Paul Krugman begins to discuss our new economy — the Postnormal — but he doesn’t call it that, at least not yet. Mostly it seems like he is responding to an economic hand grenade thrown by Robert Gordon of Northwestern University, who suggests that the last era of industrialism — electrification — ran from 1890 to the 1960s, and since then we have been floundering, because the information technology revolution hasn’t had as big as an impact:
Is Growth Over? - Paul Krugman via NYTimes.com
Recently, Robert Gordon of Northwestern University created a stir by arguing that economic growth is likely to slow sharply — indeed, that the age of growth that began in the 18th century may well be drawing to an end.
Mr. Gordon points out that long-term economic growth hasn’t been a steady process; it has been driven by several discrete “industrial revolutions,” each based on a particular set of technologies. The first industrial revolution, based largely on the steam engine, drove growth in the late-18th and early-19th centuries. The second, made possible, in large part, by the application of science to technologies such as electrification, internal combustion and chemical engineering, began circa 1870 and drove growth into the 1960s. The third, centered around information technology, defines our current era.
And, as Mr. Gordon correctly notes, the payoffs so far to the third industrial revolution, while real, have been far smaller than those to the second. Electrification, for example, was a much bigger deal than the Internet.
It’s an interesting thesis, and a useful counterweight to all the gee-whiz glorification of the latest tech. And while I don’t think he’s right, the way in which he’s probably wrong has implications equally destructive of conventional wisdom. For the case against Mr. Gordon’s techno-pessimism rests largely on the assertion that the big payoff to information technology, which is just getting started, will come from the rise of smart machines.
[… a discussion of the state of AI… smart machines…]
So machines may soon be ready to perform many tasks that currently require large amounts of human labor. This will mean rapid productivity growth and, therefore, high overall economic growth.
But — and this is the crucial question — who will benefit from that growth? Unfortunately, it’s all too easy to make the case that most Americans will be left behind, because smart machines will end up devaluing the contribution of workers, including highly skilled workers whose skills suddenly become redundant. The point is that there’s good reason to believe that the conventional wisdom embodied in long-run budget projections — projections that shape almost every aspect of current policy discussion — is all wrong.
What Krugman doesn’t say — and perhaps doesn’t see — is that the ephemeralization of labor due to information technology has been going on for decades, and that may be it’s biggest impact: ending jobs. Remember all those jobs were people typed in data based on insurance, medical, and government forms sent through the mail? All those secretaries that used to manage people’s travel, appointments, and business meetings? Telephone operators? The expediters that would figure out the best route for a fleet of UPS trucks to make their deliveries? That’s all gone now, slurped up by information technology.
Consider only a few breakthroughs likely to have an impact in the near future. Autonomous vehicles are on the immediate horizon, and their biggest impact won’t be on hipsters in urban centers: it will be on truck transport. In 2010, there were 1,604,800 truck drivers in the US, making an average of $18.15/hour (Bureau Of Labor Statistics). The number of drivers is growing, and there is a unmet demand because the work is so awful: long hours, not great pay, and dangerous work.
So, imagine autonomous trucking systems taking over freight, at least long haul freight: 33% of those jobs. Bang. Gone.
239,900 taxi drivers and chauffers. Bang. Gone.
67,100 Train engineers and operators. Bang. Gone.
100,000 airplane pilots (another industry with a looming talent cliff, because more than half are over 50 and must retire at 65). Bang. Gone.
A couple of million semi-skilled workers on the street, with nowhere to work.
And that’s only one breakthrough. Imagine if there were 10 others, that each erased 10 million jobs.
How many Blockbuster jobs were lost when Netflix and Redbox came along? 60,000, and innumerable other chains and mom-and-pop video stores likely tripled that.
What about a Redbox in a Subway? What if you walked in, typed what you wanted into a touchscreen, and swiped your credit card, and left? A store could be managed with one person per shift — to deal with the machinery — and Subway would save a fortune, and maybe drop the price a bit. And you’d still get a fresh, made to order sandwich. There are 4 million people working in the fast food industry, as of 2011.
I project that we will see over 25 million more people out of work because of these advances. Permanently.
It’s the Postnormal, and — among other activities — US and state policies should be directed toward shorter work week for the same pay, which would share the bounties of ephemeralization with the working people and not just to the folks that own the machinery. More important: If we share the work that is left, so that people worked, say, 25 hours a week, what are they supposed to do?
Of course if things just keep on as is at present, these people will be shit-canned, and join a permanent underclass of people who cannot find work in a world where there isn’t enough to go around.
I will dig up more on Robert Gordon’s thesis, and await Krugman’s next piece with interest.
The sale of DVDs has been falling since 2007, but the Digital Entertainment Group (DEG) reported that physical sales collapsed 19% to $2.2bn (£1.3bn) in the first quarter, while high-street rental also plunged by 36% to $440m, in a period when Blockbuster was in Chapter 11 bankruptcy protection. Online downloads and streaming through services such as Netflix, by contrast, grew quickly, although not enough to avert a 10% decline in the total home entertainment market to $4.2bn.
Ephemeralization of movies will lead to huge swaths of the entertainment marketplace collapsing, like Blockbuster. Redbox and its competitors have a way to go, but they are strictly transitional, too.
Just as big will be the death of DVD/Blu Ray players, as streaming becomes the principal distribution, and then TVs, as more and more of streamed movies and entertainment is watched on mobile devices and PCs.
Sell everything, like Sony, Panasonic, and all the others. They are walking dead.
I saw a piece about the new CEO at Blockbuster, whose experience in moving toward smaller more agile stores at 7-Eleven suggests a change in the strategy at Blockbuster:
[from New Boss Aims to Apply Some 7-Eleven Tactics to Blockbuster by Andew Adam Newman]
“The trend in the convenience-store world was we were building larger and larger stores, but the bigger they were, the less convenient they were,” Mr. Keyes said in a telephone interview from Blockbuster’s headquarters in Dallas. “But we ended up generating more sales from a store that was literally half the size.”
Mr. Keyes hopes to make Blockbuster stores smaller on average, too, and to customize titles at each store based on rental patterns, much the way he said a 7-Eleven in one neighborhood might have stocked more Corona and another across town stocked more Coors Lite.
Well, there is no doubt that geolocational differences in viewing habits could be better handled by Blockbuster et al, but it will be difficult to counter the long-tail economics of the Internet just with the convenience of driving by the local corner video place to get… the same damn movies that everyone else ‘wants’ to watch. And ‘wants’ means the movies have been selected the most out of those available.
He’s going to have to have more movies, way more.
I have been watching Redbox (a subsidiary of MacDonald’s) expanding into MacDonald’s and grocery stores. The company offers a automated (few employees) box full of movies, which allow the consumer to rent a movies for $1 per day. The boxes, however, are extremely limited in breadth and depth: few titles, few copies. But it is truly a time saver to get the movie at the grocery or at MacDonald’s, and to be able to return it to any Redbox. Its not only a timesaver, its greener: people can drive less.
So as James W. Keyes (the new Blockbuster CEO) moves to revamp and scale down the corner video place, one option is to convert them into gigantic Redbox machines. Imagine a local Blockbuster converted into an enormous video dispenser: twenty or so consoles in the foyer of the store, like ATM consoles at the bank, while behind, the entire volume of the store has been filled with videos… lots of videos.
If a Redbox device — which is roughly the size of a soda machine — can hold a dozen or so copies of a few hundred titles (total guess, by the way), then a Blockbuster-sized mega-Redbox could hold 1000 times as many. While this doesn’t approach the offerings available online — and note that Redbox does support online video rentals, too — it completely shifts the entire experience of video shopping.
The scale of the Redbox set-up is designed around hits: copies of the hot movies, right now. But in a long-tail economy, people want more variety, and will favor experiences that offer it. And it shouldn’t cost more.
And, of course, we get to avoid the experience of standing in line at the store, where the three stressed out part-time employees are trying to help people find a copy of Pan’s Labyrinth in the return box, or talking on the phone, instead of getting us out the door, and back into our idling cars at the curb.