TGS and RATM
That is, “The Great Stagnation” and “Race Against the Machine.” Tyler Cowen writes,
I understand how the TGS argument fits into the cyclical story of 2007-2011 (excess confidence and overextension, Minsky moment, AD contraction, AS problems slow down the recovery), but I don’t understand how the Race Against the Machine story interacts with the cycle, or if it is even supposed to.
Read the whole post. I could not decide what to excerpt. My answer would be that RATM describes the last fifteen years, except that in the late 1990s and in 2005-2006 we experienced false booms due to exuberance. Rather than creating sustainable patterns of specialization and trade, we created unsustainable ones, particularly in 2005-2006, and that is why we had such a hard landing. The late 1990s boom was not nearly as distortionary, for a number of reasons. Laying extra fiber-optic cable a few years early was disastrous for some companies, but not for the economy as a whole.
I think that the most interesting challenge posed by Tyler in the video of the year concerns the health care and education sectors. Why are they not improving? Some possibilities:
1. They are hard to improve because people are harder to reshape than things (Tyler makes this point).
2. They are more complex, and we need to see more iterations of Moore’s Law before computers can help (I think Tyler also takes this point of view).
3. The incumbents are better at fending off innovation, by using credentialism and persuading consumers that it is risky to adopt new processes. This is the “fortified towns” story of my jobs speech.
My opinion is that the chances are increasing that we will see sudden “tipping” in education away from traditional models. I think that the technology is pretty much here to do better than the old-fashioned classroom. It’s being held back by the incumbents, but they are going to lose, just as the music publishers have been losing and the book publishers have been losing.
In health care, I am not sure that all of the necessary technology has arrived to replace your doctor with a computer that uses DNA, scans, and blood samples to develop treatment plans. But I would estimate that the chances are greater than 50-50 that we will be there within a decade. Again, there will be adoption lags. I expect the medical profession to undertake an all-out effort to raise fear, uncertainty, and doubt about technology to replace the doctor, until eventually people realize that they have more fear, uncertainty, and doubt about doctors themselves.