The Second Machine Age
By Erik Brynjolfsson and Andrew McAfee
W. W. Norton & Company, New York, 2014

The steam engine was the iconic invention and the driving force behind the first machine age. It transformed the world by enabling humans to overcome the limitations of muscle power. Living in the 21^st century when steam engines have long since passed into obsolescence, it’s hard for us to imagine just how profound a development this was. For the first time in human history we could produce huge amounts of useful energy whenever and wherever we needed it.

The second machine age, which we’re entering now, is just as profound. Computers and other digital technologies allow us to overcome the limitations of brain power. The impact – social, economic and political – will be just as far-reaching.

That’s the introduction to The Second Machine Age: Work, Progress and Prosperity in a Time of Brilliant Technologies, a book I first learned about several weeks ago when Tom Friedman mentioned it in one of his columns. The authors, Erik Brynjolfsson and Andrew McAfee, argue that the technologies underpinning the second industrial revolution have three essential characteristics: they are exponential, digital and combinatorial.

Exponential: Almost everyone is familiar with Moore’s Law, the observation that computing power, specifically the number of transistors that can be packed into an integrated circuit, doubles about every two years. Since 1965 when Intel founder Gordon Moore first made that statement, computing power has been growing exponentially. As the authors state, exponential growth really is the central phenomenon of the computer age.

What most of us don’t recognize is that Moore’s Law has been in operation for so long that we’ve crossed over to the “second half of the chessboard.” The chessboard here is the proverbial one on which a king was asked to place grains of rice, starting with one grain on the first square, two grains on the second, and so on. In the second half of the chessboard, exponential growth has reached the point where each advance, each doubling, produces astonishing change. It’s a different world, where change can happen – is happening – in huge leaps rather than incremental steps.

Digital: Just about every kind of information is stored digitally these days from bank records and stock trades, to books, photos and music, to GPS maps, to sensor data from your thermostat or your Fitbit. More importantly, bits have zero cost and are what economists call “non-rival,” they’re not used up when consumed. The availability of this massive, growing and inexhaustible hoard of digital information is the second great force driving the second machine age.

Combinatorial: With so much digital information on-line and so much computing power available to process and analyze it, we can combine information and ideas in novel ways. It’s not just data mining, although that’s certainly important. The authors cite open source software development and crowd-sourcing as important examples of how new combinations of information, computing power and ideas lead to innovation. As just one example, combine GPS mapping data with real-time, crowd-sourced traffic reports and you get Waze, one of the most popular mobile navigation applications.

And results of this exponential, digital and combinatorial revolution?

Bounty and spread.

Bounty: The good news, according to Brynjolfsson and McAfee, is that the second machine age is producing incredible benefits. Paradoxically, these may not be showing up in traditional economic measures like GDP. Intangible things like intellectual property, user-generated content and advances in business process are not captured by our traditional metrics. In fact, technological advances may even be driving GDP down since we pay less, or nothing at all, for things like newspapers or recorded music that we used to buy with cash. Instead, we often pay with our attention. Nonetheless the benefits in terms of productivity gains and standard of living are large and growing.

Spread: The downside is that while the second machine age has produced enormous wealth for some, the economic benefits have been skewed. Income inequality has increased markedly, exacerbated by the Great Recession. We see examples of over-night billionaires at companies like Google, Facebook, and most recently WhatsApp. Yet increasingly, middle class jobs are harder to find. As routine tasks become more and more automated, there are fewer jobs for unskilled labor. The kinds of manufacturing and service jobs that used to provide decent middle class incomes are disappearing fast.

One of the most provocative ideas in the book is that the paradox of rising productivity and falling incomes could be the result of a fundamental shift in income distribution. The authors think we could be moving from a bell curve income distribution to a power law distribution. Instead of a big bulge of middle income earners, we could be entering a time when relatively few people earn the vast majority of income. This has long been true in certain industries such as music, acting and writing where a few stars earn most of the income and the rest starve. It’s possible this pattern is spreading throughout the economy.

In the last few chapters of the book, the authors make some recommendations for individuals and governments for dealing with the effects of the second machine age.

Unsolicited feedback

Brynjolfsson and McAfee are fundamentally technology optimists. They’ve gone out and looked at some key emerging technologies and they’re excited by their potential. But they also recognize the challenges posed by rapid technological change.

I’m not sure if their suggestion about a broad shift in income distribution is correct. I think some of the increased inequality in recent decades may be due to changes in our tax code rather than changes in technology. Still it’s undeniable that income is shifting away from those with few skills or little education. And this alone is already having profound implications for policymakers and society as a whole.

The authors both work at the MIT Center for Digital Business and the book is primarily focused on business and economics. They don’t really get into the political or social implications of technological change

On the other hand their policy recommendations are sensible, evolutionary and mercifully free of the vague calls for new institutions and societal dialog that I’ve read in other books recently. Still, in today’s highly polarized political environment I don’t expect any of them to be followed.

That shouldn’t detract from the book though. The Second Machine Age clearly explains how and why digital technology is having such a huge impact and makes useful suggestions for dealing with the side-effects.