Wednesday, December 24, 2014

A View Of The Second Economy From Silicon Valley

The Harvard Business Review published an article by a Silicon Valley venture capitalist and a journalist who has covered this high tech Mecca for many years.  The article raises a serious question about the second economy that is already under development.  The second economy will take advantage of Moore's Law which has established the rate of speed by which computer chips process and store information, as well as the advances in artificial intelligence which leads to the development of much smarter machines.  As the intelligence of these machines increases, the types of jobs that they will be able to perform will also increase.  Today they are being used to perform routine tasks that are being done by low paid workers.  As the cost of the machines continue to fall even low paid workers in China will be replaced by robots.  As the machines become more intelligent, and achieve an IQ of around 120, they will provide a low cost substitute for highly skilled and high paid labor.  In a sense, the wage rate will be set by increasingly intelligent robots.

The second economy will much different from the industrial revolution which replaced human muscle with mechanical power.  It will replace human intelligence with machine intelligence at a much faster rate than mechanical power replaced human power.  This may seem like science fiction to many of us but it is very real to many in Silicon Valley. 

The good news is that the second economy will be very productive.  New and better products and services will available at lower cost.  The bad news is that we will be able to produce the output with fewer workers.  That will solve the problem of scarcity, which has plagued humankind for centuries, but we will need to figure out how to deal with a world that requires less human labor.  The easy answer to that question has usually made reference to the Luddites who opposed the industrial revolution.  Machines replaced the labor of textile workers and there was a 50 year lag between the advent of the industrial revolution and a better life for the Luddites.  Anyone who raises questions about the implications of technological advancement is reminded of the Luddites who would have blocked the industrial revolution and the advances that followed.  The second economy is rolling out at a faster pace than the industrial revolution which replaced human power with machine power.  It raises a question about the ability of our political leadership, which seems to be stuck in low gear, to manage the rapid changes that are brewing in Silicon Valley.

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