Economic Futures

Perhaps with some of these thoughts in mind, the authors of three recent books address the economic system, offering varied perspectives on where we have been and where we might be headed.

Lessons of History

According to Thomas Piketty, “intellectual and political debate about the distribution of wealth has long been based on an abundance of prejudice and a paucity of fact.” In Capital in the 21^st Century, he attempts to change that.

Professor of economics at the Paris School of Economics and at the School for Advanced Studies in the Social Sciences, Piketty approaches his subject with a viewpoint different from that of most modern economists. Instead of simply seeing economics in mathematical, theoretical or ideological terms, he addresses what can be learned from the lessons of history, which “help us to see a little more clearly what kinds of choices we will face.”

Essentially a textbook on the subject of wealth distribution and income inequality, Capital is “as much a work of history as of economics.” It is a meticulously researched book. An abundance of charts and graphs help illustrate the author’s points, as do references to sources as wide-ranging as philosopher Karl Marx, economist Simon Kuznets, and novelists Jane Austen and Honoré de Balzac.

Piketty’s urbane style and an excellent translation from the French by Arthur Goldhammer make the work accessible, though it is certainly not light reading. It is very easy for the general reader to get lost in the details, the illustrations and the histories, and thus to miss the points that the author is trying to make.

In spite of its density, the central theme of the book is quite simple: When capitalism functions as it was designed to, then wealth, or the rate of return on capital (r), outperforms the economic growth rate (g)—that is, income from labor. In mathematical terms he expresses this as r>g. In common English it translates to an increase in inequality: the rich get richer and the rest of us don’t.

Piketty begins his thesis by recapping the history and dynamics of capital and income at the national and individual levels in the richer developed nations from the Industrial Revolution through today. Using detailed explanations of changes in income levels, purchasing power and productivity to illustrate growth, he points out that inequality has always been with us, although “the material conditions of life have clearly improved dramatically since the Industrial Revolution,” not just for the wealthy but for many people around the world.

These improvements to living conditions were clearly uneven, however. The fact is that inequality, until the 20^th century, was simply the normal state of affairs. The few who had capital (inherited wealth, land or other assets) became wealthier, and the many whose income was gained through labor typically did not.

“The distribution of wealth is too important an issue to be left to economists, sociologists, historians, and philosophers. It is of interest to everyone, and that is a good thing.”

Then came the 20^th century, which was atypical in the history of wealth distribution. In the United States, the period between the world wars saw the development of social protections such as the minimum wage and the Social Security system, as well as taxes on both income and estates over a certain level. A “patrimonial [property-owning] middle class” emerged during this time, and they dared to dream the American Dream of opportunity for all. Piketty notes the unusual circumstances that were required for this to happen: “In the twentieth century, it took two world wars to wipe away the past and significantly reduce the return on capital, thereby creating the illusion that the fundamental structural contradiction of capitalism (r>g) had been overcome.”

This illusion seems to be fading. Piketty asserts that “inequalities of wealth that had supposedly disappeared are close to regaining or even surpassing their historical highs.” The return on capital is certainly a part of this inequality, but an important difference since the 1970s is the soaring compensation going to the top 10 percent of wage earners: “Some individuals are now as wealthy as entire countries.”

What does he suggest to control this redeveloping inequality? Piketty does not claim to have all the answers but simply “to draw from the past a few modest keys to the future.” These include truly equal access to public education, developing a unified retirement system, and, most notably, “a progressive global tax on capital,” a notion that he says “is no doubt a utopian ideal.”

At nearly 700 pages, Capital in the 21^st Century is a substantial and in many ways important work. Interestingly, though, it is not until the final page that Piketty delivers what is perhaps the book’s most useful information for the average reader: “All citizens should take a serious interest in money, its measurement, the facts surrounding it, and its history. Those who have a lot of it never fail to defend their interests. Refusing to deal with numbers rarely serves the interests of the least well-off.”

Technological Advances

Where Piketty ends on a somewhat cautionary note, Erik Brynjolfsson and Andrew McAfee are more enthusiastic about coming economic opportunities. Their book, The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies, offers an exciting look at the potentials of new technologies and the effects they will have on the economy and on our lives.

The authors are well qualified to write on the future of technology and its impact on society. A professor of management science and information technology, Brynjolfsson is also director of the MIT Center for Digital Business at the MIT Sloan School of Management; McAfee is a principal research scientist at the center and is cofounder of MIT’s Initiative on the Digital Economy.

Piketty opened with a history of economics from the 18^th century forward; Brynjolfsson and McAfee show the trajectory of technological advances that began around the same time. What they call “the first machine age” was brought on by the Industrial Revolution, “the first time our progress was driven primarily by technological innovation.” The transformation, they note, started with the invention of the steam engine and “led to factories and mass production, to railways and mass transportation. It led, in other words, to modern life.”

“Our generation has inherited more opportunities to transform the world than any other. That’s a cause for optimism, but only if we’re mindful of our choices.”

The second machine age is the age of digital technology. The Industrial Revolution made it possible to overcome human physical limitations and increase growth; now the digital revolution promises to do the same for our minds. What transformations might yet come from this “vast and unprecedented boost to mental power” remains to be seen, but the authors paint an optimistic picture of a future made easier and more productive through technology.

Since around 1970, Moore’s Law (that it takes approximately two years to double computing power for little or no additional cost) has been considered the rule in technology growth. Because of the truth of that law, Google cars that can drive themselves, supercomputers that diagnose disease, and handheld iPads, costing a few hundred dollars, that are more powerful than the 1985 Cray-2 supercomputer (at $35 million and the size of a washing machine) are no longer the domain of science fiction. Some doubt that this exponential growth in computing power can continue, but if “the real promise of the second machine age is to help unleash the power of human ingenuity,” innovations will be found.

Innovation provides us with things that make life easier. Whether “coming up with something big and new” or “recombining things that already exist,” it has spurred much of the growth in our standard of living and in our national and global economies: “Innovation is how . . . productivity growth happens.”

But as the authors point out, innovation now seems less about helping human productivity and more about boosting business profits. Factories assembling many of the technological advances we use daily are manned primarily by robots instead of human laborers. Humans are, of course, needed to program and service the robots, but these tech jobs are highly skilled; fewer less-skilled workers are required to maintain or increase levels of productivity.

Technological advances are thus creating technological unemployment, a phrase first used by John Maynard Keynes in 1930. This unemployment can be temporary, simply requiring retraining for out-of-work employees, but it can also be permanent. Addressing concerns about this form of unemployment, the authors devote three chapters to recommendations for individuals, corporations and governments respectively.

Learning to work with computers is their main advice to individuals. While computers can use programming written by humans to produce goods, answer complex questions or give directions, humans still have the advantage in very specific skills. “Ideation, creativity, and innovation” are areas in which computers are still unable to compete against humans. Becoming educated to be able to work with computers is then a high priority for the job seeker.

Business and government are urged to fix an outdated education system, encourage business and job creation, support research, upgrade infrastructure, and use selective tax policies to encourage behaviors that promote economic growth and the social good and to discourage those that are harmful.

In spite of possible challenges—economic upheaval, criminals using technology to wreak havoc, or even the science-fiction-become-real possibility of computers taking over—Brynjolfsson and McAfee remain optimistic about a future that creates not just more wealth but “more freedom, more social justice, less violence, and less harsh conditions for the less fortunate and greater opportunities for more and more people.” The second machine age will be a time of great ingenuity, they declare, freeing humankind to enjoy “the deeper satisfactions that come from invention and exploration, from creativity and building, and from love, friendship, and community.” And “as we have fewer constraints on what we can do, it is then inevitable that our values will matter more than ever.”

Capitalism Dethroned

While Capital in the 21^st Century and The Second Machine Age discuss ways in which current economics can be moderated through government interventions and technological advances, Jeremy Rifkin’s view is that recent economic upsets are a sign of a changeover from capitalism to a new iteration of supply and demand.

The technologies of the first (coal and steam) and second (oil) industrial revolutions have created the world of abundance in which a good part of the global population now lives. In The Zero Marginal Cost Society: The Internet of Things, the Collaborative Commons, and the Eclipse of Capitalism, Rifkin posits that “the capitalist era is passing . . . not quickly, but inevitably. A new economic paradigm—the Collaborative Commons—is rising in its wake that will transform our way of life.” The capitalist system, a victim of its own success, will in time make way for “an entirely new way of organizing economic life in an age characterized by abundance rather than scarcity.”

Rifkin is an economist, president of the Foundation on Economic Trends, and author of 20 books about innovations in technology and science and their impact on the world. He has also been a consultant to the European Union for a decade, advising heads of state, the European Commission and the European Parliament.

Showing that both the first and second industrial revolutions developed and flourished at the coming together of specific technologies, Rifkin advances the idea that we are at the beginning of the third industrial revolution, a convergence of communications, logistics and energy that will transform the way we live.

The goal of this revolution is to create an “internet of things” that “will connect every thing with everyone in an integrated global network.” The results of this interconnection will be “to improve thermodynamic efficiencies, dramatically increase productivity, and reduce the marginal cost of producing and delivering a full range of goods and services to near zero across the entire economy.”

Even a decade ago the ability to connect these diverse systems might have seemed improbable, but as discussed in The Second Machine Age, technological advances have brought us to a threshold where this is not just a possibility but is now becoming reality. As these technologies advance and the cost of production and services, including education and medical care, decreases to near zero, capitalism will no longer be the predominant economic system.

Rifkin states that “the capitalist system that provided both a compelling narrative of human nature and the overarching organizational framework for the day-to-day commercial, social, and political life of society . . . has peaked and begun its slow decline.” He estimates that by 2050, a “streamlined and savvy capitalist system” will be “a powerful niche player in the new economic era, but it will no longer reign.”

It is difficult to imagine a world without capitalism. Humans live and interact in a marketplace, even when they are unaware of it. “Capitalism’s raison d’être is to bring every aspect of human life into the economic arena, where it is transformed into a commodity to be exchanged as property in the marketplace. . . . Today, virtually every aspect of our daily lives is connected in some way to commercial exchanges. The market defines us.”

“Many, though not all, of the old guard in the commercial arena can’t imagine how economic life would proceed in a world where most goods and services are nearly free, profit is defunct, property is meaningless, and the market is superfluous. What then?”

Yet not everyone wants to be defined by the market. According to Rifkin, it is especially the current generation of young people who will spearhead a changeover: “At least a portion of the younger generation growing up in a new world mediated by distributed, collaborative, peer-to-peer networks is starting to break out of the materialist syndrome that characterized much of the economic life of the capitalist era. They are creating a shareable economy that is less materialistic and more sustainable, less expedient and more empathic. Their lives are being lived out more on a global Commons and less in a capitalist market.”

Millions of people are already participating in the Collaborative Commons economy, generating their own green energy; using 3-D printers to create goods; renting or sharing their homes, cars and clothes via websites such as Airbnb, Lyft and ThredUP; and enjoying free or low-cost online education through Massive Open Online Courses (MOOC) now offered by many universities. However, Rifkin recognizes that there are obstacles to the fulfillment of this hopeful future. “Without a fundamental change in human consciousness,” these obstacles, such as out-of-control climate change or cyberterrorism, can slow or stop the entire process of change.

 The Zero Marginal Cost Society is an optimistic book about a world filled with the possibility of changing not just an economic system but our “obsession with materialism. . . , allowing us the breathing room to rediscover our yearning for one another rather than for things. . . . In reality, the things we want most are not scarce but infinitely abundant—love, acceptance, and recognition of our humanity.”

Deeper Principles

As these authors suggest, modern economic systems leave much to be desired. There is more than ample room for improvement. But will the more optimistic suggestions that they collectively put forward ever be possible?

The technological revolutions and resulting economic change that Rifkin, Brynjolfsson and McAfee propose are interesting to contemplate. Their desire for not just economic but societal change certainly strikes a chord. In a world that sees hundreds of millions living in violence and poverty, the prospect of peace and abundance is appealing. The difficulties presented in bringing these plans to fruition, however, are deeper than any of them seem to realize. When one considers the tremendous inertia and structures that currently maintain the status quo, there seems little hope that the clear calls for economic equality, freedom and access for everyone given in these books will be acted on. Human attempts at such major changes have never enjoyed lasting results.

Our economic systems are some of our most ingenious inventions. It is sometimes difficult to keep in mind that they are not natural systems, not somehow nature’s way or otherwise ordained to be as they are. Whether capitalism or communism, how an economy is structured is by our choice. There are no laws of nature that declare one system better than another; in one sense, therefore, everything is up for grabs.

The question to ask, then, is whether deeper principles should inform or undergird the system. Piketty speaks of choices to be made; Brynjolfsson and McAfee note the importance of values; and Rifkin acknowledges the need for a fundamental change in human consciousness.

With that in mind, consider a few of the timeless truths from the pages of the Bible. How different would our world be, for instance, if everyone not only understood that the love of money is a root of all sorts of evil, but changed their priorities accordingly? What if all employers conducted business on the basis of laborers being worthy of their hire? And when carving out what they perceive to be their slice of the economic pie, what if people always remembered to treat others as they would like to be treated, and to help “the widow and the fatherless”—that is, those who are disadvantaged?

Failure to live by principles such as these strikes at the heart of our imperfect human nature. Until it becomes our collective nature to place greater importance on other people and their needs and less on personal gain, the most optimistic outlook on our global economic future is little more than that: an optimistic outlook.