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require low and moderately skilled workers are being
computerized, tomorrow it will be jobs performed by
highlyskilledandeducatedworkers.Indeed,thisisalready
happening among information technology professionals,
where jobs that once requiredcollege degreesare simply
vanishingintothecomputernetwork.
Greenspan’ssuggestedsolutionisthatwedramatical-
ly improve our elementary and secondary education sys-
tems.WhilethatisagoalthatIcertainlysupport,theidea
thatitwillsolvetheproblemissimplynotarealisticex-
pectation.Even ifwe couldwavea magicwandand im-
prove educationin theUnited States overnight,it would
obviouslybeyearsbeforethosechildrenenterthework-
force.Inthemeantime,computertechnologywillcontin-
ueitsrelentlessadvance.ThesubtitleofChairmanGreen-
span’sbookis“AdventuresinaNewWorld.”However,it
appearsthat,likemosteconomists,hehasfailedtoperce-
ivejusthownewthatworldreallyis.
The reality is that the Luddite fallacy amounts to
nothing more than a historical observation. Since things
haveworkedoutsofar,economistsassumethattheywill
always work out. For centuries, machines have conti-
nuously become more sophisticated, and as a result, the
productivity—and therefore the wages—of the average
worker have increased. It stands to reason that if this
processcontinuesindefinitely,atsomepointthemachines
willbecomeautonomous, and the worker willno longer
addvalue.Longbeforethatextremityisreached,however,

theremustcomeatippingpointatwhichjoblossesfrom
automation begin to overwhelm any positive impact on
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employment from lower prices and increased consumer
demand. (For more on this, please see pages 131-138 in
Chapter 3). In light of unprecedented, geometrically ad-
vancingcomputertechnology, theLuddite“fallacy” does
notreallylookallthatfallacious.
A More Ambitious View of Future Technologi-
cal Progress: The Singularity
Inthis book, I have been quite conservativeintermsof
projectingwheretechnologymaytakeus.Ihavespokenof
robotsthatmayeventuallymanagetostockstoreshelves
and of other robots that might be remotely controlled
fromlowwagecountries.Ihavenotspokenofarmiesof
marauding, humanoid robots, orofintelligentcomputers
taking control of nuclear weapons. Partly, the reason is
thatIwanttocomeacrossasverydowntoearth.Iwant
you to take this book seriously. A second reason is that
none of thosescience fiction-like scenarios areatall ne-
cessary. Technology—if we do not prepare for it—does
not need to directly or physically attack us to cause us
greatharm.Theonlythingitneedstodoistakeourjobs.
Nonetheless,IwouldberemissifIdidn’tincludethe
fact that many extremely well regarded individuals with
deepexperienceinscienceandtechnologyhaveafarmore
ambitious view of what is ultimately possible. World-
renowned cosmologist and author of the book, A Brief

History of Time, Stephen Hawking, has said, “Computers
arelikelytoovertakehumansinintelligenceatsomepoint
in the next hundred years.”
35
 Inventor and author Ray
Kurzweil,whoreceivedtheNationalMedalofTechnology
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fromPresidentClintonin1999,isfarmoreoptimisticand
predicts that machines will achieve true intelligence by
2029.
Kurzweilisalsooneoftheleadingproponentsofthe
technologicalsingularity,whichheexpectstooccurbytheyear
2045.
36
 This concept, which was originally introduced by
the mathematician and author Vernor Vinge,
37
 suggests
that at some point in the future, technological progress
willsimplyexplodeincomprehensibly.Basically,thingswill
justgetawayfromus.Ifyoulookatthenowfamiliarchart
that follows, thetechnological singularity would occurat
somepointclosetowherethelinebecomesnearlyvertical.
Beyondthispoint,itisjuststraightup.


The Technological Singularity


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







Manypeoplehavepostulatedthatthesingularitywill
bebroughtonwhenmachinesfinallybecomesmarterthan
us, andthen applythathigher intelligence to thetask of
Technology
Time
Singularity
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designing even better versions of themselves. After that,
humanbeingswouldnolongerbeabletounderstandthe
progresstakingplace.
It seems obvious that if the singularity does indeed
takeplace,nearlyallofuscouldpotentiallybeoutofajob.
People with PhDs from top universities could well find
themselves in the same boat as autoworkers in Detroit.
Howcouldtheaveragepeoplewhomakeupthebulkof
ourpopulationearnalivinginaworldinwhichmachines
weresmarterandmorecapablethaneventhemostintelli-
genthumans?
Aside from the issue of providing essential support

forthepopulation,thesingularityintroducesamorebasic
economicparadox.Inafree marketeconomy,nothingis
producedunlessthereisdemand—and“demand”ineco-
nomic terms means desire combined with the ability to
pay.Thereisnoincentivetoproduceproductsifthereare
noconsumerswithsufficientdiscretionaryincometopur-
chase those products. This istrueevenif intelligent ma-
chinessomedaybecomesuper-efficientproducers.Ifaver-
age—or even exceptional—human beings are unable to
find employment within their capabilities, then how will
they acquire the income necessary to create the demand
thatinturndrivesproduction?Ifweconsiderthesingular-
ityinthiscontext,thenisitreallysomethingthatwillnec-
essarilypushusforwardexponentially?Orcoulditinac-
tualityleadtorapideconomicdecline?
*



*
Thetechnologistswhospeculateaboutthesingularitydon’tseemtoo
concerned about this problem. Perhaps they assume that the super-
intelligentmachinesofthefuturewillfigureallthisoutforus.How-
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Inthisbook,wewon’tagainstrayintothismorespe-
culativearena(exceptinthelastsectionsoftheAppendix).
Theideaspresentedinthisbookdonotdependontheoc-
currenceofthetechnologicalsingularity.Thestandardwe

have set is much lower: we areconcerned only withthe
possibilitythatmachineswillbecomecapableofperform-
ingmostaverage,routinejobs.Thesingularityrepresentsa
far more extreme case. It’s fair to say, however, that if
something along the lines ofthetechnologicalsingularity
istooccur,wemayfirstneedaparadigmshiftintheway
oureconomyworks—oratleastsomechangesinoureco-
nomic architecture. Otherwise, we will be in for quite a
shock.
A War on Technology
Inthischapterwehaveseenthatcomputersareincreasing
in both power and number at a simply astonishing rate.
We’velookedatclearevidencethatshowswehaveessen-
tiallyhittheceilingintermsofwhatwecanexpectfrom
futureincreasesinthecapabilityofaveragehumanbeings.
We’ve also looked at a variety of specific job types and
technologiesandshownhowautomationislikelytohavea
much broader impact than many of us might imagine—
andalsohowthejobsofmanyhighlypaidandhighlyedu-


ever, if something other than consumer demand drives production,
then we no longer have a market economy; we will then have a
plannedeconomy.TheSovietUnion,ofcourse,didn’thaveintelligent
machines—but they did have lots ofvery intelligent mathematicians
staffinganagencycalledGosplan,whichattemptedtofigurethingsout.
Let’shopethemachineswilldoabetterjob.(Pleasesee“TheTech-
nologyParadox”intheAppendixformoreonthis.)
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cated workers may be among the most vulnerable. Let’s
lookagainattheassumptionwesetouttotestatthebe-
ginningofthischapter:
Technologywillnotadvancetothepointwherethebulkofjobsper-
formed by typical people will be automated before the year 2089.
Priortothatyear,theeconomywillalwayscreatejobsthatarewithin
thecapabilitiesofthevastmajorityofthehumanpopulation.
Atthispoint,itseemsverydifficulttosupportthisas-
sumption. Most of the trends we have reviewed in this
chapter are likelyto come into play long before ourcutoff
dateof2089.Itisverypossiblethatevenadvancednano-
technologywouldbeavailablewithinthattimeframe.We
therefore cannot escapethe conclusion that we will very
likelyhavetodealwiththeimpactofacross-the-boardau-
tomationinour lifetimes, orat theveryleast, within the
lifetimesofourchildren.
Ifwedonothaveastrategy—andspecificpolicies—
in place to deal with this issue before its full impact ar-
rives,theoutcomewillbedecidedlynegative.Asthetrend
towardsystemicjoblossincreases,itisquiteeasytofore-
see a number of possible ramifications. I have already
mentionedthelikelihood ofadropincollegeenrollment
and a migration toward safer trade jobs. Another trend
thatwillsurelyoccurasrecognitionsetsinwillbeagener-
al“warontechnology.”Workersinvirtuallyeveryoccupa-
tion—evenmanyofthosewhothemselvesworkintech-
nical fields—will desperately, and quite understandably,
attempttoprotecttheirlivelihoods.
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Wecanexpectsubstantialpressureongovernmentto
somehowrestricttechnologicalprogressandjobautoma-
tion.Itispossiblethattherewillbeasignificant,last-ditch
resurgence in the power of organized labor. Workers in
jobs and industries that are not now organized will very
possiblyturntounionsinanattempttoexertsomepower
overtheirownfutures.Theresultislikelytobesomewhat
slowedtechnicalprogress,workstoppages,andsignificant
economicandsocialdisruptions.
The economists who believe in the premise of the
Ludditefallacyarenotwrongaboutonething:technologi-
cal advancement is the only thing thatcan, over the long
term,driveustowardcontinuingeconomicgrowth.Con-
tinuingtechnicalprogressisouronlyhopeforawealthier
societyinthefuture.
We know that in the coming decades, we will face
enormousnewchallenges.Mostnotablewillbetherelated
issuesofincreasingenergyscarcityandclimatechange.We
arelikelytofaceawide-rangingimpactonclimate,agricul-
tureandevengeography—includingthepossibilityofris-
ingoceanlevelsthatcouldresultinhumanitariandisasters
ofunimaginableproportions.Asweareallaware,current-
lytheeffortstomitigateglobalwarmingandtheotherim-
portant environmental impacts from burning fossil fuels
areenjoying verylimitedsuccess.Theunfortunatereality
isthatwemayultimatelybeforcedtoacceptthefactthat
wewillfail—atleasttosomedegree—inourquesttostop
climate change. But the costs associated with somehow

adapting to those changes will be astronomical. At the
same time, reservesofoil,natural gas, and in the longer
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runevencoal,aregoingtobedepleted.Howcanwehope
toface thesechallengesifoureconomyisindecline and
the bulk of our population is focused almost exclusively
onthecontinuityofindividualincomes?
Asimilarpointcanbemaderegardingtheglobalwar
onpoverty.Howcanwehopetowinthiswar,ifweour-
selvesarenotprosperous?Weknowthatpovertyisoneof
the primary drivers of war, conflict and terrorism. In a
long-term stagnant or declining economic environment,
theseproblemswillonlygrow.
Theanswercannotbetoattempttohalttechnological
progress. The problem is not with technology; it is with
our economic system, and it lies specifically in that sys-
tem’sinabilitytocontinuethrivinginthenewrealitythatis
being created. It will be extraordinarily difficult to make
materialchangestothatsystembecauseithasservedusso
well,forsolong.Nonetheless,inthefinalchaptersofthis
book,IwillsuggestsomechangesthatIbelievewillallow
us to move from fearing technology to leveraging it as
neverbeforeandthendeployingitagainstthechallenges
wewill face. Before then, however,we must move from
ourtunnelsimulationback intotherealworld.Therewe
willseethatthesituationisprobablyfarmoredangerous
andperhapsmoreimmediatethanwehaveyetimagined.
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Chapter 3
DANGER


In the first chapter of this book, our tunnel simulation
showedthat,aslargenumbersofworkerswereautomated
out of their jobs, theeconomy would eventuallygo into
declinebecauseeachworkerisalsoaconsumer(andmay
supportotherconsumers)inthemassmarket.Inthereal
world, it seems very likely that the automation process
wouldbea fairlygradualone.Can weassume,therefore,
thattheeconomicimpactofthistransitionwouldalsobe
gradual in nature and might not be apparent until some
pointinthedistantfuture?Toanswerthisquestion,let’s
lookathowmarketsworkintherealworld.
The Predictive Nature of Markets
Oneofthemoreinterestingdevelopmentstoariseoutof
theInternethasbeentheappearanceofonlineprediction
markets. A predictionmarket is really just another name
forabettingmarket,anditoperatesinasimilarfashionto
thefuturesmarketsthatallowtraderstoplacebetsonthe
futuredirectionofthingslikeoilpricesandstockmarket
indexes.Prediction markets, such as theIowa Electronic
Markets(IEM) andIntrade,allowparticipantstobetreal
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money on things like elections, economic developments
(suchasrecessions),orspecificeventsin thebusinessor
entertainmentworlds.
While prediction markets are specifically set up to
predict future events, we know that we can expand this
ideaandsaythatallfreemarketsare,inessence,prediction
markets.Ifyoubuyaparticularcompany’sstock,thenyou
areplacingabetthat,inthefuture,thatstockwilltradeat
ahighervalue.Collectively,themillionsofparticipantsin
theworld’sstockmarketsoftenactasasortofpredictive
barometer for the economy as a whole. Historically, the
U.S.stockmarkethasoftenanticipatedrecessions bysix
monthsorso.Likewise,recoveryfromarecessionisvery
oftenprecededbyariseinthestockmarket.
This predictive feature also applies to all the other
various markets with which we interact, including the
housingmarket,thejobmarket,andthemassmarketfor
goods and services. The reason is quite obvious. People
arerational beingsand every individual, to some degree,
incorporateshisorherexpectationsforthefutureintohis
orhercurrentactions.Ifyouexpectthatyouwillreceivea
largesumofmoneyatsomepointinthenearfuture,you
areverylikelytobeginspendingsomeofthatmoneyeven
beforeyouactuallyreceiveit.
Nowwecanbegintoseeapotentialproblem.Asau-
tomationbeginstoeliminatejobsinanincreasinglywide
rangeofindustriesandoccupations,itsimpactsareclearly
notgoingtobekeptasecret.Peoplewillbecomeawareof
what is happening—even ifit is notofficially recognized

bygovernments—andtheywillbegintomodifytheircur-
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rentbehavioraccordingly.Asagrowingpercentageofthe
population is exposed to direct evidence of ongoing job
losses, many people will begin to experience a greatly
heightenedlevelofstressandworry.Facingthis,individu-
alswilltaketheobviousaction:theywillcutbackoncon-
sumption,perhapsquitedramatically,andtrytosavemore
inanticipationofaveryuncertainfuture.
Itisimportanttonotethatwhatwearetalkingabout
hereisreallynotthe same aswhatoccurs in thenormal
businesscycle.Inatypicalrecession,manyconsumerswill
alsocutbackonspendingastheyworryaboutlosingtheir
jobs,andthiswilltendtodeepenthedownturn.However,
thisworryispredominantlyashort-termconcernbecause
people realize that, in the long run, when the economy
recovers,businesseswillhavetoagainbeginhiring.
But what if, at some point in the coming decades,
there is a general coalescence of belief that suggests the
basic character of the economy has changed to such an
extentthatjobs may notbe available—or at least will be
veryhardtoobtain—inthefuture?Ifthisweretooccurin
a critical mass of the consumers who participate in the
market,intheabsenceofaneffectivegovernmentpolicy,
we could clearlybe thrust into a very dark scenario. An
individual faced with possible long-term or even perma-
nent unemploymentatsomepointinthe foreseeablefu-
tureisinessencelookingataninvoluntary,earlyandun-

predictableretirement.Seeingthis,consumersmightbegin
to adjust their current consumption in light of such ex-
treme uncertainty. If thiswere to occur, a dramatic eco-
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nomicdownwardspiralwouldalmostcertainlybeprecipi-
tated.
Ifsuchadisastrouseventweretooccur,thestandard
responses employed by governments, such as stimulus
spending, would probably be largely ineffective. This is
becausestimulusspending(ortaxcuts)wouldnotaddress
people’slong-termconcernabouttheirincomes;itseems
verylikelythatanyadditionalincomereceivedbyconsum-
erswouldimmediatelybesaved.Itis,infact,verydifficult
toimagineagovernmentpolicyshortofsomehowguaran-
teeingindividuals’continuityofincomethatwouldbeef-
fective in such a scenario. And undertaking such an in-
comeguaranteepolicyinthemidstofsuchasevereeco-
nomic downturn would be extraordinarily difficult and
expensive.Inshort,the consequencesofsuch a scenario
arereallynotsomethingwewouldwanttocontemplate.
The 2008-2009 Recession
Obviously, our current economy remains highly depen-
dentontheeffortsofhumanworkers.Wecanprobably,
therefore, assume that the dangerous scenario described
aboveliesinthefairlydistantfuture—perhapsevendec-
adesfromnow.Nonetheless,Ithinkwecanexpectthat,
longbeforewereachsuchanextremepoint,theeconomy
willbegintodisplayevidenceoftheoverallimpactofau-

tomation.Isit possiblethat, at least tosomeextent, this
hasbeenafactorinthecurrentcrisis?Asweallknow,the
2008-9recessionbeganwiththe2007subprimemeltdown
thatthenevolvedintothecreditcrunchandglobalfinan-
cialcrisis.AsIpointedoutinChapter2,advancingcom-
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puter technologycertainly played an enabling role in the
severityandglobalnatureofthecurrentsituation.Beyond
this,thereareanumberofotherfactorsthatshouldcon-
cernusaswelookforwardto recoveryfromthecurrent
recession.
The freeze-up of credit in 2008 struck an especially
hard blow at consumer demand because, over the last
eightyears orso,realwagesformostaverageAmericans
have been stagnant or even declining while health care
costs have been exploding. Faced with this, many con-
sumers turned to home equity loans and credit cards in
ordertomaintaintheirstandardofliving.Thecollapseof
thesecreditlinesin2008,togetherwithrapidlyrisingun-
employment, forced consumers to cut back in a fairly
dramatic way. Automation, offshore factory relocations
and,toalesserextentservicejoboffshoring,havecertain-
lyplayedanimportantroleinthistrendtowarddeclining
orstagnantwages.
Globalization, and in particular theneed for Ameri-
canmanufacturerstocompeteagainstlowcostproducers
inChina,hasforcedjobcutsandacceleratedthedriveto-
wardautomation.Thishasbeenreflectedinthesubstantial

productivityincreasesoftheU.S.economyinrecentyears.
While the impact of globalizationon the job markethas
received most of the attention, I think most economists
wouldbelikelytoagreethatadvancingtechnologyandjob
automationhaveplayedafarmoresignificantrole.
Althoughfactorssuchasstagnatingwagesforaverage
workers would seem to provide support for the theory
thatautomationisbeginningtohaveasignificantimpact
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ontheeconomy’sabilitytocreatejobs,itisimportantto
notethattherearealsosignalswhichtendcontradictthis
conclusion:beforetheadventofthecurrentcrisis,unem-
ploymentasmeasuredbythegovernment,remainedvery
low.However,thereisalsoevidencethatunderemployment,
especiallycaseswhereworkershavebeenforcedtosettle
foroneormoreparttimejobsratherthanafulltimeposi-
tion,hasbeenasignificantissueforsometime.Inshort,
theevidenceisnotconclusive;butIthinktheremaywell
bereasonablecauseforconcern.
I don’t think it would be unreasonable to say that
among many average workers, there is now a sense that
goodjobsaremoredifficulttofindandkeepthaninthe
past.Theterm“joblessrecovery”isnowroutinelyapplied
to nearly every post-recession economic recovery, and
thereisnoreasontoexpectthatthecurrentcasewillbean
exception.Onereasonislikelythat,whenbottomlinesare
pressured during a downturn, businesses have an even
biggerincentive toturntowardjobeliminating technolo-

gies. In many cases, as efficiency continues to increase
evenduringadownturn,businessesfindthattheyareable
toavoidrehiringdisplacedworkersoncearecoverydevel-
ops.
If,infact,automationisbeginningtohaveanincrea-
singly significantimpact,Ithink there is a veryreal con-
cern that, even with theunprecedented level of stimulus
spendingthathasbeenpursued,thenumberofjobsulti-
matelycreatedmayturnouttobedisappointing.Without
specificpoliciesandincentivesinplacetohelpensurejob
creation,muchofthestimulusmayleakaway—muchlike
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heatescapingfromapoorlyinsulatedhouse.Inparticular,
agreatdealoftheindirecteconomicstimuluscreatedby
government spending is likely to end up being directed
overseasandtocapitalratherthantolabor.Laterinthis
chapterIwillproposesomespecificpolicyinitiativesthatI
feelwouldgreatlyassistinjobcreation.
Offshoring and Factory Migration
InChapter2wesawthatoffshoringisoftenreallyjustthe
leading edge of automation. When a job is offshored, a
newconsumeriscreatedinadevelopingnation—atleast
temporarily.However,fromthepointofviewofconsum-
ers in the United States or Western Europe, offshoring
looks exactly the same as automation. The same can be
said of relocating a factory to a developing country like
China;toworkersintheU.S.itlooksexactlythesameas
simplybuildingafullyautomatedfactory.Inotherwords,

service offshoring and factory relocations accelerate the
job loss as well as the psychological impact on workers
(consumers)andmakeitlikelythatthedangerousscenario
describedabovecouldoccurevenearlierinthedeveloped
nations.Anditisthesedevelopedeconomiesthatremain
theprimaryconsumptiondriversoftheworldeconomyas
awhole.
In essence, we have succeeded in globalizing labor
andcapital,butwehavereallynotglobalizedconsumption.
Toalargeextent,workersinlowwagecountriesarenot
capable of purchasing the goods they are producing. Or
eveniftheycanaffordtobuythoseproducts,theyareun-
likelytodo sobecausetheyaremuchmoreinterestedin
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saving. Consumers in the United States are expected to
continuepoweringthefactoriesinChinaandotherdevel-
opingnationsevenasthejobsfromwhichthoseconsum-
ers derive their income evaporate.
*
 This is clearlyunsus-
tainable.
Thisdanger—togetherwiththefactthatthebenefits
from offshoring in the third world are likely to be only
transitory since automation will follow—really calls into
questionthe overallwisdomofthispractice.This istrue
evenforthedevelopingnationsthatarecurrentlybenefit-
ingfromoffshoringbecause,aswewillseelater,thecon-
sequences of such a severe and long lasting economic

downturnintheWestwouldalmostcertainlywipeoutand
reverseanytemporarygainsthesecountriesmayhaveob-
tainedfromoffshoring.
Ofcourse,theoverallwisdomofapracticelikeoff-
shoringhasabsolutelynobearing ontheactions ofindi-
vidual businesses. Businessesact according to short-term
incentives and the competition that they face. Even a
CEOwhodislikesoffshoringwillhavelittlechoicebutto
pursuethepracticeifhisorhercompetitorschoosetodo
so.Onlygovernmentshavetheabilitytocreateincentives
and policies that can potentially turn things around and
avoidthedisastrouseconomicspiralthatmightoccurifa


*
Manyeconomistswouldarguethat thisisnotamajorconcernbe-
cause the U.S. economy will evolve so that most consumers derive
theirincome from jobs in the service sector,and thattheseservices
willbeprovidedlocally.However,aswehaveseeninthisbook,many
local services will also ultimately be subject to both offshoring and
automation.
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criticalmassofconsumerssomedayloseconfidenceinthe
futurejobmarket.
Reconsidering Conventional Views about the
Future
Pick up any recently published book which attempts to
forecastthemajortrendslikelytodevelopinthecoming

decades,andyouwillquicklycometotheconclusionthat
thereisaveryconventionalsetofviewsonwhereweare
headed.Manyofthesewidelyheldbeliefsaboutthefuture
arebasedonsimple,andinescapable,demographicanaly-
sis—and, in particular, on counting workers. What will be
mostimportantinthefuture?Theconventionalansweris:
first,thenumberofworkersascomparedwiththenumber
ofretiredpersonsinmostcountries,andsecondthenum-
berofworkers(andthewagestheyarewillingtoaccept)in
developingnationslikeChinaascomparedwiththenum-
berofworkersinadvancedcountries.
Twoofthemostnotablebooksthathavefleshedout
these commonly held viewsare The Worldis Flat:ABrief
HistoryoftheTwenty-first CenturybyThomasFriedmanand
Futurecast: how superpowers, populations, and globalization will
changethewayyouliveandworkbyRobertJ.Shapiro.Inhis
book,Shapirogives averyinsightfulanalysisofthecon-
ventional view.
38
 He identifies three basic forces that he
feelswillshapethecomingdecades:(1)Thedemographic
crisis—or“babyboom”problem—thatwillresultinmost
countrieshavinganunprecedentednumberofelderlyper-
sons relative to the number of workers in their popula-
tions.(2)Globalization,whichallowslaborandcapital,as
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well as products and many services to move effortlessly
acrossborders,and(3) The fall ofSoviet-stylecommun-

ism and the adoption of market-based economies
throughout the world. This has resulted in hundreds of
millions of workers who were previously locked away in
centrallyplanned economies now being freeto enter the
globalworkforce.
Thefirstthingyoumightnoticeisthattheissue we
havebeenfocusingoninthisbook—technologicalaccele-
ration—does not appear in the list at all. In fact, in the
conventional view of the future, technology is primarily
seenasanenablerofglobalization.Ithasbeenrelegatedto
a secondary, supporting role. Somehow, technology has
faded into the background. Nearly everyone agrees that
technologyhasplayedanimportantroleinmakinggloba-
lizationpossible,andthatglobalizationiscertainlyahighly
disruptive force,but now everyone seems to expect that
technology will be put back into its box. It will behave.
Technology’srolewillbetocontinuepushingtheexisting
trendsforwardsothattheprojectionlinesalltheanalysts
havedrawnwillremainniceandstraight.
Friedman’sbook,TheWorldisFlat,offersalongerlist
oftenforcesthathave“flattened”theworld,andhedoes
includesomefacetsoftechnologyinthatlist.
39
However,
the focus is almost entirely on specific technologies that
enableglobalcompetitionandcollaboration.Noattention
isgivento the overall impact of accelerating technology,
andinparticular,subjectssuchasartificialintelligenceand
roboticsgovirtuallyunmentioned.Isuspectthatthiswill
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provetobearemarkableoversightinabookthatissub-
titled“ABriefHistoryoftheTwenty-firstCentury.”
Shapiro correctly notes that there is an increasing
trend toward breaking jobs up into pieces and then off-
shoringtheseindividualtasksandthatthistrendhasbeen
enabled by the availability of new productivity software
thatmakesitpossibleforworkersindevelopingcountries
toperformincreasinglycomplextasks.Allthisisundoub-
tedlytrue. However,the real questionis this: ifsoftware
canbedevelopedthatenableslowwageworkerstodoall
thesethings,thenwhywouldthistechnologyjustarbitrari-
ly stop there? Clearly, it would not. It will continue ad-
vancingtothepointwherenopersonatallisrequired—andit
maywelldosoinfarlesstimethanwemightexpect.
The reality is that nearly everyone who attempts to
forecast thecomingdecades seemstoidentify thewrong
trend.Thosewhosubscribetotheconventionalviewfail
toseethatuntoldmillionsofcompetingandcollaborating
globalworkersareultimatelylikelytobeflattenedbythe
majorforcethatwilltrulyshapethenewcentury.Globali-
zation is certainly significant, but it is really a mere off-
shootoftheprimaryforcedrivingustowardchange,and
thatforcecontinuestobetechnology.
The China Fallacy
Noconventionalviewismorewidelyheldthanthebelief
that the future is likely to belong to China. Once again,
thisprojectionisbasedprimarilyondemographics.Ihave
seenstudieswhereresearchersprojectasfaroutas2050—

more than 40 years into the future. To do this, analysts
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takeaper-capitaincomethatissomewhatcomparableto
that of developed nations and then multiply it by some
hugefractionoftheChinesepopulation.In otherwords,
theyassume that a very significant percentageofthe 1.3
billion people in China aregoing to be dragged into the
middleclass.And,theprimaryforcethatwilldothatdrag-
ging is going to be the ever-expanding employment of
hundredsofmillionsofworkersinChina’smanufacturing
sector.
Currently,alargepercentageofChinesemanufactur-
ingisfocusedonsimple,verylowvalueproducts.Plastic
ornamentsandtoysforChristmasandHalloweencometo
mind. Increasingly, however, Chinese manufacturing is
expected to creep up the value chain. More complex
products will be produced. It’s generally assumed that
Chinesecompanieswill becomea disruptiveforce in the
globalautomotivemarketatsomepointinthenottoodis-
tantfuture.
Forallthis,automationwillbeessential.Thelargein-
dustrial corporations in the United States, Germany and
Japanthatprovidethisautomationtechnologyarecertain-
lysalivatingattheprospectofthefuturemarketthatChi-
na will provide. The Chinese government, meanwhile, is
focused on insuring that as much of this technology as
possiblegetstransferredtonativebusinesses.Automation
isnotjustaboutsavingmoneybyeliminatingjobs.Auto-

mation conveys benefits far beyond that: it makes more
preciseandreliablemanufacturingpossible.
*
Machinescan


*
Thosewhodisagreewithmyargumentherewilllikelyciteanecdotal
evidenceofChinesecompaniesthathavesofarsucceededbysubsti-
Danger / 119

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simply do things better, faster and with more precision
thancananyhumanworker—regardlessoftheprevailing
wagelevel.Inthefuture,massmarketproductsarelikely
tobecomemoresophisticated,andinmanycasesphysical-
lysmaller.Toleranceswillbetighterandtheneedforpre-
cisiongreater.AutomationisgoingtofallheavilyonChi-
na’smanufacturingsectorand,inthelongrun,theimpact
onemploymentislikelytobedramatic.
AnotherpotentialproblemthatChinaseemslikelyto
faceisstagnantordecliningdemandforitsexportsinthe
United States and other developed nations. As we have
seen,asjobsarelostintheWesterncountriesandfearof
structuralunemploymentthere grows,consumerdemand
willfall. The reality isthatChina doesnot have aninte-
grated,self-sustaining economy. A substantialfractionof
itsfactoriesaregearedtowardexports,andtheseexports
are largely responsible for the phenomenal economic
growththatChinahasenjoyedinrecentyears.

Evidenceofthisisclearlyseeninthestallinggrowth
that is resulting from the 2008-9 recession. As of early
2009,thousandsofChinesefactorieshaveshutdownand
millionsofworkershavelosttheirjobs.TheXinhuanews


tutinglowcostlaborforautomation.BYD,amanufacturerofbatte-
ries and automobiles is one example. The question is whether that
business model is sustainable. I would argue that, especially in the
automotive market, the company will ultimately have to introduce
more automation to meet the quality standards required in export
markets. It’s also worth noting thatsucha business modelcould be
sustainedinthelongrunonlyifwagesinChinaremainextremelylow
indefinitely.Ifthatisthecase,howwillChinasucceedindrivingdo-
mesticconsumptionandachievingamorebalancedeconomywhichis
lessdependentonexports?
THE LIGHTS IN THE TUNNEL / 120

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agencyreportedthatinJanuary2009thatChinesePremier
WenJiabaotoldthestatecouncilthat2009wouldbethe
“mostdifficultyearforChina’seconomicdevelopmentso
far this century.” Aside from exports, the major factor
propping up the Chinese economy is the continuing
enormous investment in infrastructure. Clearly however,
thislevelofspendingisnotsustainableindefinitely.
Many analysts have called for China to stimulate its
domesticdemandinordertohelpmakeupforthisdecline
indemandforexports.Inreality,thiswillbeverydifficult.
ThemajorityoftheproductsproducedinChinese facto-

ries are either not affordable to Chinese consumers, or
they are of no interest. Chinese people are not going to
buythoseHalloweentrinkets.Evenifproductioncouldbe
redirectedtodomesticneeds,demandwouldstillnotma-
terialize because of China’s extraordinarily high savings
rate.
ThepercentageofincomesavedbyworkersinChina
hasbeenestimatedtobeashighas30percent.Thiscom-
pareswithasavingrateintheUnitedStatesthat—atleast
upuntilthestartofthecurrenteconomiccrisis—hasbeen
essentiallyzero.Severalreasonscanbegivenforthishigh
savings rate. A number of economists point to the fact
that China has no social safety nets such as retirement
pensions, unemployment insurance or health care insur-
anceforthevastmajorityofitspopulation.Others
40
argue
thatthehighsavingrateisduetointentionalgovernment
policies that repress consumer spending. It is very likely
that both of these factors play a significant role, butmy
personalopinionisthattheimportanceofsavingforthe
Danger / 121

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future is simply integrated deeply into Chinese culture.
Obviously,somethinglikethatisveryhardtoturnaround.
Itseemsextraordinarilyunlikelythatanygovernmentpoli-
cywouldsucceedinsubstantiallyincreasingChinesecon-
sumerspending—especiallyinatimeofgeneraleconomic
distress.

Evenifweputasidetheissueofautomation,theim-
mense size of China’s population relative to the global
economyrepresentsasignificantchallengetoitslong-term
development. As smaller countries such as Japan and
South Korea industrialized, wages in those countries in-
evitably rose, and their populations were largely elevated
intoaconsumerclass.China,however,issolargethatthe
numberofavailableworkersisseeminglylimitless.
Inaddition,thegovernmentactivelyenforcesdiscrim-
inationthattendstodrivewagesevenlower.Muchofthe
workinChina’sfactoriesisperformedbymigrantworkers
who officially live in the countryside but are allowed to
cometocitiesorindustrialregionstowork.Theseworkers
typically live in factory dormitories and do not have the
right to bring their families to the cities or to genuinely
assimilate into an urban middle class. Wages for these
workers are far lower than for urban dwellers, and the
moneythattheydoearnisforthemostparteithersaved
orsenthometohelpsupporttheirfamilies.Theseworkers
arenotinapositiontobecomemajordriversoflocalcon-
sumptionanytimesoon.
MyownopiniononthefutureofChinamaywellbe
dismissed as being too pessimistic. I do not believe that
Chinacanfullyindustrializealongthesamepathfollowed
THE LIGHTS IN THE TUNNEL / 122

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intheWest.Chinaistoolate—andsimplytoobig.China’s
economic development, for all of its phenomenal
progress,isinaracewithtechnology,andthatisaraceit

cannotwin.
IfIamevenpartlycorrectinthisprojection,thenthe
ramificationsfortherest ofthe worldwillbe enormous.
IntheWest,welooktotheimpendingeconomicmightof
Chinawithmixedemotions.Ontheonehand,weworry
about all that power residing in a country that may well
continuetobeessentiallyundemocraticfortheforeseeable
future.Ontheotherhand,manyofourhopesforthefu-
ture are tied directly to the assumption that unfettered
economicgrowthwillcontinueinChina.Welookforward
toenormousnewmarketsforourproductsandservices,
andwehave evengone sofarastopinourhopesfora
resolutiontosomeofourowndemographicproblemsto
ourexpectationsforChina.
Mostpeopleareawarethatasthepopulationagesin
Westerncountries,atremendousamountofpressurewill
be put on pension programs like Social Security in the
UnitedStatesandonretireehealthprograms.Whatisless
often discussed is that there is also a potential problem
withthegeneralvalueofassets.Aspeopleworkthrough-
outtheircareerstheysaveforretirement.Themajorityof
this goes into stocks and bonds, often via 401(k) plans.
Whenthesepeoplethenreachretirementage,theybegin
tosellthoseassetsinordertomaintaintheirstandardof
living.
Theproblemisthat,forthefirsttime,wewillhavea
very largenumber of older people actively selling assets,
Danger / 123

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while at the same time, a relatively smaller number of
youngerworkerswillbeavailabletobuythoseassets.The
obvious result is that asset values of nearly all types are
likelytofallundertheduressofthislopsidedsellingpres-
sure.Anumberofpeople—includingAlanGreenspanin
his book The Age of Turbulence—have suggested that the
solutiontothisproblem is goingtobehugenumbersof
newlywealthyyoungworkersfromChina,Indiaandother
developing nationswhowill step forward tobuyouras-
sets.Aswehaveseen,thatmightnotbesuchagoodbet.
The reality is that the idea of this tremendous new
marketresultingfromanexplodingChinesemiddleclassis
somethingofamirage.TheChinesemiddleclassisnotan
independentmarket.Thesepeopleareessentiallystanding
onthe shouldersofAmericanandEuropeanconsumers.
Andaswehavenotedagainandagaininthisbook,those
Westernconsumersalldependonjobs.Ifautomationbe-
ginstodramaticallyimpactemploymentinChina,whileat
thesametimedemanddwindlesintheWest—andcertain-
lyifthecatastrophiceventdescribed atthe beginning of
thischapteroccurs—thenthiseconomicperpetualmotion
machineisgoingtocollapse.
Givenallthis,whatcanwereallysayaboutthefuture
ofChina?Nearlyafourthoftheworld’spopulationlives
inChina;therefore,thereisnodoubtthatthiscountrywill
continuetohavesignificant,andperhapsincreasing,influ-
enceinthedecadestocome.However,simplyextrapolat-
ingcurrenttrendsisveryunlikelytogiveanaccuratepro-
jection.Chinaisgoingtobeheavilyimpactedbyaccelerat-
ing technology, and its future—along with the future of