Inequality and Innovation
By Arnold Kling
the best minds in labor economics differ on whether the 1990s and early 2000s are best seen as a continuation of the 1980s inequality trend (Harvard’s Mr. Katz) or an end to it (Berkeley’s David Card.)
The answer matters. Mr. Card and like-minded scholars say: The superstars are still big winners. But in the rest of the labor market, the widening of inequality in the 1980s reflected a one-time change in attitudes and rules, and isn’t going to get wider. Don’t blame technology; it was at least as pervasive in the 1990s.
I personally would place my bet on innovation as the source of inequality.
I had lunch today with Robin Hanson, who pointed out that really important innovations will substitute for brains rather than for muscle. As he put it, a purely mechanical innovation can substitute for capital in manufacturing, meaning a small share of a fraction of output. But something that can substitute for a human brain–now that would be a big deal. He predicted really dramatic inequalities if we ever found good substitutes for human brains, because if producers don’t need your human brain any more, your bargaining power is sort of hosed.
Hmmm…maybe we are very early along that path, hence the rise in inequality.
Just a thought.