One of the most powerful forces acting over the past thirty years has been the growth of computing power and prevalence.
Most see this as a good, even great, thing. I am not so sure.
We may continue to debate the effects of computing on general productivity (dreams of the paperless office never quite happened), but few would doubt that it has brought many changes. If you are under thirty years of age you probably cannot conceive of a world without ubiquitous computing. Even if you are older, the pre personal computer world may seem like another era (indeed it is another era).
While most seem happy to propound the wonderful bounty of this technology, I believe it has accelerated one particular negative change. It has exacerbated the cognitive wealth gap.
While the effects of automation are easier to see, it is not so easy to see how computing has magnified the returns to smarts.
Much of the money made by financial companies and hedge funds relies on heavily quantitative methods. Such heavily quantitative methods are only possible because of the power and availability of computing power. No longer do we need guys with street smarts and market instinct, we need guys with Ph.Ds from elite colleges. Under the old system someone bright, but not super-smart, could do well in finance if he brought energy and grit. The computer models that underlie much of today’s trading activity are built by those in the top one percent of smarts. You still have to work hard, but those opportunities are only available to a restricted group.
One of the most successful companies of recent times is Google. The problem is Google can only provide opportunities for a small group of individuals. The successful companies of old provided opportunities for all levels of intellect. I suspect the opportunities at Google for those of more limited intellect are quite small. And remember, by “more limited” I am referring to IQs of 115 and below, not remedial level. Whatever you say of the “Robber Barons” of old, they could not help but create opportunity and employment for a great many people.
Human capital can take many forms, acquired knowledge, persistence, conscientiousness, and smarts. The computing age has exacerbated, perhaps even driven, the grossly uneven returns to one form of human capital: smarts. A lazy Google engineer may not last long, but all the hard work will not serve him if he is not significantly smarter than average.
An increasing return to smarts is probably the most “unfair” change possible. Politicians love to mention the “lottery of life” when attacking the successful. If regarding intelligence, they might be correct. You can make the choice to learn, work hard, show patience and restraint, and all those other aspects of human capital, but you cannot make the choice to be smart. It seems cruel to be rewarded (or punished) for the one thing you have least control over.
All that said, I am not giving up my computer, GPS, or mp3 player.
I believe the term “robber baron” is largely (or at least partly) unfair. While then men so named were probably not the most gentle (or even genteel) of people I believe that most were still value creators and not rent seekers. Any corruption was as likely politicians inserting themselves into otherwise normal business transactions (i.e., offer legislation in the hope of been offered bribes to drop said legislation).