Roubini on the Rise of the Machines and the Future of the Economy

The financial and economic guru Nouriel Roubini gave a speech on December 4th at the Bloomberg BusinessWeek 85^th Anniversary Dinner, which was held at the American Museum of Natural History in New York. The title of his "official toast" was “Rise of the Machines: Downfall of the Economy?”

To be a toast for Manhattan socialites, it was probably great, but when you read the published version on Roubini's Edge it fizzles somewhat. To begin with, his understanding of the birth of the computer is flawed. 

"This wave of technological innovation began in 1947 with the invention of the transistor. A little over 10 years later, the microchip appeared; and, soon after that, computers followed. From these basic roots, the rate of innovation simply exploded."

Well, no. The first electronic computers were created around 1940 and used vacuum tubes rather than the microchips he mentions, which later made microcomputers and PCs possible. (He may be forgiven for this transgression as he after all is an economist and not a techie.)

Roubini said that ”technologists claim that the world is on the cusp of a series of major technical breakthroughs” and that this is not just about IT, but a much broader third industrial revolution.

Yes, it is plausible that the IT-revolution of the past 30 years will be followed by an industrial and economic revolution due to broad technological progress, but let’s pause for a moment and remember that the technological and industrial revolutions of the late 19th and early 20th century contributed to the economic and political shifts in "plate tectonics" that resulted in two world wars. 

The destabilizing impact of new technology and globalization is truly global, and the world's political systems (including and maybe especially in democratic political systems) are at loss for how to respond. Technology opens possibilities, but it is a double edged sword, and where it cuts depends on who wields it and for what purpose. 

The best part of Roubini's speech was his reflection on job destruction and whether new jobs can make up for lost ones. The picture Dr. Doom painted here is dark, and he includes education in his scenario (maybe somewhat unfairly as teachers are not as easily replaced by algorithms as it at first may seem.)

He does criticize the "winner-takes-all capitalism" and increasing inequality, and reminds us of John Maynard Keynes's optimistic prognosis from 1930 that we soon would need to work no more than 15 hours a week, but contrasts it with another possibility in "the Brave New World" of labor-saving technology – “20% of the labor force will work 120 hours a week while the other 80% will have no jobs and no income.”

After that dystopic scenario (we can ignore his reference to "the Singularity" and Steven Hawking’s silly provocation that mankind should get think of leaving Earth in fear of artificial intelligence), one might have expected more in terms of a remedy than the whimper of an ending that we are served up: a longing for an enlightened despot/leader (Otto von Bismarck, Teddy Roosevelt or William Gladstone) and giving workers “skills” needed “to participate in the wealth that capitalism generates.”