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May 23rd, 2013

CreativeDestructionThere are a lot of lessons to learn from economics, which the Austrian School of thought defines as the study of human actions. Humans have evolved, and our systems have evolved along with us, to build, trade, learn, improve, make progress, overcome challenges, and organize human societies in ways that support various social goals. In the West, particularly America, one of those goals became “full employment,” a vague term that left no room for nuance, much less the disruptions native to huge, complex financial markets. Astride the world like a colossus after World War II, America saw its economy boom and the computer era begin as technology began its now-70-year ascent.

A boom, not a kaboom

Predictions are hard to make, especially about the future. This nugget of wisdom was somehow overlooked as we sought to create our own reality by legislative fiat and industrial might. In 1948, this peculiarly American hubris led the father of cybernetics, Norbert Wiener—a “rock star” among scientists then as iMac creator Steve Jobs was more recently—to pen a dramatic letter of warning to the head of the United Auto Workers, Walter Reuther. The advent of computers, Wiener said, would bring about systems that are “extremely flexible, and susceptible to mass production, and will undoubtedly lead to the factory without employees [featuring] the automatic automobile assembly line.” It was Wiener’s apocalyptic prediction that with such an “industrial set-up” the resulting unemployment would be “disastrous.”

Of course, the sun also rises, and Wiener was so mistaken about unemployment that physicist Wolfgang Pauli’s famous retort about string theory—that an assertion can be “so far off it’s not even wrong”—seems reasonable to apply. In fact, employment figures in the U.S. swelled to a historic peak of 146 million in 2007 from 59 million in 1950 as technology marched in unrelenting progress—bringing the laser printers, plasma display rentals, and Apple products like the iPad that define modern technology. Starting in that same year, U.S. GDP increased by a factor of nearly seven by 2012, from $2 million to $13.6 (in 2005 dollars). Still, the robot assembly lines were being built, and auto workers lost hundreds of thousands of jobs between 1948 and 1990, but mass unemployment à la Wiener never happened. Why?

A history lesson first

Between about 1810 and 1820, a group called the Luddites destroyed then-revolutionary power looms and weaving frames in the north of England. Although some of their motives were born of wider concerns about class and privilege, this assemblage of mostly fabric artisans also saw technological progress as a route to unemployment, particularly their own. Predictions of “permanent technological unemployment” are revived from time to time, and the latest may be a working paper done for the National Bureau of Economic Research in late 2012. Titled “Smart Machines and Long-Term Misery,” Boston University economist Laurence Kotlikoff and Columbia University economist Jeffrey Sachs pose a question: Are machines so smart, with such powerful CPUs, that they no longer need unskilled labor to operate?

Now let’s back up. Mass unemployment didn’t follow even the loss of entire industries, like occurred in America in the postwar era. Creative destruction implies not only the end of something, but the beginning of something else. Joseph Schumpeter explains that it would have been silly to try saving the buggy whip industry in 1905, too, as whip sales began slipping with the increase in horseless carriage sales. With the auto industry would come much greater economic growth, more companies hiring more people to build more new things that will replace other aging things, and the cycle of “creative destruction” continues. It’s how we got render farms, it’s how we got tablet PCs, and it’s how we’ll get to the future. It’s not neat and clean, and it’s certainly not predictable.

The lesson?

The lesson is a tough one, and runs counter to the human predilection for control, certainty, and order. Progress, unfortunately, is messy, unpredictable, counter-intuitive at times, and only appears clearly in hindsight. Will the iPad destroy the Laptop?In our present Age of Electronic Miracles, the continuously increasing power of computers is evident if you rent laptops and compare specs to just two years ago. The challenge, as always, is to remember that not everything “new” signifies progress. We can see now, for example, that progress in the MacBook line means Thunderbolt connectors instead of Firewire, and the loss of the internal DVD—which, of course, means fewer jobs at Firewire cable makers and more jobs making external optical drives.

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