The discussion at the core of [amazon_link id=”0393239357″ target=”_blank” ]The Second Machine Age: Work, Progress and Prosperity in a Time of Brilliant Technologies [/amazon_link]by Erik Brynjlofsson and Andrew McAfee is whether or not the benefits of the current wave of digital and digitally-enabled technologies will outweigh the costs – or not.

[amazon_image id=”0393239357″ link=”true” target=”_blank” size=”medium” ]The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies[/amazon_image]

The book has three parts. The first describes digital technology, explains why it is only now that its consequences are becoming dramatic, and describes some of the impending technological advances. There is a useful survey of (mainly) robotics and AI advances, and a very clear explanation of ‘why now’ when computers and the Internet and even the web have now been around quite a while. The timing is partly due to the nature of exponential doubling. Moore’s law says computing power roughly doubles roughly every two years. If you start with one grain of rice on one square of a chess board and double it for every successive square, it isn’t until the second half of the chess board that the number of grains soars to an incomprehensible degree. It is also due to the need for organisational and infrastructure investments alongside technology investment. This section draws on the work of economic historian Paul David as well as Brynjolfsson’s own excellent work on how firms use the technology to increase productivity, by reshaping processes and work. In short, human institutions move far more slowly than technology progresses.

The second part of the book divides the consequences of technology into two types, which the authors call bounty and spread. Bounty is the potential for human progress, the almost science-fiction fruits of technology that are just starting to emerge in fields from medicine to driverless cars. By ‘spread’ they mean inequality or dispersion of outcomes. (I found this a counter-productive term as ‘spread’ to me carries the automatic word association of ‘evenly’, as in a million recipes I’ve used over the years: ‘Spread the icing evenly over the top of the cake.’) This section of the book has attracted much attention in reviews and articles. It discusses the well-known underlying economics – skill-biased technical change, Sherwin Rosen’s ‘superstar’ effect, and winner-take-all dynamics when there are high fixed costs and increasing returns.

There is an inevitable tension between progress for many humans and costs for a few humans. For example, IBM is getting its Watson computer to absorb all the world’s published medical information and use it to diagnose and recommend treatments. It would apparently take a human 160 hours of reading time every week just to keep up with the literature. The computer will produce far, far better patient outcomes. But what will happen to doctors’ careers? This is just one of many examples underlining the current angst about the ‘race’ between humans and robots. This is of course also the theme of Tyler Cowen’s excellent recent book, [amazon_link id=”0525953736″ target=”_blank” ]Average Is Over[/amazon_link].

The Second Machine Age has a chapter on measurement about which I want to get a bit picky, having just published my own book [amazon_link id=”0691156794″ target=”_blank” ]GDP: A Brief But Affectionate History[/amazon_link]. Brynjolfsson and McAfee rightly point out that GDP does not measure adequately the welfare benefits of innovation, and specifically the digital goods freely available. After all, if there’s no price, it isn’t part of economic activity at market prices. But they are unclear about the distinction between GDP and consumer surplus, the latter never having been measured. For example, to cite a Tim O’Reilly example, if you dry your clothes in a dryer, you’re contributing to GDP and if you hang them on the line in the sunshine (remember that?), you’re not. It is probably true that the wedge between GDP and consumer welfare has been increased significantly. The authors are also astonishingly uncritical of alternatives to GDP, even describing Bhutan’s cynical PR effort to emphasise Gross National Happiness in place of GDP as ‘promising’.

The third section of the book turns to policies that might minimise the costs of ‘spread’ while retaining the ‘bounty’. The recommendations could be summed up as more and better education, to ensure that humans and robots are complements rather than substitutes, and a minimum income or – better in their view – a negative income tax.

These are obviously valid and interesting suggestions. Do they really address the massive technology-driven structural change described in the first two thirds of the book? As so often, my mind turned to the Star Trek Kobayashi Maru example – a Star Fleet training exercise designed to test the character of a trainee captain in a situation where failure and death are inevitable. But Kirk reprograms the test in order to save the crew. This is where we’re at. We need to reprogram society’s institutions. To use a more topical metaphor, if it rains torrentially for two months, there’s going to be flood water – but the damage it does will depend on the landscape it washes over, the kinds of structures that have been built, river-management institutions.

As [amazon_link id=”0393239357″ target=”_blank” ]The Second Machine Age[/amazon_link] makes clear, rising inequality has occurred everywhere. It is indeed driven by the tidal waves of technology and globalisation. But these are interacting with economic and social institutions. Policy prescriptions will need to look at the minimum wage; at the ownership of assets especially the intangible kind – what are the intellectual property rights in a drug that has been tested on thousands of humans and draws on taxpayer-funded basic research?; at public service provision and the tax base to pay for it; and so on. The institutional revolution that meant the Industrial Revolution ultimately benefited everyone is little-studied ((Douglas Allen’s [amazon_link id=”0226014746″ target=”_blank” ]The institutional Revolution[/amazon_link] is an exception) but just as important.

Anybody interested in these questions will want to read [amazon_link id=”0393239357″ target=”_blank” ]The Second Machine Age[/amazon_link]. I wholly agree with the conclusion: “We need to think much more deeply about what it is we really want and what we value, both as individuals and as a society. Our generation has inherited more opportunities to transform the world than any other. That’s a cause for optimism but only if we’re mindful of our choices. Technology is not destiny. We shape our destiny.”