The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies (10 page)

Researchers have had similar success using newly available digital data in other domains. A team led by Rumi Chunara of Harvard Medical School found that tweets were just as accurate as official reports when it came to tracking the spread of cholera after the 2010 earthquake in Haiti; they were also at least two weeks faster.
¹⁶
Sitaram Asur and Bernardo Huberman of HP’s Social Computing Lab found that tweets could also be used to predict movie box-office revenue. They concluded that “this work shows how social media expresses a collective wisdom which, when properly tapped, can yield an extremely powerful and accurate indicator of future outcomes.”
¹⁷

Digitization can also help us better understand the past. As of March 2012 Google had scanned more than twenty million books published over several centuries.
¹⁸
This huge pool of digital words and phrases forms a base for what’s being called
culturomics
, or “the application of high-throughput data collection and analysis to the study of human culture.”
¹⁹
A multidisciplinary team led by Jean-Baptiste Michel and Erez Lieberman Aiden analyzed over five million books published in English since 1800. Among other things, they found that the number of words in English increased by more than 70 percent between 1950 and 2000, that fame now comes to people more quickly than in the past but also fades faster, and that in the twentieth century interest in evolution was declining until Watson and Crick discovered the structure of DNA.
²⁰

All of these are examples of better understanding and prediction—in other words, of better science—via digitization. Hal Varian, who’s now Google’s chief economist, has for years enjoyed a front-row seat for this phenomenon. He also has a way with words. One of our favorite quotes of his is, “I keep saying that the sexy job in the next ten years will be statisticians. And I’m not kidding.”
²¹
When we look at the amount of digital data being created and think about how much more insight there is to be gained, we’re pretty sure he’s not wrong, either.

New Layers Yield New Recipes

Digital information isn’t just the lifeblood for new kinds of science; it’s the second fundamental force (after exponential improvement) shaping the second machine age because of its role in fostering innovation. Waze is a great example here. The service is built on multiple layers and generations of digitization, none of which have decayed or been used up since digital goods are non-rival.

The first and oldest layer is digital maps, which are at least as old as personal computers.
²²
The second is GPS location information, which became much more useful for driving when the U.S. government increased its GPS accuracy in 2000.
²³
The third is social data; Waze users help each other by providing information on everything from accidents to police speed traps to cheap gas; they can even use the app to chat with one another. And finally, Waze makes extensive use of sensor data; in fact, it essentially converts every car using it into a traffic-speed sensor and uses these data to calculate the quickest routes.

In-car navigation systems that use only the first two generations of digital data—maps and GPS location information—have been around for a while. They can be extremely useful, especially in unfamiliar cities, but as we’ve seen, they have serious shortcomings. The founders of Waze realized that as digitization advanced and spread they could overcome the shortcomings of traditional GPS navigation. These innovators made progress by adding social and sensor data to an existing system, greatly increasing its power and usefulness. As we’ll see in the next chapter, this style of innovation is one of the hallmarks of our current time. It’s so important, in fact, that it’s the third and last of the forces shaping the second machine age. The next chapter explains why this is.

“If you want to have good ideas you must have many ideas.”

—Linus Pauling

E
VERYONE
AGREES
THAT
IT
would be troubling news if America’s rate of innovation were to decrease. But we can’t seem to agree at all about whether this is actually happening.

We care about innovation so much not simply because we like new stuff, although we certainly do. As the novelist William Makepeace Thackeray observed, “Novelty has charms that our mind can hardly withstand.”
¹
Some of us can hardly withstand the allure of new gadgets; others are charmed by the latest fashion styles or places to see and be seen. From an economist’s perspective, satisfying these desires is great—taking care of consumer demand is usually seen as a good thing. But innovation is also the most important force that makes our society wealthier.

Why Innovation is (Almost) Everything

Paul Krugman speaks for many, if not most, economists when he says, “Productivity isn’t everything, but in the long run it is almost everything.” Why? Because, he explains, “A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker”—in other words, the number of hours of labor it takes to produce everything, from automobiles to zippers, that we produce.
²
Most countries don’t have extensive mineral wealth or oil reserves, and thus can’t get rich by exporting them.
*
So the only viable way for societies to become wealthier—to improve the standard of living available to its people—is for their companies and workers to keep getting more output from the same number of inputs, in other words more goods and services from the same number of people.

Innovation is how this productivity growth happens. Economists love to argue with one another, but there’s great consensus among them about the fundamental importance of innovation for growth and prosperity. Most in the profession would agree with Joseph Schumpeter, the topic’s great scholar, who wrote that, “Innovation is the outstanding fact in the economic history of capitalist society . . . and also it is largely responsible for most of what we would at first sight attribute to other factors.”
³
It is here that the consensus ends. How much of this “outstanding fact” is taking place right now, and whether it’s on an upward or downward trend, is a matter of great dispute.

Why We Should Be Worried: Innovations Get Used Up

Economist Bob Gordon, one of the most thoughtful, thorough, and widely respected researchers of productivity and economic growth, recently completed a major study of how the American standard of living has changed over the past 150 years. His work left him convinced that innovation is slowing down.

Gordon emphasizes—as do we—the role of new technologies in driving economic growth. And like us, he’s impressed by the productive power unleashed by the steam engine and the other technologies of the Industrial Revolution. According to Gordon, it was the first truly significant event in the economic history of the world. As he writes, “there was almost no economic growth for four centuries and probably for the previous millennium” prior to 1750, or roughly when the Industrial Revolution started.
⁴
As we saw in the first chapter, human population growth and social development were very nearly flat until the steam engine came along. Unsurprisingly, it turns out that economic growth was, too.

As Gordon shows, however, once this growth got started it stayed on a sharp upward trajectory for two hundred years. This was due not only to the original Industrial Revolution, but also to a second one, it too reliant on technological innovation. Three novelties were central here: electricity, the internal combustion engine, and indoor plumbing with running water, all of which came onto the scene between 1870 and 1900.

The ‘great inventions’ of this second industrial revolution, in Gordon’s estimation, “were so important and far-reaching that they took a full 100 years to have their main effect.” But once that effect had been realized, a new problem emerged. Growth stalled out, and even began to decline. At the risk of being flippant, when the steam engine ran out of steam, the internal combustion engine was there to replace it. But once the internal combustion engine ran out of fuel, we weren’t left with much. To use Gordon’s words,

The growth of productivity (output per hour) slowed markedly after 1970. While puzzling at the time, it seems increasingly clear that the one-time-only benefits of the Great Inventions and their spin-offs had occurred and could not happen again. . . . All that remained after 1970 were second-round improvements, such as developing short-haul regional jets, extending the original interstate highway network with suburban ring roads, and converting residential America from window unit air conditioners to central air conditioning.
⁵

Gordon is far from alone in this view. In his 2011 book
The Great Stagnation
, economist Tyler Cowen is definitive about the source of America’s economic woes:

We are failing to understand why we are failing. All of these problems have a single, little noticed root cause: We have been living off low-hanging fruit for at least three hundred years. . . . Yet during the last forty years, that low-hanging fruit started disappearing, and we started pretending it was still there. We have failed to recognize that we are at a technological plateau and the trees are more bare than we would like to think.
⁶

General Purpose Technologies: The Ones That Really Matter

Clearly, Gordon and Cowen see the invention of powerful technologies as central to economic progress. Indeed, there’s broad agreement among economic historians that some technologies are significant enough to accelerate the normal march of economic progress. To do this, they have to spread throughout many, if not most, industries; they can’t remain in just one. The cotton gin, for example, was unquestionably important within the textile sector at the start of the nineteenth century, but pretty insignificant outside of it.
*

The steam engine and electrical power, by contrast, quickly spread just about everywhere. The steam engine didn’t just massively increase the amount of power available to factories and free them from the need to be located near a stream or river to power the water wheel; it also revolutionized land travel by enabling railroads and sea travel via the steamship. Electricity gave a further boost to manufacturing by enabling individually powered machines. It also lit factories, office buildings, and warehouses and led to further innovations like air conditioning, which made previously sweltering workplaces pleasant.

With their typical verbal flair, economists call innovations like steam power and electricity
general purpose technologies
(GPTs). Economic historian Gavin Wright offers a concise definition: “deep new ideas or techniques that have the potential for important impacts on many sectors of the economy.”
⁷
“Impacts” here mean significant boosts to output due to large productivity gains. GPTs are important because they are economically significant—they interrupt and accelerate the normal march of economic progress.

In addition to agreeing on their importance, scholars have also come to a consensus on how to recognize GPTs: they should be pervasive, improving over time, and able to spawn new innovations.
⁸
The preceding chapters have built a case that digital technologies meet all three of these requirements. They improve along a Moore’s Law trajectory, are used in every industry in the world, and lead to innovations like autonomous cars and nonhuman
Jeopardy!
champions. Are we alone in thinking that information and communication technology (ICT) belongs in the same category as steam and electricity? Are we the only ones who think, in short, that ICT is a GPT?

Absolutely not. Most economic historians concur with the assessment that ICT meets all of the criteria given above, and so should join the club of general purpose technologies. In fact, in a list of all the candidates for this classification compiled by the economist Alexander Field, only steam power got more votes than ICT, which was tied with electricity as the second most commonly accepted GPT.
⁹

If we are all in agreement, then why the debate over whether ICTs are ushering in a new golden age of innovation and growth? Because, the argument goes, their economic benefits have already been captured and now most new ‘innovation’ involves entertaining ourselves inexpensively online. According to Robert Gordon:

The first industrial robot was introduced by General Motors in 1961. Telephone operators went away in the 1960s. . . . Airline reservations systems came in the 1970s, and by 1980 bar-code scanners and cash machines were spreading through the retail and banking industries. . . . The first personal computers arrived in the early 1980s with their word processing, word wrap, and spreadsheets. . . . More recent and thus more familiar was the rapid development of the web and e-commerce after 1995, a process largely completed by 2005.
¹⁰

At present, says Cowen, “The gains of the Internet are very real and I am here to praise them, not damn them. . . . Still, the overall picture is this: We are having more fun, in part because of the Internet. We are also having more cheap fun. [But] we are coming up short on the revenue side, so it is harder to pay our debts, whether individuals, businesses, or governments.”
¹¹
Twenty-first century ICT, in short, is failing the prime test of being economically significant.