Tuesday, May 27, 2014

review of Cowen's "Average Is Over"

Tyler Cowen's Average Is Over has not received a ton of attention. (Here's the only substantive review I've seen.) But it's an important look at the role of technological advance for the job market and recent concerns about income inequality-- and the (prospective) future.

If one is concerned about the future in terms of economy and "inequality", I can easily recommend two recent, easy-to-read books: Cowen's and the even-more-important Coming Apart by Charles Murray. (If one wants to extend their reading-- and read with a more critical eye-- I'd recommend The Spirit Level and from the looks of it, Piketty's recent famous/infamous book.)

Cowen briefly engages Murray's book, in talking about migration and marriage patterns among the college educated (171-173, 249). But beyond the direct references, there is enough overlap to make the books both complements and rivals in part. And like Murray, Cowen's book is broad-ranging, arguing that the current/future economy will have a big impact on jobs, education, marriage and family, quality of life and how we negotiate life (p. 4).

From an economist, it's not surprising to read about the role of machines and technology on labor markets-- or the impact of globalization. Combining the two, Cowen distinguishes between relatively stagnant vs. dynamic sectors of the economy. (As examples, he notes that an iPhone is more powerful than the most powerful computer of 30 years ago, while air travel is only marginally faster than 1970 [4-5].)

Economists talk about three different forms of tech advance: new products, improved products, and the same products at lower cost/price. But Cowen opens by describing the ways in which technology has changed less obvious things in "the economy"-- from dating and chess to cars and journalism.  And he takes a particular delight in describing the game-theoretic aspects of deception vs. detection in everything from police work to dating and website reviews.

In chapter 2, Cowen turns to labor markets and earnings-- with a focus on IT skills and, more important/precisely, IT literacy. "The ability to mix technical knowledge with solving real-world problems is the key, not sheer, number-crunching or programming for its own sake." (21b) There are "dramatic gains in the personal and professional lives of people who interpret machine feedback" well (73) Moreover, partnerships with machines will become more important: "How expert does the human have to be?...She has to be good at understanding and correcting the computer's mistakes, which is a very different skill." (88, 151-154). Pointing to medicine, he asks who/what "is the most frequently consulted doctor in the US today?" Google. (89) 

In chapter 3, he describes four stages of the process at hand (48): machines add little; experts start to exploit machines; broad, minimum expertise is valuable; and humans are not needed as much for the tasks that remain.

Cowen points to the process of "creative destruction" and the ROI for higher skills: "high wages or capital gains to talented and inventive workers. and pretty low returns on ordinary labor and ordinary savings." (20). He notes that the middle class has been bolstered in recent years, largely by protected, government, service-sector jobs (176-177)-- whether they are all that productive or not (38). He argues that most of the job loss from freer trade has already occurred. And he observes that none of this is not simply an American phenomenon (40). For example, he believes that China has the most to lose from the shifts that remain.

One of the questions that emerges is timeliness: how much of our recent labor market woes are a function of the trends noted by Cowen vs. a function of macroeconomic troubles, manifesting at least for now, to a large extent, in a way that parallels Cowen's story? The displaced mid-level workers are both the last ones you'd hire back-- and the ones most vulnerable to Cowen's claims about market dynamics. (In this sense, the book subtitle's reference to "the Great Stagnation" invites provocative and perhaps ironic comparisons to "the Great Recession".)

Along the same lines, Cowen notes the trend towards increased "disability" and lower labor-force participation for able-bodied males (51-53, 57). From another angle, are there suddenly more "zero-marginal product" workers as a function of the macroeconomy or the adjustments in the economy exacerbated by a lack of skills and work ethic?

Obviously, all of this should impact high school and post-secondary education (90-93)-- at least, what's covered. In chapter 10 and following his "optimistic" view on technology, he sees a wider-sweeping role for technology in higher education, through MOOC's and the like. (I think the wide sweep will be greater where large lectures are predominate-- and limited by the lack of self-discipline required for students to be successful in that learning format.) Likewise, Cowen sees marketing as "seminal" (22) and management as "a role of growing importance" in the new economy (22; 28-30). He discusses the increasing importance of honesty/morality or "conscientiousness" (30-32) to firms-- and thus, the importance of hiring (36).

Finally, a critique: In chapter 9, Cowen tells a relatively simple story to explain constant wages over the last 40 years. He fails to emphasize that wages are a simplistic and misleading proxy for standards of living-- both because they ignore other forms of compensation (most notably, fringe benefits) and improved purchasing power and product quality. Moreover, he largely dismisses trade/competition and immigration as primary factors-- and argues that most productivity gains have come through "outsourcing" (165-166), an intractable fact of life (169).


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