Tuesday, October 15, 2013

Book Review: Average Is Over

Tyler Cowen's recent book, Average Is Over, is a deeply pessimistic and fundamentally mistaken look at America's future. He's got the ingredients right--computerization, globalization, a skills misfit--but he puts them together in a way that doesn't make any sense.

No doubt we are beginning an era of rapid technological change, one probably as dramatic as the industrial revolution or electrification. The computer revolution has grown up, is leaving the IT ghetto behind, and now is moving into the world of Real Stuff, radically changing the way we will live. Many, many jobs will be automated out of existence, or at least changed into something unrecognizable today. This will involve a new way of working, putting a premium on different sets of work skills.

Mr. Cowen's book catalogs some of those changes, using, among other items, the interesting example of freestyle chess as a guide. Unlike the traditional mano a mano chess tournaments of yore, freestyle chess lets the players use whatever tools are available, including powerful computers (that Mr. Cowen dubs genius machines). The combination of man and machine is more effective than either alone, and the best freestyle chess teams can beat any human or computer opponent out there. Freestyle teams include computer geeks and chess nerds--but not the best of either. Instead, the teams put a premium on computer/human teamwork, and must decide when to trust the computer, or instead go with human instinct. This is a different skill set than either the traditional grandmaster or computer nerd possesses.

His discussion of chess occupies a goodly portion of the book, but two other examples add to the flavor. He spends most of a chapter on String Theory, an esoteric field of physics primarily of interest to hobbyists. Finally we come (sort of) down to earth with an account of the digestive tract in starfish.

So there you have it. You take these examples, add them together, and you get--I dunno--maybe $5-6 million in global annual revenue if you're lucky. Enough to keep Bill Gates in the pink for a couple of weeks, but this is not the stuff that economies are made of. While he does mention other topics of somewhat more practical importance, the book radiates unreality. There is very little about how people in the future will actually earn a living.

Indeed, in one large part of our economy he argues that the dashing young men and their genius machines will have almost no impact at all. By virtue of demographics, he predicts that health care costs will continue to grow faster than inflation indefinitely. I find this incredible. At most demographics suggests a growing job market for home health care aids (a low wage job), but surely the genius machines are going to displace large numbers of doctors and technicians. Watson (it of Jeopardy fame) was designed to do medical diagnoses--no human doctor will be able to compete with that. Radiologists, pathologists, oncologists, etc., are all looking at the unemployment line.

Indeed, I think Mr. Cowen gets the trend all wrong. He says that middle-wage workers (bookkeepers, travel agents, stock clerks) will suffer most, while the "cognitive elite" will benefit. But he's wrong. Computers are putting lots of lawyers out of work right now. College professors are on the bubble. Doctors are not too far behind. The cost savings is maximized when you eliminate the most expensive people. The home health care aid, nurse practitioner, and physical therapist are more likely to stay employed than most doctors. Those middle-income, skilled trades will survive and thrive--they're the eyes, hands and feet for the computers.

It is surely odd that Mr. Cowen has not addressed topics more central to the way people actually make money. Important topics such as agriculture, oil & gas, and manufacturing are almost unmentioned. And this leads to the fundamental flaw of the book.

He posits that the future will lead to a radically inegalitarian society, with a few very wealthy millionaires and billionaires, and the rest of us left over as shlubs. This seems indisputable, and inequality doesn't bother me particularly. But he further claims that a large fraction of our population will be poorer in an absolute sense, not just relatively. They will live in more isolated areas, have less access to health care, eat lower quality food, and live in smaller and less comfortable houses. I find this unbelievable. As I say, his is a very pessimistic view of the future. I also don't think it's true.

You can see why Mr. Cowen thinks so. Given that his examples are all of the pocket change variety, no wonder he thinks we'll all be poor. But then why are we undergoing this huge technological revolution just to save a few pennies at the margin? Mr. Cowen's (implicit) answer to that is very disturbing.

His view of America's future is similar to Latin America's present--a wealthy elite lording it over the miserable peasants. But America isn't built that way. Unlike Latin America, our economy is not structured around crony capitalism (despite the best efforts of Democrats to move us in that direction). Rich people in the US can't just collect rents in the manner of Carlos Slim, Pemex, the Mexican teachers' unions, or the drug gangsters. Instead, American billionaires become rich only because they provide goods and services to consumers at prices people can afford.

Yes, we have a few, rent-collecting scoundrels--maybe Goldman Sachs falls into that category. But folks like Malcom McLean, Sam Walton, Steve Jobs, and George Mitchell all did something that made everybody richer. Mr. Cowen describes a scene--two billionaires having lunch--that shows he fails to appreciate this fact. Those two billionaires earned their billions by improving the lives of us shlubs--not by diminishing them.

There is no good way to interpret the message of Average is Over. Perhaps Mr. Cowen thinks we're going to evolve into a crony economy such as they have in Mexico, Brazil and Argentina? That is surely a very depressing thought, and one the Tea Party is actively resisting. If that's true then we really will become poorer, but it won't be because of technological change or the computer revolution.

Or perhaps Mr. Cowen thinks that billionaires can become rich without selling anything to anybody? In Average is Over, apparently the only things the peasants can buy is cheap entertainment. That's it--an economy based on Grand Theft Auto and internet porn. No wonder Mr. Cowen picks examples of no financial significance.

In reality, billionaires become rich because they sell things to people at a price we can afford. Us shlubs buy the stuff because it makes our lives better. Of course there will be winners and losers in any technological revolution--just ask lawyers, college professors and doctors about that. But Mr. Cowen's dire prediction of mass impoverishment will not come to pass.

My post entitled Getting Richer While Feeling Poorer is a much clearer vision of the future than Average is Over. Mr. Cowen exaggerates the problem of inequality, which I address in a post entitled Are Rich People Rich? Finally, some thoughts on the future of the labor market in STEM fields are here.

I've read a lot of books by Tyler Cowen and Alex Tabarrok. I have enjoyed them all, including this one. But within that set, the current tome is well below average.

Further Reading:

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