Fascinating interview with venture capitalist, Marc Andreessen, on the future of jobs, societal inequality, and education:

“The spread of computers and the Internet will put jobs in two categories,” Andreessen says. “People who tell computers what to do, and people who are told by computers what to do.”

The New York Times recently chronicled the rise of machines in manufacturing that used to be the domain of low wage humans. It noted that even tasks previously deemed too complex for machines to do or too subtle for mechanical manipulation have been solved by engineers. To a manufacturer, the advantages of using robots for any task that can be automated are well known: 

•  robots don’t go on strike
•  robots can work 24 hours a day, 7 days a week, year round
•  robots don’t have to take breaks during their shifts
•  robots don’t have pension obligations

The primary disadvantage to manufacturers is high capital expenditures to purchase expensive equipment. This high cost translates to potentially higher hourly cost of production relative to using human labor. The cost is also upfront and inflexible since you can’t simply lay off and rehire a robot. Humans only require minimal upfront investment — just basic training — to do manufacturing/assembly jobs.

As a result, every manufacturer does an analysis to figure whether the high upfront investment in machines translates into enough production efficiencies compared to minimal investment in humans. On the whole, we’re still largely using people across all sectors and geographies; however, that could soon change pretty quickly. Obviously better engineered machines means more things can be automated but a surprising accelerator may be The Federal Reserve (The Fed).

To combat unemployment and economic stagnation, the Fed has kept interest rates at practically 0%. The idea is to make loans incredible cheap to stimulate investment by companies which should create jobs (enable companies to borrow cheaply to invest in expansion) and spur consumption (enable consumers to borrow cheaply to buy a car or house). 

The unintended consequence is the cost of investing in machines has dropped to near 0%. As a manufacturer, I can get robots practically for free upfront, use them to produce goods cheaper, sell those goods, and then pay back the low interest loan. I am actually now much more incentivized to increase production through investing in machines than in people.

As a result, The Fed could be making unemployment worse inadvertently. It may be achieving its goal of stimulating the broader economy, but it may be exacerbating the unemployment problem which largely exists among unskilled labor which is primarily used in manufacturing and construction. It is becoming cheaper and cheaper to automate with robots than it is to hire people. 

I just hope the machines will have the human decency to spare Ben Bernanke for all he’s done when they finally take over.

Can optimizing everything for maximum utility leave us in a sub-optimal situation? That’s the question posed this week in a very interesting book review of What Money Can’t Buy. The author surveys how market morality (the idea that markets always lead to optimal outcomes) permeates our everyday life now and challenges traditional social norms. He concludes rather provocatively, but thoughtfully: 

Proponents of market morality claim that it imposes no belief system, but that’s just a smoke screen. Choosing to place utility maximization at the core of your belief system is no different from choosing any other guiding ideological precept. Every problem has an incentive-based solution; every tension can be resolved by seeking the maximally efficient outcome.

This is a depressingly reductive view of the human experience. Men will die for God or country, kinship or land. No one ever picked up a rifle and got shot for optimal social utility. Economists cannot account for this basic fact of humanity. Yet they have assumed a role in society that for the past 4,000 years has been held by philosophers and theologians. They have made our lives freer and more efficient. And we are the poorer for it. 

Thinking about some of the examples of markets taking over social norms, I do feel indignant, even as an market-loving economist. When did we go from naming buildings and monuments after people who have built a legacy to naming them after people who made a lot?

In a rare case of an anachronism being something I am proud of, Yale refuses to name its new residential colleges after rich donors and instead only after alumni who have done something worthy of recognition. I think such a policy brings the best out of the community and gives people something to aspire towards — an externality unaccounted for by the market.

I really do feel that markets not only allocate goods and resources but they also express and promote attitudes towards the very goods being exchanged. Once we agree certain goods can be bought and sold, we implicitly label them as commodities and some things should be sacrosanct. People can’t sell their votes, organs, or freedom. Enabling the sale of them would effectively destroy the value they represent.

Markets, at the worst, could destroy a lot of things but at the very least, fail to capture or account for everything. Markets can make people do the right things some times but they cannot make the right motivations — in fact, oftentimes, they undermine the right motivations.

That said, people do a lot of good things without incentives everyday, though the number of things may diminish as markets permeate more and more of daily life. In my experience, there are still good people who don’t check first if the moral high ground isn’t on top of a pile of gold. When you find those people, you have to place a high value on your relationship because they are increasingly rare in today’s world, but don’t ever make the mistake of thinking you can put a price on them — or else you may have diminished the most valuable thing in the world.

How economic-lotteries shape careers in certain industries and how they are becoming more common

An interesting new study suggests that the poor have more to think about in terms of trade-offs which costs them financially.

Recently, I received a nice postcard from a friend who was explicitly trying to prop up her favorite dying US agency — a beautiful, thought though likely futile effort. It made me wonder about the future of businesses that primarily operate offline.

The Internet through the spread of email has permanently disrupted the main business of the US Postal Service, and the uptick in shipping packages to homes from e-tailers hasn’t quite made up for the lost business. That fact surprises me as I consider my recent Black Friday experience seeing many retail spaces remaining empty, big box stores appearing desperate, and online stores doing better than ever. The future of retail feels like it will be largely online with offline delivery for anything that doesn’t have to be consumed or used immediately. Such a future feels a little bleak when you try to imagine all the empty street windows. 

That said, I don’t think that could really come to pass since some equilibrium will be reached. I have started to wonder what would keep retail spaces filled and bustling with business. I’ve come up with five ways this would be possible:

1. Experienced based retailing. I believe either offline retailers are going to have to be like Walmart or be like Apple in the future. They won’t be able to charge a 20-50% markup on a pure commodity shopping experience; instead they must produce an amazing retailing experience or they must simply have cheaper prices than the Internet has to offer. 
2. Pop-up retailing. Internet companies have already begun this season tocreate pop up stores in cheap, empty retail spaces. These pop up stores enable online stores to have a real world face.
3. Online Sales Tax. Federal enactment of such a tax would remove the uneven playing field that sites like Amazon enjoy right now. This would certainly help make offline prices more comparable to online prices.
4. Better Online-to-Offline Advertising. If there was a way to use the Internet to better market and direct customers to offline locations, then bricks and morters would have a chance. Right now, most online advertising focuses on online-to-online conversions (something I’m trying to change through PaperG).
5. Advertising retailing. It’s possible that retail spaces will get so cheap that they become effectively three dimensional advertising spaces. Brands can rent out the space and fill it with their goods supplemented with representatives to answer questions. 

Some or all of these will likely to come true. I hope so because I would hate to live in a world of empty windows.