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.
By TYLER COWEN
EDITED BY DAVID LEONHARDT
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 lower-income people to live closer to higher-paying urban jobs and at lower cost.
Another set of future gains, especially for lesser-skilled 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 start-up. 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 computer-human interfaces become simpler and easier to manage, that may raise the relative return to less-skilled 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 high-powered technical training, again because of the greater ease of the human-computer 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 high-frequency 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 middle-class 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.
Since the emerging economies are relatively poor, many of these innovations may benefit relatively low-income Americans. India has already pioneered techniques for cheap, high-quality 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 ever-widening 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.