Krugman Half-Right/Half-Clueless

Paul Krugman challenges Robert Gordon on growth and Krugman is correct:

What Gordon then does is suggest that IR [Industrial Revolution] #3 has already mostly run its course, that all our mobile devices and all that are new and fun but not that fundamental. It’s good to have someone questioning the tech euphoria; but I’ve been looking into technology issues a lot lately, and I’m pretty sure he’s wrong, that the IT revolution has only begun to have its impact.

Consider for a moment a sort of fantasy technology scenario, in which we could produce intelligent robots able to do everything a person can do. Clearly, such a technology would remove all limits on per capita GDP, as long as you don’t count robots among the capitas. All you need to do is keep raising the ratio of robots to humans, and you get whatever GDP you want.

Now, that’s not happening — and in fact, as I understand it, not that much progress has been made in producing machines that think the way we do. But it turns out that there are other ways of producing very smart machines. In particular, Big Data — the use of huge databases of things like spoken conversations — apparently makes it possible for machines to perform tasks that even a few years ago were really only possible for people. Speech recognition is still imperfect, but vastly better than it was and improving rapidly, not because we’ve managed to emulate human understanding but because we’ve found data-intensive ways of interpreting speech in a very non-human way.

And this means that in a sense we are moving toward something like my intelligent-robots world; many, many tasks are becoming machine-friendly. This in turn means that Gordon is probably wrong about diminishing returns to technology.

Krugman is correct here. Speech recognition technology is going to make for some incredible breakthroughs, but it will go well beyond this, including 3D printing and advanced materials to name to other sectors. As long as government doesn't crash the economy, we are headed for some major advancements.

But Krugman, after recognizing the potential growth, goes way off. He writes:

Ah, you ask, but what about the people? Very good question. Smart machines may make higher GDP possible, but also reduce the demand for people — including smart people. So we could be looking at a society that grows ever richer, but in which all the gains in wealth accrue to whoever owns the robots.

This is a dangerously wrong view. It shows that Krugman does not understand simple supply and demand economics and that growth in capital and technology has raised everyone's standard of living. From jet planes, to color flat screen televisions, to microwaves, to smart cell phones, technology has always started serving the very rich, but it has ultimately resulted in serving the masses. The same will occur with robots. Why so?

Because unless we end up living in a world where heaven has come to earth, there will still be demand for labor. Because the rich will have so many new too, toys and products, they will be able to bid labor away from others with massive payments. That's why corporations pay us so much now that we are able to buy  jet tickets, microwaves, flat screen televisions, personal computers etc. with money from our paychecks

The only thing that can stop this potential advancement in the standard of living is government regulations, which hinder technological innovation and creativity.

The real battle right now is between technological revolution that will advance society and government which is hindering it by regulations that protect the status quo in favor of current crony capitalists.

Will technological innovation move so fast that it moves quicker than government is able to regulate it? Let's hope so.