Technology, the economy and pool cleaning

February 21, 2013

One way to divide people is into foxes and hedgehogs. Another is into those who think this time is different and those who believe there is never anything new under the sun.

The latter split can be a matter of temperament, of politics or even of religion. But today it is relevant for another, more urgent reason: It describes how people think about the most critical economic problem in the industrialized world today — the dearth of well- paying middle-class jobs.

The this-time-is-different school attributes a lot of what is happening to the technology revolution. That makes them an intellectually eclectic bunch. On one hand, they include wide-eyed enthusiasts who believe in human progress and in the transformational power of technology. But they also include grim hand-wringers who fear the unprecedented changes may bring unprecedented woes.

That combination of Pollyanna and Cassandra is perfectly embodied in the multifaceted mind of Al Gore. Gore is a longtime fan of the geeks, and in his post-political life he has very nearly become one of them, with his seat on the Apple board and senior partnership with Kleiner Perkins Caufield & Byers, a leading venture capital firm in Silicon Valley.

It thus comes as no surprise that in his new book, “The Future,” Gore foresees a world of “hyper-change” in which the technology revolution is “carrying us with it at a speed beyond our imagining toward ever newer technologically shaped realities that often appear, in the words of Arthur C. Clarke, ‘indistinguishable from magic.'”

But Gore has also always been part Savonarola — remember the campaign of his estranged wife, Tipper, against music with “profane language” — and his conviction that this time is different has a sharp edge. In “The Future,” Gore admits that the Luddites, who feared that the Industrial Revolution would create structural unemployment, were wrong: “The new jobs that emerged in factories not only outnumbered those lost on farms but produced higher incomes, even as farms became far more productive and food prices sharply declined.”

Yet he warns that there is no guarantee history will repeat itself. In particular, Gore worries that thanks to the technology revolution, the traditional link between rising productivity and a rising standard of living for the middle class has been broken. He fears that severed link may be causing the economic slowdown in the developed economies: A weakened middle class lacks the spending power to drive growth.

One of the smartest academics studying this phenomenon is Erik Brynjolfsson, a management professor at the Massachusetts Institute of Technology. Brynjolfsson, who co-wrote the new book “Race Against the Machine,” also believes the technology revolution is having a powerful and unprecedented impact.

“Most of the debate in Washington is really playing small ball and is missing the tectonic changes in the way the economy works, which are driven by technology,” he said recently. “This is the big story of our time, and it is going to accelerate over the next 10 years.”

Like Gore, Brynjolfsson thinks the canary in the coal mine is the decoupling of gains in productivity and in wages. “Productivity since 2000 has grown faster than in the ’70s, ’80s or ’90s,” he said. “But starting in the late 1990s, we’ve had this decoupling of wages from productivity.”

Brynjolfsson believes this break is a historic watershed. “There have been big economic changes in the past, but productivity and jobs tracked each other pretty closely,” he said. “It is only since 1997 that they decoupled. There is no economic law that says they go together.”

That is a change with tremendous social and political implications. As Brynjolfsson put it: “A lot of economists felt that as long as productivity was growing, things would take care of themselves. That’s no longer true.”

This is indeed a watershed moment: Productivity and innovation, the focus of policymakers and business leaders, no longer guarantee widely shared prosperity. “Digital technologies are different in that they allow people with skills to replicate their talents to serve billions,” Mr. Brynjolfsson said. “There is really a drastic winner-take-all effect because every industry is becoming like the software industry.”

Classical economic theory isn’t entirely wrong. The danger isn’t — as it was easy to fear during the depths of the financial crisis — structural unemployment. The problem is what kind of jobs, at what kind of salaries, the shiny new technologically powered economy of the future will generate.

Lawrence H. Summers, the Harvard professor and former Treasury secretary, has a vivid way of describing the dystopian possibility. “As economists like to explain, the system will equilibrate at full employment,” Summers said in a public interview at the World Economic Forum in Davos, Switzerland, last month. “But maybe the way it will equilibrate at full employment is there’ll be specialists at cleaning the shallow end and the deep end of rich people’s swimming pools. And that’s a problematic way for society to function.”

This is a personal problem — who wants to prepare their children for a life of deep- and shallow-end cleaning? It is also a political one. As Brynjolfsson points out, the technology revolution also has winners. The share they reap from the increase in productivity is greater than ever, and they might quite like a world of specialists in various depths of pool cleaning.


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Why would the elites want poor people to clean their pools when the robots can do it cheaper and with less whining?
Seriously though, this article makes a good point that history may not repeat itself, but there is no mention of globalization and the effects of having vast labor pools in the developing world paid at such low wages that there is far less corresponding consumption. If workers in China and the rest of the developing world were to consume on par with those in the US and more equitable trade balances were established then the employment picture would look a lot better here.

Posted by agsocrates | Report as abusive

Structural unemployment is ingrained in the U.S. economy, and this leads to two questions: 1. At what number can the U.S. economy sustain structural unemployment? 2. How long will it be before we reach that number?

Posted by Paulsboudin | Report as abusive

“Gore is a longtime fan of the geeks, and in his post-political life he has very nearly become one of them, with his seat on the Apple board and senior partnership with Kleiner Perkins Caufield & Byers, a leading venture capital firm in Silicon Valley.”

Very nearly? Not quite. He’s an investor, primarily of other people’s money. He’s nowhere near a geek, but he is pretty knowledgeable for a citizen.

As for the unrealized gains of increased productivity, that is only happening because a) the work load is not being more widely distributed as the demand for work decreases (i.e., there should be more people working shorter hours, that’s the benefit of automation), and b) instead of increased income, people should be looking for a higher standard of living, which they would have if they were able to work less hours. Unfortunately, people equate high standard of living with higher income and more material consumption, but if the work week was now 30 hours instead of 40, people might view the impact of automation differently.

Posted by KenG_CA | Report as abusive

You left out the other critical element (discussed in your book, The Plutocrats). That is of course globalization.

In America, in 1997, the year mentioned, with the Internet beginning to explode, software programming wages were shooting upward. Electrical engineers and software engineers were seeing their careers prosper like never before, and it was due to the accelerating technology of computers and the internet.

But then, unfortunately, large American corporations lobbied Congress to write the H1B Visa program, so they could bring in engineers from India, China, and other low-wage countries, right into inner sanctum of American facilities. Only then did engineering wages turn downward.

In other words I disagree somewhat with your conclusion in this article. The technology acceleration by itself it one thing. But the globalization run amok, the unchecked immigration, the H1B visas, the dropping of protective tariffs, the complete neglect of the nation’s borders – those are the things that have destroyed the American worker.

Many people have never heard of the Immigration Act of 1924. It was passed to protect the American middle class, the American working class families. Back then there were still politicians who weren’t totally in thrall of the wealthy.

So I say that technology is a factor, but is not impossible to deal with. The globalization of America, on the other hand, is a gigantic tsunami against which the American middle class has zero immunity now that they’ve been abandoned by their legislatures and their President, for the sake of foreigners, both wealthy foreigners and poor foreigners.

I voted for Obama the first time, but now regret it.

Great article, very thought provoking.

Posted by AdamSmith | Report as abusive

Spot on and uncommonly relevant! So who’s going to wake up the economists? At what point do they comprehend that population growth today does NOT mean prosperity (as back on the farm) but more and more mouths at a trough with no empty seats and a relatively fixed amount being “distributed”.

Who’s smart enough in or around government to create the tax incentives and disincentives to assure enough of a “middle class” survives the coming economic convulsions to keep our malls open and cars in production?

Who’s going to tell the great majority of “welfare class” children and uneducated illegal aliens with no skills or education there will be NO employment “future” (jobs for people with NO abilities) for them in American society? Who’s going to explain and convince kids a tattoo could (and likely will) eventually be but one means (self-“branding”?) of separating and economically segregating society’s past, present and future losers?

In the very near future ever-increasing competition for fewer and fewer “good economic employment opportunities” will absolutely require the illusion of intelligence and education to even be considered. Rap and Country music fans need not apply. Stupidity as a choice or affectation will cease to be “cool”.

Posted by OneOfTheSheep | Report as abusive

This is an uncharacteristically defeatist piece with a very short view Chrystia. Think globally and long term, there are no shortage of emerging well paid middle class jobs. They just don’t happen to be spawning here in the US at this moment. Give it a few decades, the tide swells then recedes and soon will swell again.

And quit hanging with that Summers boy, if he and the rest of the guiding hand reputed economic experts were worth their salt we’d be in a significantly better place right now.

Education, open minds, and a willingness to get our hands dirty have served Americans in particular and humanity as a whole well for countless generations. No reason to think it stops now just because a few grumpy old men can’t see past their shoelaces.

Posted by CaptnCrunch | Report as abusive

The production of goods and intellectual property is becoming increasingly more efficient in that is done by fewer, but more talented people. Add to that the growth of the labor force caused by globalization, and there are fewer jobs being done in primary production combined with a much larger pool of labor. That does leave the service sector and simply being unemployed as the choices for a rapidly increasing number of people. However, impersonal service sector jobs such as those at McDonalds and other corporate employers will be insufficient. The “pool cleaner” type job is a bridge between the impersonal and personal service employment. If massive unemployment is to be avoided, personal service such as domestic employment needs to happen. I find that it simply makes no sense that a talented programmer should clean his or her own pool or vacuum etc. after spending enormous hours at quite difficult and intense work tasks.

Posted by QuietThinker | Report as abusive

And it’s the government’s job to ensure that even deep and shallow end jobs pay enough to provide food, housing, health and education, which currently isn’t the case.

Posted by thinkb4its2late | Report as abusive

I have some concerns about the way our advancements in technology are outstripping our ability to think sensibly around it. I suspect the rise in income inequality has got something to do with this. There is a lot of polarizing going on when it comes to technology–there are those who are paranoid about its abuses and then there are those that are making that paranoia reasonable! I think if we take a look at our own ideas around accountability, we might feel more comfortably talking about it on a grander scale. I’ve written about this:

Posted by ireneogrizek | Report as abusive

Productivity has gotten to such a point that it has devalued labor (not that this is a bad thing per se). With labor being more and more worthless it has created an overvalue situation on capital. One can no longer simply create value though their hard work, it takes money. This has created the ugly plutocracy we now have. People are going to have to accept a growing level of socialism; it is not a give-away it is a safety valve. There is a point where the wage gap can get so big as to create a systemic breakdown; if people do not receive just reward for their labor they will eventually leave the system (and become crooks or revolutionaries). This is not good for any involved.

Posted by anarcurt | Report as abusive

@OneOfTheSheep, you said it very well:

“So who’s going to wake up the economists? At what point do they comprehend that population growth today does NOT mean prosperity (as back on the farm) but more and more mouths at a trough with no empty seats and a relatively fixed amount being distributed.”

Posted by AdamSmith | Report as abusive

we live in a world with a growing population, yet fewer opportunities to acquire real purchasing power.

where do customers come from, in an economy like that?

Posted by Robertla | Report as abusive

I hate the phrase “long term”.

Long term? In the long term, we’re all dead.

Most of my life has seen nothing but an ever dwindling middle class purchasing power. My wages haven’t even come close to keeping up with real price inflation. Combined with actual wage deflation (real drops in wages paid) and you can see why I’m not the least bit interested in what MAY happen.

What I do see is a process that has taken almost 40 years isn’t going to be undone to the majority’s benefit any time soon.

Posted by LBK2 | Report as abusive