more than happy to live a life of leisure and personal hobbies while the computers deliver my chicken curry lunch.
Same lame thinking we get from all the modern ludites clinging to their manufacturing jobs and 1960’s economic paradigms. What past Social Phase Change do we now regret? What dislocation did they cause that we now care about? Picking and husking corn by had used to be a real job that employed massive amount of people. It has been outsourced to one 500,000 combine driven by one man. It does the work that used to take hundreds of people hundreds of hours. Food prices are increasing but food quality is also increasing as is its variety. Like Karl Marx worrying that capital will displace labor to the point of creating a permanent underclass without the means of sustainment the author also peddles his warmed over economic doom saying. The beauty of the free market is that you don’t have to worry about it because it is self regulating. Freed up labor will be employed in new productive tasks, just like it has always been. The new economy will create new jobs and the old manufacturing economy like farming becomes an ever smaller section of the over all economy, while still increasing production and quality. No one misses the days when 95% of people worked on farms and tilled the land growing just enough food to survive. No one misses the days when thousand stood on factory lines mindlessly tightening screws on widgets, and no one will miss having some idiot take their order wrong at McDonald’s.
Ah but what will the new jobs be? Who knows, who cares, sitting at the dawn of the industrial revolution did anyone really picture where and how it would go? Look at Herr Marx and his worries. He saw what was developing and made many warnings, and had many worries, and many solutions and if he had never existed nothing different would have happened with respect to the economy.
The physical economy has practical limits and constraints. That’s where most of us work. Another factor is Baumol’s Cost Disease. No matter how good she is, a top flight heart surgeon can only perform 1 (2?) surgeries per day.
I”m not sanguine about how this turns out. But I’m also not persuaded it’s time to set our collective hair on fire either.
Concur. Sounds to me like attention-getting FUD. And not particularly new. I’m an industrial systems integrator, so I have close contact with automation of many kinds, including robotics and the connections between plant floors and office information systems. Automation doesn’t displace as many people as one might think–I would lay the blame for America’s declining manufacturing employment squarely on the shoulders of globalization instead.
Also, the comparison of electronic goods and related services to the provision of pretty much all other goods and services is a major category error. We are certainly benefiting from an amazing advance in the shrinking of transistors. Unfortunately, our stomachs are not getting smaller by orders of magnitude, so we don’t have orders of magnitude reductions in food consumption. The size and mass of our bodies hasn’t shrunk, so we aren’t building microscopic cars to drive and microscopic homes to live in. We have gotten more efficient in our use of raw materials for vehicles and home construction, but asymptotically, not exponentially. And some of those efficiency gains have been countered by the substantial increase in typical home sizes and vehicle mass (think SUVs replacing sedans).
Government also distorts markets with all kinds of subsidies (that get captured) and regulations (whose costs are passed on). Housing, transportation, higher education, green energy–I can’t possibly fit a comprehensive list in one 500-word comment.
Based on this one essay, I would say the book’s premise is fatally flawed. Sorry, Michael.
The problem is that we can’t live in the virtual world as long as we are physical creatures. And I don’t know about you but I’m not looking forward to the so-called “Singularity” when we port ourselves onto our computers — if that is even possible. We still need to eat and drink and a whole bunch of other things, and those needs will still need to be served. That is going to maintain this growing economic schizophrenia. Moreover, and we wrote about this more in another essay, the natural world has no purpose — at least not one we mere humans can know. Trees don’t exist for us, neither do animals. We have spent millions of years evolving for this world. The virtual world has existed for less than 50 years — and it has a very distinct purpose: to monetize our actions in exchange for serving various desires. We are utterly unadapted for this new world . . .and that, for all the good things cyberspace offers, is causing a lot of damage.
Trust me, I appreciate the blessings of Moore’s Law (such as rearview cameras). I played on the Arpanet when I was a kid, and no one has written more about the Law than I have. But I also have spent a half century observing the growing deformations on society and in people’s lives created by it. I’m an optimist about where we are headed, but enough of a realist to know that it is likely to be very, very painful.
And that is probably where we are headed. The great question is whether humanity can find purposeful lives in a world of almost universal leisure. Living in a small apartment with a free wall-sized TV, unlimited Internet access and a small, guaranteed income with your chicken curry delivery sounds like a pleasant retirement. But are you prepared to live that way for sixty years? Can you find fulfillment and meaning in such a life. We may be about to find out what a life of abundance but no purpose (other than what you can create) will be like for billions of people.
Indeed, nobody regrets the Agricultural or Industrial Revolutions — both represented massive leaps in the quality of existence for mankind. But you are making your argument based only on the benefits of these Phase Changes. What you are ignoring are the transitions from one Phase to the next . . .and those were immensely painful and resulted in oceans of blood. I am perfectly willing to accept that something very close to Utopia lies out there in the autonomous world — but getting there is going to be rough, and it looks like we’re the ones who are going to run the gauntlet.
BTW, funny you mention Marx. He is the perfect example of what happens during a Phase Change — in his case, the Industrial Revolution. His economic theories were an attempt to deal with the challenges of a world turned upside down . . .and his solution ultimately led to 100 million deaths. Are you prepared to say that no similar figure is about to emerge with a similar response to a world increasingly being governed by our machines? That we shouldn’t worry about his spiritual descendant because we are also going to have better medicine and more leisure time?
The biggest question, in my opinion, is: If no one has a job, where is the money for this small, guaranteed income supposed to come from? I assume the other things mentioned could come from the guaranteed income. But seriously, where is that guaranteed income supposed to come from?
Dude if you’re going to object to something at least try to understand what it is. The singularity is simply a point beyond which technological change cannot be forecasted.
It is not where we upload ourselves into the computer.
That’s not what Ray Kurzweil told me when he invented the concept. . .
Looks like he tells people different things.
From Futurist
I think my working definition of the phenomenon is more accurate than yours.
Plus, while he may be the most vocal proponent of the concept, I don’t think he invented it.
Very interesting. There is much parasitical existence, just as there was when we emerged from aristocratic pre industrial society. We again have vast amounts of parasitical institutions living off the system, i.e. most government jobs in Washington and the states or jobs to shape or exploit their power. Some are valuable but most probably not. They get a piece without contributing much if anything or add net negatives. I can’t get my mind around where we might be going with the economy you are describing, but I know how this accumulating drift toward centralized bureaucratic political power goes and it’s not innovative, creative or productive. We have vast centralized rules and regulations that bend the system toward those who shape the regulations; are they necessary? just parasitical or something in between. I think we’ll adjust and ultimately do more, earn our livings, and stay busy but I doubt that the centralized system helps. Humans don’t do well when idle and exploit whatever power they have. Whatever emerges I doubt that it can be centrally governed and controlled or understood a priori. Our founders seemed to understand what had occurred in Great Britain by accident, and designed a system to copy it without the old controls and with no knowledge of how it would evolve, nor toward what. Many of our failures and rigidities that distort income result from those early in the previous century who thought they understood more and were convinced they could explicitly do better from the top down. They didn’t and they couldn’t we still suffer from them and if vast new changes as you say are overwhelming us I’d suggest that the original idea of our founders probably is still the way to go and the first thing to do is get rid of the top down exploiting bureaucratic super structure, then we might just figure out, piece by piece as hundreds of millions figure out their little piece..
Ray certainly popularized the concept, which he brought over from astrophysics.
And, agreed, your working definition is now the popular one, having evolved over the years — not least because porting human intelligence to machines has turned out not to be just around the corner (and maybe impossible), while autonomous machines are proving quite possible. And Ray has indeed changed his definition over the last twenty years — much closer to George Dyson’s Darwin Among the Machines — since he was writing for me.
But to suggest I don’t know what I’m talking about is a little much — and unworthy of a conversation on Ricochet.
There is a very interesting book, published in 1836, in which author Peter Gaskell gives his view of the impacts of industrialization to-date…economically, and in terms of social structure…and speculates about the future. I reviewed and commented on it here:
Technology, Work, and Society-the Age of Transition
Very interesting. I’ll give it read tonight. Thanks.
Ah flippantly dismissive is also unworthy of conversation. Particularly since you conceded my points.
I’ll courteously refrain from pointing out the tautology in the paragraph where you mention that the first economy is biased toward inflation and then mention that food, energy, transportation, etc is costing more.
I don’t think they are, but hey, you do you.
I am unaware of the ocean of blood resulting from the agricultural revolution (the one I am thinking of is also known as the Green Revolution, founded by Norman Borlaug) you know, the one responsible for inverting the world poverty measure where 8/10 people in the world lived in extreme poverty in 1960s to 2/10 today.
Where do you get the idea that the world is “governed” by machines?
It looks like Star Trek TNG.
Although Star Trek Picard is rather pessimistic about what the Federation has become.
Concur
It’s a good thing I picked today as one of my occasional days to check the main feed, because I followed you some time back in order to be sure of being notified when this book became available. Unfortunately, Ricochet’s “follow” function works much like Medicare for Everyone.
What do you mean “we?” They’ve all had their benefits and they have all left us with reasons to mourn. I don’t think there is agreement even among the denizens of Ricochet about which items should go in the benefit column, and which should go in the regret column.
Really?
Yes, it is interesting. I’ll probably read it, too.
It was published in 1836. It brings to mind an article that was probably published very early in that decade–an article that I have somewhere in my piles of unfiled articles. It was written at the dawn of the railroad era, and expounded on how railroads would result in the moral improvement of humankind. The article was something I encountered 15-20 years ago. I thought it was a great example of how people misjudge the future of social change due to technology. Never at the time did I think that I’d ever be on a social media platform where some members would nearly or largely agree with the type of thinking in it. (I may or may not have referred the article on a social media platform I was participating in at the time.) Unfortunately, I don’t remember the author, and didn’t file a note about it in the database where I keep such things, so will have to find it the hard way.
Thinking about it now, though, I remember that I came across the article while reading some issues of Science magazine of the time–early volumes of the magazine that is still with us. (Unlike most scientific journals, I think it is still called a magazine, but am too lazy to look it up now to be sure.) I’m not sure this article was in that magazine, but Science was something I was perusing at the time.
The Agricultural Revolution began about 3,000 B.C. You know: kingdoms, wars, empire building, etc. Lots of blood.
Yes, really.
So, people learning to plant food in 3000 BC is the direct causal factor for empire building in 2350 BC (when the Akkadian empire comes into existence). That doesn’t seem like an immediate, violent transition to me.
Where was the “ocean of blood” in 3000 BC?
I don’t know. How good is the curry?