Christopher Mims — The Internet Is Making Us Poor [Unequal]

This is an important article. It's a bit longish, so I've pulled out the essence. But I suggest you read the whole thing. This is about the transition to the Information Age and knowledge society from the Industrial Age and factory society, which in turn replaced the Agricultural Age and farm society. What's left for workers who are not knowledge workers in the Information Age is service work that cannot be profitably automated, computerized, or robotized.

One thing all our machines have accomplished, and especially the internet, is the ability to reproduce and distribute good work in record time. Barring market distortions like monopolies, the best software, media, business processes and, increasingly, hardware, can be copied and sold seemingly everywhere at once. This benefits “superstars”—the most skilled engineers or content creators. And it benefits the consumer, who can expect a higher average quality of goods.

But it can also exacerbate income inequality, says Brynjolfsson. This contributes to a phenomenon called “skill-biased technological [or technical] change.” “The idea is that technology in the past 30 years has tended to favor more skilled and educated workers versus less educated workers,” says Brynjolfsson. “It has been a complement for more skilled workers. It makes their labor more valuable. But for less skilled workers, it makes them less necessary—especially those who do routine, repetitive tasks.”

The result is that, with the aid of machines, productivity increases—the overall economic pie gets bigger—but that’s small consolation if all but a few workers are getting a smaller slice. “Certainly the labor market has never been better for very highly-educated workers in the United States, and when I say never, I mean never,” MIT labor economist David Autor told American Public Media’s Marketplace.

The other winners in this scenario are anyone who owns capital. Only about half of Americans own stock at all, and as more companies are taken private or never go public, more and more of that wealth is concentrated in the hands of fewer and fewer people. As Paul Krugman wrote, “This is an old concern in economics; it’s “capital-biased technological change”, which tends to shift the distribution of income away from workers to the owners of capital.”...

“The spread of computers and the Internet will put jobs in two categories,” said Andreessen. “People who tell computers what to do, and people who are told by computers what to do.” It’s a glib remark—but increasingly true....

History is littered with technological transitions. Many of them seemed at the time to threaten mass unemployment of one type of worker or another, whether it was buggy whip makers or, more recently, travel agents. But here’s what’s different about information-processing jobs: The takeover by technology is happening much faster.

From 2000 to 2007, in the years leading up to the great recession, GDP and productivity in the US grew faster than at any point since the 1960s, but job creation did not keep pace. Brynjolfsson thinks he knows why: More and more people were doing work aided by software. And during the great recession, employment growth didn’t just slow. As we saw above, in both manufacturing and information processing, the economy shed jobs, even as employment in the service sector and professional fields remained flat.

Especially in the past ten years, economists have seen a reversal of what they call “the great compression“—that period from the second world war through the 1970s when, in the US at least, more people were crowded into the ranks of the middle class than ever before. There are many reasons why the economy has reversed this “compression,” transforming into an “hourglass economy” with many fewer workers in the middle class and more at either the high or the low end of the income spectrum. But whatever those forces, they are clearly being exacerbated by technological change.

The hourglass represents an income distribution that has been more nearly the norm for most of the history of the US. That it’s coming back should worry anyone who believes that a healthy middle class is an inevitable outcome of economic progress, a mainstay of democracy and a healthy society, or a driver of further economic development.

Business Insider
The Internet Is Making Us Poor
Christopher Mims, Quartz
(h/t Yves Smith at Naked Capitalism)

Lars Syll — Paul Romer gets the 2012 Nobel Prize in economics

Must-read.

Congrats to Paul Romer.

Lars P. Syll's Blog
Paul Romer gets the 2012 Nobel Prize in economics
Lars Syll | Professor, Malmo University

The most important understanding here is the difference between diminishing returns in deploying  physical resources and increasing returns in deploying knowledge resources with respect to scalability. Ray Kurzweil develops this in his concept of <a href="http://www.kurzweilai.net/the-law-of-accelerating-returns">accelerating returns</a> 

Also, that which is physically limited and particular is rival, whereas what is not limited physically and is universal is non-rival — unless legislated as rival through intellectual property rights, the current push being toward privatizing new knowledge that can be monetized. This is evoking huge push-back globally and is unlikely to be successful without an extension of imperialism.

This similar to what I have alluded to previously, e.g., Bucky Fuller's distinction between physical and metaphysical resource, the physical being limited and particular, and the second virtually unlimited and universal. The physical is scalable only with significant expenditure of physical energy and transaction cost, whereas the metaphysical is easily scale with low energy requirements and transaction cost. 

Even though rationality is bounded, the boundaries are unknown and, given the present state of human knowledge, unknowable. As Aquinas observed, knowledge is in terms of the mode of knowing of the knower. 

Thus, the question becomes whether it is possible to expand the container of knowledge in addition to the contents. There is reason to believe there is.

 

Reflections on a hierarchy of innovation

[Nicholas] Carr describes what he refers to as the Hierarchy of Innovation, which is loosely analogous to Maslow’s hierarchy of needs. As Carr puts it: 

“The focus, or emphasis, of innovation moves up through five stages, propelled by shifts in the needs we seek to fulfill. In the beginning come Technologies of Survival (think fire), then Technologies of Social Organization (think cathedral), then Technologies of Prosperity (think steam engine), then technologies of leisure (think TV), and finally Technologies of the Self (think Facebook, or Prozac).” 

I’m OK with the hierarchy concept and think it’s a fine first-order mechanism to understand the underlying social values driving innovation at any given stage in civil development. 

However, I think much deeper drivers are worth considering....

Presently, 125 years later, civilization is still reliant on the core energy production technologies created in the Industrial Revolution. Economies with the mastery and control of those technologies enjoy almost unlimited access to abundant and cheap energy, and it is in those societies that we see the shift in innovation so lamented by Carr in his article.

Yet the current energy paradigm, not so unlike the one based on livestock and human power, is fundamentally based on commodity fuels and highly fragmented production and distribution industries that can be owned and controlled (usually to their own benefit) by anyone with the resources and power to do to so. As such, the paradigm is defined by energy haves and have-nots; and the energy have-nots are consistently plagued by crushing poverty and disease. This disparity is growing rapidly.

 On a global basis, this imbalance is likely coming to a critical point, and, like the mid-19th century, the stage is formally set for another innovation in energy production, one that frees us from the burdens and challenges of fossil fuels and unleashes another unprecedented transformation in economies and ultimately the human condition.

Read it at Climate Progress
The World’s Energy Disparity Is Reaching A Critical Stage To Spawn Innovation
by Ned L. Harvey | Chief Operating Officer of the Rocky Mountain Institute

 I have been thinking about technology and innovation lately, too, so I found the post apropos. My thinking has run more along the lines of historical eras. Humans differentiated from other animals through the development of sufficient intelligence through brain development and physical resources like a larynx capable of articulate phonation that made use communication through language possible and opposable thumbs that made tool use available. This all happen in the remote past and we are just beginning to reconstruct the biblical cultural narrative based on discoveries in archeology and anthropology.

Tools were initially used for piercing, cutting, striking and other simple operations, and fire was also domesticated. These were huge advances over other other animals, and it provided humans with an incredible advantage, especially the development of weapons technology for hunting, protection, and territorial defense and expansion. Proto-machines, which bridged the gap between tools and machines also appear, for instance, the use of the lever and pulley to amply effort and the use of the wheel to reduce friction, enabling humans to move heavy objects for construction. All of this is lost in the mysts of time, however, and what remains is monuments that still amaze. It is impossible, however, to exaggerate these accomplishments, which where as huge then as any technological advances made today, since it involved primates leaving their natural environment, to which animals had been confined, and creating an artificial environment and constructing social reality based on information.

My thinking is that technology and innovation need to be viewed chiefly in terms of the expansion of intelligence and the application of information. As a result, humanity when through several major transformations that results in different eras. The first historical era is that of agriculture, which lasted until the industrial revolution. The economy of the agricultural era was feudal, based on control of land as the means of production. The energy was provided by human and animal labor and the technology was agricultural know-how and basic tools like the plow and basic engineering like irrigation. Return on energy invested was low, and the human cost was very high indeed, for most people at least.

The industrial revolution changed all that dramatically with the introduction of labor saving devices that harnessed energy for work. Humans had used water wheels and windmills previously, but heat used in engines had not yet been exploited for transformation into work. This invention catapulted humanity onto altogether different level of functioning, with a concomitant change in society and social organization. Capitalism became dominant economically as machines replaced human and animal labor, and investment was needed to produce the capital goods that resulted huge expansion of consumer goods and also provided the possibility for more leisure, since less labor was needed for subsistence.

Clearly, the transition from the agricultural era to the industrial era, and from feudalism to capitalism, was based on a transformation that arose from a different level of information use. Similarly today, humanity stands on the brink of a new era, the age of information, also known as the age of knowledge and the digital age, as it learns to tap the potential of information directly, instead of using it indirectly through science and engineering. It is as yet unclear what effect this transition is going to have on humanity socially, politically, and economically. However, it promises to be as significant as any of the previous transformations in shaping a new humanity and civilization as the potential of human nature unfolds through evolution and displays itself in the environment.

However, the major transformations of the past, from the primitive era to the era of agriculture, and then to the industrial era have resulted in institutional transformation as well, which has been accompanied by a transformation in collective consciousness. We can expect that this transformation will lay the foundation for the major trends of this century. This is what forward thinkers are now attempting to foresee. What will be the effect of innovation in robotics, molecular medicine, artificial intelligence, and alternative energy as they are scaled, for instance? How is this era of increasing globalism going to be governed? What economic system will either evolve out of capitalism or replace it?

Michael Bauwens — 'Occupy' as a business model: The emerging open-source civilisation

Lots of good stuff in here, as well as the basis for an economics of anarcho-communitarianism based on voluntary cooperation for mutual benefit in a commons.

The Occupy Wall Street movement is a model for a new economic paradigm, in which value is first created by communities.

Last week I discussed the value crisis of contemporary capitalism: the broken feedback loop between the productive publics who create exponentially increasing use value, and those who capture this value through social media - but do not return these income streams to the value "produsers".

In other words, the current so-called "knowledge economy" is a sham and a pipe dream - because abundant goods do not fare well in a market economy. For the sake of the world's workers, who live in an increasingly precarious situation, is there a way out of this conundrum? Can we restore the broken feedback loop?

Strangely enough, the answer may be found in the recent political movement that is Occupy, because along with "peer producing their political commons", they also exemplified new business and value practices. These practices were, in fact, remarkably similar to the institutional ecology that is already practiced in producing free software and open hardware communities. This is not a coincidence.

Read it at Al Jazeera
'Occupy' as a business model: The emerging open-source civilisation
by Michael Bauwens | Co-founder of the P2P (Peer-to-Peer) Foundation
(h/t Lambert Strether at Naked Capitalism)

A recent study by the makers of the Open Governance Index, which measures the openness of software projects, confirms that more open projects do much better in the long-run than more closed projects. In other words, it makes sound business sense: open businesses tend to drive out business models based on proprietary IP. So it doesn't matter whether you are a "commonist" free software developer, or a capitalist shareholder of IBM. Both sides benefit and they outcompete or "outcooperate" traditional proprietary competitors.