Rogoff on innovation, unemployment, inequality and dislocation

Since the dawn of the industrial age, a recurrent fear has been that technological change will spawn mass unemployment. Neoclassical economists predicted that this would not happen, because people would find other jobs, albeit possibly after a long period of painful adjustment. By and large, that prediction has proven to be correct.

Two hundred years of breathtaking innovation since the dawn of the industrial age have produced rising living standards for ordinary people in much of the world, with no sharply rising trend for unemployment. Yes, there have been many problems, notably bouts of staggering inequality and increasingly horrific wars. On balance, however, throughout much of the world, people live longer, work much fewer hours, and lead generally healthier lives.

But there is no denying that technological change nowadays has accelerated, potentially leading to deeper and more profound dislocations. In a much-cited 1983 article, the great economist Wassily Leontief worried that the pace of modern technological change is so rapid that many workers, unable to adjust, will simply become obsolete, like horses after the rise of the automobile. Are millions of workers headed for the glue factory?

As Asian wages rise, factory managers are already looking for opportunities to replace employees with robots, even in China. As the advent of cheap smartphones fuels a boom in Internet access, online purchases will eliminate a vast number of retail jobs. Back-of-the-envelope calculations suggest that, worldwide, technological change could easily lead to the loss of 5-10 million jobs each year. Fortunately, until now, market economies have proved stunningly flexible in absorbing the impact of these changes.

A peculiar but perhaps instructive example comes from the world of professional chess. Back in the 1970’s and 1980’s, many feared that players would become obsolete if and when computers could play chess better than humans. Finally, in 1997, the IBM computer Deep Blue defeated world chess champion Gary Kasparov in a short match. Soon, potential chess sponsors began to balk at paying millions of dollars to host championship matches between humans. Isn’t the computer world champion, they asked?

Today, the top few players still earn a very good living, but less than at the peak. Meanwhile, in real (inflation-adjusted) terms, second-tier players earn much less money from tournaments and exhibitions than they did in the 1970’s.

Ken Rogoff at the London Chess Classic, chatting with John Nunn and Ken Thompson

Nevertheless, a curious thing has happened: far more people make a living as professional chess players today than ever before. Thanks partly to the availability of computer programs and online matches, there has been a mini-boom in chess interest among young people in many countries.

Many parents see chess as an attractive alternative to mindless video games. A few countries, such as Armenia and Moldova, have actually legislated the teaching of chess in schools. As a result, thousands of players nowadays earn surprisingly good incomes teaching chess to children, whereas in the days before Deep Blue, only a few hundred players could truly make a living as professionals.

In many US cities, for example, good chess teachers earn upwards of $100-$150 per hour. Yesterday’s unemployed chess bum can bring in a six-figure income if he or she is willing to take on enough work. In fact, this is one example where technology might actually have contributed to equalizing incomes. Second-tier chess players who are good teachers often earn as much as top tournament players – or more.

Of course, the factors governing the market for chess incomes are complex, and I have vastly over-simplified the situation. But the basic point is that the market has a way of transforming jobs and opportunities in ways that no one can predict.

Technological change is not all upside, and transitions can be painful. An unemployed autoworker in Detroit may be fully capable of retraining to become a hospital technician. Yet, after years of taking pride in his work, he could be very reluctant to make the switch.

Ken the chess player (at 17, second from right): with Andy Soltis, Mike Seinkawicz
and Richard Verber at the World Championship under 26 in 1970

I know a chess grandmaster who, 20 years ago, prided himself on his success at winning money in tournaments. He vowed that he would never end up teaching children “how horsey moves” (the reference is to the knight, also called the horse). But now he does exactly that, earning more from teaching “how horsey moves” than he ever did as a competitive chess player. Still, it beats being sent to the knacker.

Of course, this time technological change could be different, and one should be careful in extrapolating the experience of the last two centuries to the next two. For one thing, mankind will be confronted with more complex economic and moral questions as technology accelerates. Still, even as technological change accelerates, nothing suggests a massive upward shift in unemployment over the next few decades.

Of course, some increase in unemployment as a result of more rapid technological change is certainly likely, especially in places like Europe, where a plethora of rigidities inhibit smooth adjustment. For now, however, the high unemployment of the past several years should be mainly attributed to the financial crisis, and should ultimately retreat toward historical benchmark levels. Humans are not horsies.

Reproduced with the kind permission of Object Syndicate,
a web site you should definitely put on you favourites list.

If you found the above interesting you should also watch the following TED lecture:

“The Innovation Enigma” debate – 9th November, Oxford

In a month Ken Rogoff will be debating together with Mark Shuttleworth (leader of the Ubuntu operating system, entrepreneur, philanthropist, first South African in space), on one side of a panel against Garry Kasparov and Peter Tiel (billionaire co-founder of PayPal, 10% owner of Facebook) on the question "Is the current growth crisis a result of decades of technological stagnation in a risk-averse society?"

Previous ChessBase articles with Ken Rogoff

Magnus Carlsen Storms New York's Chess Scene 06.09.2012 – They could barely reach the other side of the chessboard, but playing against the world's top-rated grandmaster Magnus Carlsen was a thrilling experience for many New York kids. Carlsen also played with billionaire investor and philanthropist George Soros, and a blitz game against one of the world's leading economists, Kenneth Rogoff. Lubomir Kavalek reports in The Huffington Post.

Rogoff on chess addiction and why he had to give up the game 16.12.2011 – One of the highlights of the London Chess Classic has been the visits of a large number of important and interesting people. One of them, the Professor and world-renowned economist Ken Rogoff, is also a chess grandmaster. He was whisked away from the VIP room at Olympia for an interview with the BBC, in which he very frankly discusses the dangerous side of his former chess career.

Rogoff: Technology and Inequality – parallels in chess 21.07.2011 – When a leading economic thinker happens to also be a strong chess grandmaster, his explanations of financial matters tend to draw allegories from the game he loves. Prof. Kenneth Rogoff periodically sets out his views in TV interviews and newspaper columns. Here is one from Project Syndicate that has appeared in many news sites. A while ago Ken sent warm birthday greetings to ChessBase.

Grandmasters and Global Growth 07.01.2010 – Professor Kenneth Rogoff is a strong chess grandmaster, who also happens to be one of the world's leading economists. In a Project Syndicate article that appeared this week Ken sees the new decade as one in which "artificial intelligence hits escape velocity," with an economic impact on par with the emergence of India and China. He uses computer chess to illustrated the point.

Rogoff: Things are not going to get better soon 01.04.2009 – Are you baffled by the global financial crisis? Are the contradictory statements put out by various experts confusing you? Then listen to this interview with one of the world's leading economists, Kenneth S. Rogoff, who very lucidly explains the current situation, its causes and its possible remedies. Ken is also a chess grandmaster, and in 1972 he played the following jewel of a game.

Chess Grandmasters at the Davos conference 03.02.2009 – As the World Economic Forum held its annual meeting in Davos, Switzerland, two chess grandmasters weighed in on the crisis that has hit the economies of industrialised nations. One was Chess World Champion Vishy Anand, the other one of the leading economic thinkers in the world, Ken Rogoff – who in his day was listed in 40th place in the world chess rankings. Articles and videos.