The second is called capital-biased technical change. The share of income going to capital owners has grown relative to the share of income going to labor providers. It makes some intuitive sense that when you replace human workers in a factory with robots, the capital owners will earn a bigger share of the income from that factor. That’s been happening at an accelerating pace in recent years. You may be surprised to hear that for most of the 20th century that did not happen. In fact, it didn’t really happen until about 15 years ago.
The third change might be the most important one: It’s called superstar-biased technical change, or talent-biased technical change. If somebody has talent or luck in creating something that people want, that thing can be replicated with digital technology much more easily than in the past. Think of someone who writes software. You can take that talent or luck and replicate it a million times. And while the person who created it does very, very well, the people who previously did that job are less important or maybe not even necessary. The example that I gave in my TED talk was TurboTax. You’ve got a human tax preparer being replaced by a $39 piece of software. It makes the pie bigger in the sense that you create more value with less effort, but most of that value goes to a very small group of people.
I do find it surprising that what you call capital-biased technical change didn’t take off until 15 years ago. Computers aren’t that new, nor are factory robots. What has changed?
I should be clear: Technology has always been creating and destroying jobs. Automatic threshers replaced 30 percent of labor force in agriculture in the 19th century. But it happened over a long period of time, and people could find new kinds of work to do. This time it’s happening faster. And technological change is affecting more industries simultaneously. Threshing changed agriculture, but digital technology is affecting pretty much every industry. Finally, these technologies are just qualitatively different. The ability to digitize makes it more valuable to be a creator and less valuable to be someone who carries out instructions or replicates stuff. You don’t need to pay people to handcraft each copy of TurboTax. That’s different than, say, an automobile—at least for the time being.
In a way, we were just kind of lucky during the 19th and 20th centuries that technology evolved in a way that helped people at the middle of the income distribution. There’s no economic law that says technology has to work that way. And as it happens, a set of technologies that don’t work that way are becoming very important right now.
As you know, many people are underwhelmed by the benefits those technologies have brought us. Here’s something you hear a lot: In the 20th century we put people on the moon. In the 21st century we got Facebook. What do you make of that sentiment?
Even if you go by industrial-age metrics—amount of stuff produced— productivity has been doing great. But if anything, I think that’s an underestimate, because both psychologically and in the data we tend to underweight things that are made of bits versus things that are made of atoms. A rocket blasting off looks really big and impressive. Facebook, which you use to connect with your grandmother, maybe doesn’t look as impressive.
Yet in terms of utility, which is what economists care about, you could make the case that Facebook has made more people happier. People seem to be voting with their hours. They’re spending time communicating with friends and family—showing pictures of their babies or dogs. And I’m not in a position to say, no, that’s an unworthy type of happiness. I’m going to go by what people choose to do. In fact, when we do research on where people are spending their time and what they’re doing, we find that there’s about $300 billion of unmeasured value in all these free goods on the Internet—Wikipedia, Facebook, Google, free music—that don’t get counted in GDP statistics.