"Smart Machines and Long-Term Misery"

by Sachs, Jeffrey D; Kotlikoff, Laurence J (2012)

Abstract

Are smarter machines our children’s friends? Or can they bring about a transfer from our relatively unskilled children to ourselves that leaves our children and, indeed, all our descendants – worse off? This, indeed, is the dire message of the model presented here in which smart machines substitute directly for young unskilled labor, but complement older skilled labor. The depression in the wages of the young then limits their ability to save and invest in their own skill acquisition and physical capital. This, in turn, means the next generation of young, initially unskilled workers, encounter an economy with less human and physical capital, which further drives down their wages. This process stabilizes through time, but potentially entails each newborn generation being worse off than its predecessor. We illustrate the potential for smart machines to engender long-term misery in a highly stylized two-period model. We also show that appropriate generational policy can be used to transform win-lose into win-win for all generations.

Key Passage

what if the Luddites are now getting it right -- not for labor as a whole, but for unskilled labor whose wages are no longer keeping up with the average? Indeed, what if machines are getting so smart, thanks to their microprocessor brains, that they no longer need unskilled labor to operate? Evidence of this is everywhere. Smart machines now collect our highway tolls, check us out at stores, take our blood pressure, massage our backs, give us directions, answer our phones, print our documents, transmit our messages, rock our babies, read our books, turn on our lights, shine our shoes, guard our homes, fly our planes, write our wills, teach our children, kill our enemies, and the list goes on. Yes, technology has always been changing. But today’s change is substituting for, not complementing unskilled labor.  (p.2)

Keywords

Automation, Wages, Economics, Misery, Generational Change, Public Policy

Themes

Automation

Links to Reference

• https://www.nber.org/system/files/working_papers/w18629/w18629.pdf
• https://www.nber.org/papers/w18629
• http://dx.doi.org/10.3386/w18629

Citation

Share

How to contribute.