Summary of "The second machine age"

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Here is a short summary from Brynjolfsson and McAfee's newest book "The second machine age". They provide a great overview about the most recent trends and developments in this century and build a connection to it's economics.

This summary contains some quotes from the book and is designed to provide an overview about what this book is about.

📄 Table of contents

>"The real problem is not whether machines think but whether men do." - B. F. Skinner

1.The big stories

History shows that with the development of the steam machine in 1765 the human social development started to rise very quickly This was the first machine age - it was possible for the first time to produce massive amounts of mechanical power. Now comes the second machine age, where we use computers for doing mental work. Currently we live in a world, where we experience tremendous progress in digital technologies, the changes will be very beneficial for humans but there will arise new threats as well.

2.The skills of the new machines

Computers nowadays are capable of more than just calculating numbers, they process symbols. Everything that can be reduced to the simplicity of rules (algorithms) the computer can solve. Pattern recognition is still an area where humans are much faster and better than machines. Google’s car, Apple’s voice assistant and the Jeopardy! computer are good examples of how capabilities increased steadily and then suddenly. The warehouse robot Baxter shows the immense advantages a robot has over mechanical human workers.

3.Moore’s law and the second half of the chessboard

Moore’s law: „The complexity for minimum component costs has increased at a rate of roughly a factor of two per year.“ His „law“ was merely an observation in those days and hold up very well ever since. One factor is the amount of work people put in the development of the computer industry. The anecdote of the emperor and the chessboard full of rice shows that exponential growth leads to staggeringly big numbers. And that’s what’s happening right now in the machine age - we have arrived at the second half of the chessboard. But not only the power, also the range in various effected fields lead to much faster growth.

4.The digitization of just about everything

Digitization is the work of turning all kinds of information and media, text, sound, photos, video, data from instruments and sensors - into the ones and zeros, the native language of computers. Digitization allows to exploit economic properties of digital information like non-rivality and close to zero marginal cost of reproduction. Now business models evolve around the fact that, information is costly to produce but cheap to reproduce (like Google search). Statistics will even more important, since the amount of input being created and analyzed increases.

5.Innovation: Declining or Recombining?

Innovation today is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.Innovation is how the productivity growth happens. Whereas the Internet provides great fun for us, compared to historical achievements it’s performance is not really economically significant till now. (compared to for example electricity, internal combustion machine, etc.) Mostly innovation happens through recombining existing solutions in order to make them more valuable. Innovation is enhanced by the number of eyeballs and computers and that leads to great predictions for the future.

6.Artificial and human intelligence in the second machine age

First examples of AI (camera that interprets images) and digital interconnection of humans promise accelerated growth.

7.Computing Bounty

Considering trends and looking at previous achievements, we can see, that overall living standards have increased enormously. Just working more hours doesn’t improve productivity, but organizational and business changes made through technology does. Positive correlations between business productivity and the use of IT has been found several times.

8.Beyond GDP

The information age with it’s mostly free services and improvements provides different economics and special measurement problems. The price of null makes these services invisible in official statistics (like the GDP) but nevertheless add value to the economy. Hence GDP equals not economic growth. A way to measure would be the consumer surplus: How much would a consumer be willing to pay? Another important factor in economic measurement are intangible assets, like human capital, intellectual property, organizational capital and user-generated content.

9.The Spread

With this new age, income is very spread. Meaning there is the way to make millions having a new idea, or just competing with machines and get paid nearly nothing. New software doesn’t often needs more than a few programmers and designers. The result can be replicated and updated easily. It can be delivered to millions at almost zero cost. The best way to use new technologies is not to replace human workers with machines, but restructure processes. Jobs with routine tasks will fall and be replaced by machine workers, however non-routine jobs (mental or manual) like financial analysts or hairdresser, will held up.

10.The biggest winners: stars and superstars

Technology has supercharged the ability to leverage their talents via digitization and globalization. In winner-takes-all markets the relative performance determines the success. Writing a slightly faster code might be enough to dominate a market, whereas the 10th fastest code is completely forgotten. Like Joseph Schumpeter wrote in „creative destruction“: each innovation not only creates creates new value, but also kills previous incumbents.

11.Implications of the bounty and the spread

Both bounty and spread will grow in the future. In the result everyone will benefit, but not all benefits are the same. Thank to innovation and technology especially low-income and middle-income groups are better off today than in any previous period. Technology increases productivity and productivity increases employment. However, strong points can be made that changing working fields need an adaption for workers that cause, at least temporarily, unemployment. As long as there are unmet needs and wants in the world, unemployment is a loud warning that we simply aren’t thinking hard enough about what needs to be done.

12.Learning to race with machines: recommendations for individuals

Even though computers are much faster in computing certain tasks, at this time, the don’t even come close to reach the complexity and speed of human brains. One thing that computers can’t do is being creative and coming up with new ideas. To remain a valuable knowledge worker in the future work to improve the skills of ideation, large-frame pattern recognition, and complex communication instead of the three „R“s (reading, writing, arithmetic). Research also showed, that today most students only spend 9% of their time studying (reading and writing). Most of the time is used for socializing, recreating and other.

13.Policy recommendations

Focus on education. Not only what is taught but how it is taught. Focus on Startups. Entrepreneurship stems from innovation and digitalization allows much more innovation to happen. Hence, increased efforts to boost entrepreneurship will lead to more innovation and productivity. Focus on matching employees and employers. Focus on science. And lastly, adapt taxation accordingly.

14.Long-term recommendations

As voltaire said: „Work saves a man from the three great evils: boredom, vice, and need“. So the most important thing to focus on is to keep people working. Always adapt to new technologies as soon as possible and find meaningful work for people.

15.Technology and the future

The two most important changes we will have are: The creation of true machine intelligence and the connecting all humans over digital networks. Risks will increase, but so do opportunities to solve and handle them. The true singularity like in „Matrix“ is not yet to come. Technology brings opportunities. Technology is not destiny. We shape our destiny.

Useful links & credits

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

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