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The economics community just hasn't spent much time over the past couple of decades focusing on the effect that machine intelligence is likely to have on the labor marke

The Digital Revolution is different because computers can perform cognitive tasks too, and that means machines will eventually be able to run themselves. When that happens, they won't just put individuals out of work temporarily. Entire classes of workers will be out of work permanently. In other words, the Luddites weren't wrong. They were just 200 years too early

Slowly but steadily, labor's share of total national income has gone down, while the share going to capital owners has gone up. The most obvious effect of this is the skyrocketing wealth of the top 1 percent, due mostly to huge increases in capital gains and investment income.

Robotic pets are growing so popular that Sherry Turkle, an MIT professor who studies the way we interact with technology, is uneasy about it: "The idea of some kind of artificial companionship," she says, "is already becoming the new normal."

robots will take over more and more jobs. And guess who will own all these robots? People with money, of course. As this happens, capital will become ever more powerful and labor will become ever more worthless. Those without money—most of us—will live on whatever crumbs the owners of capital allow us.

Economist Paul Krugman recently remarked that our long-standing belief in skills and education as the keys to financial success may well be outdated. In a blog post titled "Rise of the Robots," he reviewed some recent economic data and predicted that we're entering an era where the prime cause of income inequality will be something else entirely: capital vs. labor.

while it's easy to believe that some jobs can never be done by machines—do the elderly really want to be tended by robots?—that may not be true.

Third, as more people compete for fewer jobs, we'd expect to see middle-class incomes flatten in a race to the bottom.

The question we want to answer is simple: If CBTC is already happening—not a lot, but just a little bit—what trends would we expect to see? What are the signs of a computer-driven economy?

if automation were displacing labor, we'd expect to see a steady decline in the share of the population that's employed.

Second, we'd expect to see fewer job openings than in the past.

In the economics literature, the increase in the share of income going to capital owners is known as capital-biased technological change

Fourth, with consumption stagnant, we'd expect to see corporations stockpile more cash and, fearing weaker sales, invest less in new products and new factories

Fifth, as a result of all this, we'd expect to see labor's share of national income decline and capital's share rise.

We're already seeing them, and not just because of the crash of 2008. They started showing up in the statistics more than a decade ago. For a while, though, they were masked by the dot-com and housing bubbles, so when the financial crisis hit, years' worth of decline was compressed into 24 months. The trend lines dropped off the cliff.

Corporate executives should worry too. For a while, everything will seem great for them: Falling labor costs will produce heftier profits and bigger bonuses. But then it will all come crashing down. After all, robots might be able to produce goods and services, but they can't consume them

in another sense, we should be very alarmed. It's one thing to suggest that robots are going to cause mass unemployment starting in 2030 or so. We'd have some time to come to grips with that. But the evidence suggests that—slowly, haltingly—it's happening already, and we're simply not prepared for it.

the first jobs to go will be middle-skill jobs. Despite impressive advances, robots still don't have the dexterity to perform many common kinds of manual labor that are simple for humans—digging ditches, changing bedpans. Nor are they any good at jobs that require a lot of cognitive skill—teaching classes, writing magazine articles

in the middle you have jobs that are both fairly routine and require no manual dexterity. So that may be where the hollowing out starts: with desk jobs in places like accounting or customer support.

In fact, there's even a digital sports writer. It's true that a human being wrote this story—ask my mother if you're not sure—but in a decade or two I might be out of a job too

Doctors should probably be worried as well. Remember Watson, the Jeopardy!-playing computer? It's now being fed millions of pages of medical information so that it can help physicians do a better job of diagnosing diseases. In another decade, there's a good chance that Watson will be able to do this without any human help at all.

Take driverless cars.

The next step might be passenger vehicles on fixed routes, like airport shuttles. Then long-haul trucks. Then buses and taxis. There are 2.5 million workers who drive trucks, buses, and taxis for a living, and there's a good chance that, one by one, all of them will be displaced

There will be no place to go but the unemployment lin

we'll need to let go of some familiar convictions. Left-leaning observers may continue to think that stagnating incomes can be improved with better education and equality of opportunity. Conservatives will continue to insist that people without jobs are lazy bums who shouldn't be coddled. They'll both be wrong.

The modern economy is complex, and most of these trends have multiple causes.

we'll probably have only a few options open to us. The simplest, because it's relatively familiar, is to tax capital at high rates and use the money to support displaced workers. In other words, as The Economist's Ryan Avent puts it, "redistribution, and a lot of it."

would we be happy in a society that offers real work to a dwindling few and bread and circuses for the rest?

Most likely, owners of capital would strongly resist higher taxes, as they always have, while workers would be unhappy with their enforced idleness. Still, the ancient Romans managed to get used to it—with slave labor playing the role of robots—and we might have to, as well.

 economist Noah Smith suggests that we might have to fundamentally change the way we think about how we share economic growth. Right now, he points out, everyone is born with an endowment of labor by virtue of having a body and a brain that can be traded for income. But what to do when that endowment is worth a fraction of what it is today? Smith's suggestion: "Why not also an endowment of capital? What if, when each citizen turns 18, the government bought him or her a diversified portfolio of equity?"

In simple terms, if owners of capital are capturing an increasing fraction of national income, then that capital needs to be shared more widely if we want to maintain a middle-class society.

it's time to start thinking about our automated future in earnest. The history of mass economic displacement isn't encouraging—fascists in the '20s, Nazis in the '30s—and recent high levels of unemployment in Greece and Italy have already produced rioting in the streets and larger followings for right-wing populist parties. And that's after only a few years of misery.

When the robot revolution finally starts to happen, it's going to happen fast, and it's going to turn our world upside down. It's easy to joke about our future robot overlords—R2-D2 or the Terminator?—but the challenge that machine intelligence presents really isn't science fiction anymore. Like Lake Michigan with an inch of water in it, it's happening around us right now even if it's hard to see

A robotic paradise of leisure and contemplation eventually awaits us, but we have a long and dimly lit tunnel to navigate before we get there.

The economics profession that Mr. Thaler entered in the early 1970s was deeply invested in proving that it was more than a mere social science.

But economic outcomes are the result of human decision-making. To achieve the same mathematical precision of hard sciences, economists made a radically simplifying assumption that people are “optimizers” whose behavior is as predictable as the speed of physical body falling through space.

After so-called behavioral economics began to go mainstream, Professor Thaler turned his attention to helping solve a variety of business and, increasingly, public policy issues. As these tools have been applied to practical problems, Professor Thaler has noted that there has been “very little actual economics involved.” Instead, the resulting insights have “come primarily from psychology and the other social sciences.”

it is actually “a slur on those other social sciences if people insist on calling any policy-related research some kind of economics.”

Professor Thaler’s narrative ultimately demonstrates that by trying to set itself as somehow above other social sciences, the “rationalist” school of economics actually ended up contributing far less than it could have. The group’s intellectual denial led to not just sloppy social science, but sloppy philosophy.

Economists would do well to embrace both their philosophical and social science roots. No amount of number-crunching can replace the need to confront the complexity of human existence.

It is not only in academics that the most difficult questions are avoided behind a mathematical smoke screen. When businesses use cost-benefit analysis, for instance, they are applying a moral philosophy known as utilitarianism, popularized by John Stuart Mill in the 19th century.

Compared against alternative moral philosophies, like those of Kant or Aristotle, Mill has relatively few contemporary adherents in professional philosophical circles. But utilitarianism does have the virtue of lending itself to mathematical calculation. By giving the contentious philosophy a benign bureaucratic name like “cost-benefit analysis,” corporations hope to circumvent the need to confront the profound ethical issues implicated.

The “misbehaving” of Professor Thaler’s title is supposed to refer to how human actions are inconsistent with rationalist economic theory

Can economists judge this to be a good thing? Indeed, how useful is efficiency as a normative guide to public policy? Can economists legitimately base their advocacy of particular policies on that criterion?

But when greater efficiency is accompanied by a redistribution of economic privilege in society, subjective ethical dimensions inevitably get baked into the economist’s recommendations.

most subjects divided their tokens nearly equally between the public and private accounts

Economics students, by contrast, invested only 20 percent of their tokens in the public fund, on average.

Three quarters of non-economists reported that a "fair" investment of tokens would necessitate putting at least half of their tokens in the public fund. A third of economists didn't answer the question or gave "complex, uncodable responses." The remaining economics students were much more likely than their non-economist peers to say that "little or no contribution was 'fair'."

Other studies have found economics students to exhibit a stronger tendency towards anti-social positions compared to their peers.

Carter and Irons had both economics students and non-economics students play the "ultimatum" game -- a two-player game where one player is given a sum of money to divide between the two. The other player is then given a chance to accept or reject the offer; if she accepts it, then each player receives the portion of money proposed by the offerer. If she declines, then neither player gets any money. Carter and Irons found that, relative to non-economics students, economics students were much more likely to offer their partners small sums, and, thus, deviate from a "fair" 50/50 spilt.

Finally, researchers had both economics and non-economics students fill out two "honesty surveys" -- one at the start of the semester and one at the conclusion -- regarding how likely they were to either report being undercharged for a purchase or return found money to its owner. The authors found that, after taking an economics class, students' responses to the end-of-the-semester survey were more likely to reflect a decline in honest behavior than students who studied astronomy.

Other studies supported these key findings. They found that economics students are less likely to consider a vendor who increases the price of bottled water on a hot day to be acting "unfairly." Economics students who played a lottery game were willing to commit less of their potential winnings to fund a consolation prize for losers than were their peers. And such students were significantly more willing to accept bribes than other students. Moreover, economics students valued personal achievement and power more than their peers while attributing less importance to social justice and equality.

results show that it is not just selection that is responsible for the reported increase in immoral attitudes

Later studies support this conclusion. They found ideological differences between lower-level economics students and upper-level economics students that are similar in kind to the measured differences between the ideology of economics students as a whole and their peers. He finds that upper-level students are even less likely to support egalitarian solutions to distribution problems than lower-level students, suggesting that time spent studying economics does have an indoctrination effect.

The problem is not only that students are exposed to such views, but that there are no "balancing" courses taught in typical American colleges, in which a different view of economics is presented. Moreover, while practically all economic classes are taught in the "neoclassical" (libertarian, self centered) viewpoint, in classes by non-economists -- e.g., in social philosophy, political science, and sociology -- a thousand flowers bloom such that a great variety of approaches are advanced, thereby leaving students with a cacophony of conflicting pro-social views. What is needed is a systematic pro-social economics, that combines appreciation for the common good and for others as well as for the service of self.

So how should the teaching of economics change? That's easy. While mathematical fluency is very useful, it should not be at the heart of economics instruction. That place should be reserved for economic history.

But the headline-grabbing differences between the findings of these Nobel laureates are less significant than the profound agreement in their scientific approach to economic questions, which is characterized by formulating and testing precise hypotheses

I’m troubled by the sense among skeptics that disagreements about the answers to certain questions suggest that economics is a confused discipline, a fake science whose findings cannot be a useful basis for making policy decisions.

It is true that the answers to many “big picture” macroeconomic questions — like the causes of recessions or the determinants of growth — remain elusive.

As is the case with epidemiologists, the fundamental challenge faced by economists — and a root cause of many disagreements in the field — is our limited ability to run experiments

economists have recently begun to overcome these challenges by developing tools that approximate scientific experiments to obtain compelling answer

Other economic studies have taken advantage of the constraints inherent in a particular policy to obtain scientific evidence

Even when such experiments are unfeasible, there are ways to use “big data” to help answer policy questions

As everyone in business knows, you manage what you measure. So although the replacing-GDP discussion may seem a little airy, its growing credibility in important circles could give it a real impact on economic policy

The story usually begins with Jeremy Bentham, an Englishman who in 1781 outlined a philosophy of utility that assessed the merits of an action according to how much happiness it produced. This was during the Enlightenment, when thinkers sought to replace religion-based rules with rational, scientific guides to decision making and life.

It’s true that the challenges of tracking energy use or pollution aren’t huge. But the politics are extremely tricky. In its early days the Clinton administration pushed the Bureau of Economic Analysis—the agency that measures U.S. GDP—to develop a green GDP

For its original purpose—measuring short-term economic fluctuations—GDP is not likely to be supplanted anytime soon. It may even be gaining ground: A major discussion is under way concerning whether the U.S. Federal Reserve and other central banks should in times of crisis focus not on inflation but on GDP growth.

Compiling GDP involves making a lot of choices, and even reasonable choices can lead to skewed results. Statisticians understandably favor goods and services that are bought and sold—and thus easily valued by market price—over economic activities whose value must be estimated

Developing nations with lots of foreign direct investment saw GDP grow much faster than GNP would have—but didn’t necessarily reap the benefits, because the investments’ profits went mostly to multinational corporations.

Economists, the most enthusiastic adopters of the concept, came to focus instead on the tangible expression of people’s needs and desires: what they were willing to spend money on.

Many things of value in life cannot be fully captured by GDP, but they can be measured by metrics of health, education, political freedom, and the like

The idea that economic and other data can be better presented with a dashboard of indicators than as a single number or ranked list is very much in the air among experts and policy makers.

In Sarkozy’s 2009 report on alternatives to GDP, the word “dashboard” appears 78 times. But the notion of dashboards hasn’t captured the public’s imagination. What has is a word that shows up just 29 times in the Sarkozy report (mostly in the bibliography): “happiness.”

In the 1950s and 1960s psychologists and sociologists reopened the question of whether it could be quantified. Opinion polls, then entering their heyday as measurers (and in some cases determiners) of the public mood, were an obvious vehicle for the attempt.

The economist Richard Easterlin imported the happiness discussion to his discipline with a 1974 paper pointing out that the results of national happiness polls did not correlate all that well with per capita income.

The interest in happiness surveys has also led to critical scrutiny of the Easterlin paradox. After reevaluating decades’ worth of polling data, the economists Betsey Stevenson and Justin Wolfers made headlines in 2008 by refuting the paradox—at least the part that said people in wealthy nations weren’t happier than those in poor nations

They were unable to conclusively debunk the argument that rises in income over time fail to deliver increased happiness, but the evidence they marshaled certainly muddied the waters

Money can’t buy happiness. But it could perhaps buy the ability to measure it.

For the sake of everyone who stands to gain from a better knowledge of politics, economics and society, the social sciences need to overcome their inferiority complex, reject hypothetico-deductivism and embrace the fact that they are mature disciplines with no need to emulate other sciences.

Or consider the famous “impossibility theorem,” developed by the economist Kenneth Arrow, which shows that no single voting system can simultaneously satisfy several important principles of fairness. There is no need to test this model with data — in fact, there is no way to test it — and yet the result offers policy makers a powerful lesson: there are unavoidable trade-offs in the design of voting systems.

Unfortunately, the belief that every theory must have its empirical support (and vice versa) now constrains the kinds of social science projects that are undertaken, alters the trajectory of academic careers and drives graduate training. Rather than attempt to imitate the hard sciences, social scientists would be better off doing what they do best: thinking deeply about what prompts human beings to behave the way they do.

theoretical models can be of great value even if they are never supported by empirical testing. In the 1950s, for instance, the economist Anthony Downs offered an elegant explanation for why rival political parties might adopt identical platforms during an election campaign. His model relied on the same strategic logic that explains why two competing gas stations or fast-food restaurants locate across the street from each other — if you don’t move to a central location but your opponent does, your opponent will nab those voters (customers). The best move is for competitors to mimic each other. This framework has proven useful to generations of political scientists even though Mr. Downs did not empirically test it and despite the fact that its main prediction, that candidates will take identical positions in elections, is clearly false. The model offered insight into why candidates move toward the center in competitive elections

Likewise, the analysis of empirical data can be valuable even in the absence of a grand theoretical model. Did the welfare reform championed by Bill Clinton in the 1990s reduce poverty? Are teenage employees adversely affected by increases in the minimum wage?

Answering such questions about the effects of public policies does not require sweeping theoretical claims, just careful attention to the data.

theories are like maps: the test of a map lies not in arbitrarily checking random points but in whether people find it useful to get somewhere.

Economists, political scientists and sociologists have long suffered from an academic inferiority complex: physics envy. They often feel that their disciplines should be on a par with the “real” sciences and self-consciously model their work on them, using language (“theory,” “experiment,” “law”) evocative of physics and chemistry.

The ideal of hypothetico-deductivism is flawed for many reasons. For one thing,

The idea is textbook economics. People respond to incentives.

incentives can be used not just for the sake of individuals, but for the benefit of society as a whole.

it would be a drop in the bucket compared to the economic harm if the pandemic persists.

His plan would cost the country between $250 billion and $300 billion.

"Payments may indeed encourage some people to get the vaccine," says Cynthia Cryder, an associate professor of marketing at Washington University's Olin Business School. "But it may also deter people from getting the vaccine. Because payments signal that the vaccine is risky."

Another method of getting to herd immunity may exist, though it has not been discussed widely. Mandates — requiring people to get vaccinated either by orders of state governments or employers.

To economist Robert Litan, if we ultimately must choose between the carrot of cash payouts and the stick of mandated vaccines, the answer is clear: the carrot.

"I think the level of anger in the country will go up extraordinarily high if we had mandates," he says.

That has made him the most popular influencer among American Gen-Zers, according to a twice-yearly survey of 14,500 of the country’s teenage boys and girls by Piper Sandler, a finance company that researches consumer data. Teachers have reported boys as young as 11 praising and emulating him.

That’s because real people — and yes, even professional economists — tend to process the parallel rise of prices and wages in quite different ways.

In brief, researchers have found that we tend to internalize the gains due to inflation and externalize the losses. These different processes yield different emotional responses.

Let’s start with higher prices. Sticker shock hurts. Even as someone who closely studies the inflation statistics, I’m still often surprised by higher prices. They feel unfair. They undermine my spending power, and my sense of control and order.

in reality, higher prices are only the first act of the inflationary play. It’s a play that economists have seen before. In episode after episode, surges in prices have led to — or been preceded by — a proportional surge in wages.

Even though wages tend to rise hand-in-hand with prices, we tell ourselves a different story, in which the wage rises we get have nothing to do with price rises that cause them.

But then my economist brain took over, and slowly it sunk in that my raise wasn’t a reward for hard work, but rather a cost-of-living adjustment

Internalizing the gain and externalizing the cost of inflation protects you from this deflating realization. But it also distorts your sense of reality.

The reason so many Americans feel that inflation is stealing their purchasing power is that they give themselves unearned credit for the offsetting wage rises that actually restore it.

younger folks — anyone under 60 — had never experienced sustained inflation rates greater than 5 percent in their adult lives. And I think this explains why they’re so angry about today’s inflation.

While older Americans understood that the pain of inflation is transitory, younger folks aren’t so sure. Inflation is a lot scarier when you fear that today’s price rises will permanently undermine your ability to make ends meet.

Perhaps this explains why the recent moderate burst of inflation has created seemingly more anxiety than previous inflationary episodes.

More generally, being an economist makes me an optimist. Social media is awash with (false) claims that we’re in a “silent depression,” and those who want to make American great again are certain it was once so much better.

in reality, our economy this year is larger, more productive and will yield higher average incomes than in any prior year on record in American history

And because the United States is the world’s richest major economy, we can now say that we are almost certainly part of the richest large society in its richest year in the history of humanity.

The income of the average American will double approximately every 39 years. And so when my kids are my age, average income will be roughly double what it is today. Far from being fearful for my kids, I’m envious of the extraordinary riches their generation will enjoy.

Psychologists describe anxiety disorders as occurring when the panic you feel is out of proportion to the danger you face. By this definition, we’re in the midst of a macroeconomic anxiety attack.

ne one hand, Germany's constitution, written after the second world war to prevent any repeat of Nazi horrors, assures the rights of parents and of religious freedom. But on the other hand, it guarantees the physical inviolability of every person

The court felt that the boy's right to inviolability trumped the religious and parental rights of his mother and father.

it is wrong to make an exception for involuntary male circumcision when female circumcision is seen as barbaric. And he maintains that arguments which lean on tradition alone are inadequate, for the same reason that tradition cannot, nowadays, justify polygamy or footbinding.

there is another way in which the double-"you" distinction may nudge thought. It refers to what Dan Slobin, a linguist, has called “thinking for speaking”. Speakers of different languages may well see the world similarly most of the time, but when people are specifically planning to say something, different languages may temporarily force speakers to pay more attention to certain distinctions. For example, every time a German person says “you”, a little attention must be paid to formality. So split pronouns (or other features) may act as a kind of "prime" for certain thoughts or behaviours. Primes can be powerful. Every time I refer to my boss, for example, the formal "you" may prime me to be more aware of the formality and hierarchy of our relationship. So too when I must address an old friend.

A bigger question is whether differences between languages persist when people are not "thinking for speaking"—ie, whether they condition something we might call a robust worldview. When silently strolling down country lane, do speakers of different languages think in profoundly different ways? The popular view is “yes”, but furious debate among researchers continues.

At the book’s center is Mr. Piketty’s contention — contrary to the influential theory developed by Simon Kuznets in the 1950s and ’60s — that mature capitalist economies do not inevitably evolve toward greater economic equality. Instead, Mr. Piketty contends, the data reveals a deeper historical tendency for the rate of return on capital to outstrip the overall rate of economic growth, leading to greater and greater concentrations of wealth at the very top.

Mr. Piketty rejected any economic determinism. “It all depends on what the political system decides,” he said.

Mr. Piketty, who writes in the book that the collapse of Communism in 1989 left him “vaccinated for life” against the “lazy rhetoric of anticapitalism,” is no Marxian revolutionary. “I believe in private property,” he said in the interview. “But capitalism and markets should be the slave of democracy and not the opposite.”

And the kind of people who can comfortably afford to pay a nine-figure sum for a Picasso, the top 0.001 percent, say, are doing still better than that. You can draw that conclusion by reading the work of the French economists Thomas Piketty and Emmanuel Saez. Or you can form it by looking carefully at the market for the work of a certain Spanish painter.

After adjusting for inflation and using our 1 percent of net worth premise, a person would have needed $12.3 billion of wealth in 1997 dollars to afford the painting

In other words, the number of people who, by this metric, could easily afford to pay $179 million for a Picasso has increased more than fourfold since the painting was last on the market

American and European authorities may wish to put further effort into preventing art transactions from being used to launder money or evade taxes, as the economist Nouriel Roubini has argued is commonplace

l sums for a painting or sculpture should hope most of all that this basic global inequality trend — of the wealth of the ultrarich growing faster than the world population overall economy — remains intact

But labor economists have long questioned this view

the labor force — is people. And because workers are people, wages are not, in fact, like the price of butter, and how much workers are paid depends as much on social forces and political power as it does on simple supply and demand.

What’s the evidence? First, there is what actually happens when minimum wages are increased. Many states set minimum wages above the federal level, and we can look at what happens when a state raises its minimum while neighboring states do no

the overwhelming conclusion from studying these natural experiments is that moderate increases in the minimum wage have little or no negative effect on employment.

Then there’s history. It turns out that the middle-class society we used to have didn’t evolve as a result of impersonal market forces — it was created by political action, and in a brief period of time

Part of the answer is direct government intervention, especially during World War II, when government wage-setting authority was used to narrow gaps between the best paid and the worst paid. Part of it, surely, was a sharp increase in unionization. Part of it was the full-employment economy of the war years, which created very strong demand for workers and empowered them to seek higher pay.

How did that happen?

America was still a very unequal society in 1940, but by 1950 it had been transformed by a dramatic reduction in income disparities, which the economists Claudia Goldin and Robert Margo labeled the Great Compression.

the Great Compression didn’t go away as soon as the war was over. Instead, full employment and pro-worker politics changed pay norms, and a strong middle class endured for more than a generation. Oh, and the decades after the war were also marked by unprecedented economic growth.

Walmart is under political pressure over wages so low that a substantial number of employees are on food stamps and Medicaid. Meanwhile, workers are gaining clout thanks to an improving labor market, reflected in increasing willingness to quit bad jobs.

its justification for the move echoes what critics of its low-wage policy have been saying for years: Paying workers better will lead to reduced turnover, better morale and higher productivity.

What this means, in turn, is that engineering a significant pay raise for tens of millions of Americans would almost surely be much easier than conventional wisdom suggests. Raise minimum wages by a substantial amount; make it easier for workers to organize, increasing their bargaining power; direct monetary and fiscal policy toward full employment, as opposed to keeping the economy depressed out of fear that we’ll suddenly turn into Weimar Germany. It’s not a hard list to implement — and if we did these things we could make major strides back toward the kind of society most of us want to live in.

The point is that extreme inequality and the falling fortunes of America’s workers are a choice, not a destiny imposed by the gods of the market. And we can change that choice if we want to.