Rising income inequality has set off fierce political and economic debates,
but one important angle hasn’t been explored adequately. We need to ask
whether market forces themselves might limit or reverse the trend.
Technology has contributed to the rise in inequality, but there are also
some significant ways in which technology could reduce it.
For example, while computers have improved our lives in many ways,
they haven’t yet done much to make health care and education cheaper.
Over the next few decades, however, that may well change: We can easily
imagine medical diagnosis by online artificial intelligence, greater use of
online competitive procurement for health care services, more transparency
in pricing and thus more competition, and much cheaper online education
for many students, to cite just a few possibilities. In such a world, many
wage gains would come from new and cheaper services, rather than from
being able to cut a better deal with the boss at work.
It is a bit harder to see how information technology can lower housing
costs, but perhaps the sharing economy can make it easier to live in much
smaller spaces and rent needed items, rather than store them in a house or
apartment. That would enable lowerincome
people to live closer to higherpaying
urban jobs and at lower cost.
Another set of future gains, especially for lesserskilled
workers, may
come as computers become easier to handle for people with rudimentary
skill. Not everyone can work fruitfully with computers now. There is a
generation gap when it comes to manipulating electronic devices, and many
relevant tasks require knowledge of programming or, more ambitiously, the
entrepreneurial skill of creating a startup.
That, in a nutshell, is how our
dynamic sector has concentrated its gains among a relatively small number
of employees, thus leading to more income inequality.
This particular type of inequality may very well change. As the previous
generation retires from the work force, many more people will have grown
up with intimate knowledge of computers. And over time, it may become
easier to work with computers just by talking to them. As computerhuman
interfaces become simpler and easier to manage, that may raise the relative
return to lessskilled
labor.
The future may also extend a growing category of employment, namely
workers who team up with smart robots that require human assistance.
Perhaps a smart robot will perform some of the current functions of a
factory worker, while the human companion will do what the robot cannot,
such as deal with a system breakdown or call a supervisor. Such jobs would
require versatility and flexible reasoning, a bit like some of the old
manufacturing jobs, but not necessarily a lot of highpowered
technical
training, again because of the greater ease of the humancomputer
interface. That too could raise the returns to many relatively unskilled
workers.
A more universal expertise with information technology also might
reverse some of the income inequalities that stem from finance. For
instance, the returns from highfrequency
trading were higher a few years
ago, in part because few firms used it; now many firms can trade at very
high speeds. It remains to be seen whether similar developments will lower
hedge fund returns, but again it is possible to imagine a future in which
many of the best investment and trading techniques are very widely copied
and thus cease to be especially profitable.
A final set of forces to reverse growing inequality stem from the
emerging economies, most of all China. Perhaps we are living in a
temporary intermediate period when America and many other developed
nations bear a lot of the costs of Chinese economic development without yet
getting many of the potential benefits. For instance, China and other
emerging nations are already rich enough to bid up commodity prices and
large enough to drive down the wages of a lot of American middleclass
workers, especially in manufacturing. Yet while these emerging economies
are keeping down the costs of manufactured goods for American
consumers, they are not yet innovative enough to send us many fantastic
new products, the way that the United States sends a stream of new
products to British or French consumers, to their benefit.
That state of affairs will probably end. Over the next few decades, we
can expect China, India and other emerging nations to supply more
innovations to the global economy, including to the United States. This
shouldn’t be a cause for alarm. It will lead to many good things.
Since the emerging economies are relatively poor, many of these
innovations may benefit relatively lowincome
Americans. India has
already pioneered techniques for cheap, highquality
heart surgery and
other medical procedures, and over time such techniques may achieve a
foothold in the United States. Imagine a future China producing cheaper
and safer cars, a cure for some kinds of cancer, and workable battery
storage for solar energy. Ordinary Americans could be much better off, and
without having to work for those gains.
To be clear, these are speculations and should not be taken as reasons
to avoid improving our economy right now; furthermore, other trends may
push in less positive directions. Still, these possibilities reframe the
inequality problem. In the popular model developed by the economist
Thomas Piketty, inequality is fundamentally about capital versus labor. In
his view, capital has opened up an everwidening
lead because of the
relatively high rates of return on savings and investment. The natural
response to reverse this trend, according to Mr. Piketty, would be a direct
attack on the return to capital, such as through a global wealth tax.
In the scenarios outlined here, though, growing inequality is highly
contingent on particular technologies and the global conditions of the
moment. Movements toward greater inequality often set countervailing
forces in motion, even if those forces take a long time to come to fruition.
From this perspective, rather than seeking to beat down capital, our
attention should be directed to leaving open the future possibilities for
innovation, change and dynamism. Even if income inequality continues to
increase in the short run, as I believe is likely, there exists a plausible and
more distant future in which we are mostly much better off and more equal.
The history of technology suggests that new opportunities for better living
and higher wages are being created, just not as quickly as we might like.
TYLER COWEN is a professor of economics at George Mason University.
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