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01 / 05
AI, Tractors, and the Slow Diffusion of Labor-Saving Devices

Blog Post | Science & Technology

AI, Tractors, and the Slow Diffusion of Labor-Saving Devices

Productivity and economic growth are a tide that lifts all boats, whether we're talking about agricultural machinery or ChatGPT.

Summary: The proliferation of large language models, such as ChatGPT, raises concerns about job displacement, particularly in professions like writing and law. However, historical transitions, like the shift from horses to tractors, suggest that the adoption of new technologies is gradual, with human labor and machines coexisting and evolving together. While AI may revolutionize certain sectors, its widespread impact on employment is likely to be evolutionary rather than revolutionary.


“You can see the computer age everywhere but in the productivity statistics,” wrote economist and Nobel laureate Robert Solow in a 1987 book review. While computing was making massive strides in the 1980s and ’90s—cumulating in the internet mania and dot-com bubble and its burst—it took a long time before we saw large, economy-wide impacts of this revolutionary general-purpose technology. Computers, internet, and (smart) screens have made the modern world unrecognizable from what it was just a few decades ago, but the process took a lot longer than most techno-optimists suggested then—and their followers are suggesting now.

Last year had a strong 1990s feel to it: 2023 became the year of AI worries, with ChatGPT and other large language models making a bid for disrupting all manner of industries. Writers, musicians, lawyers, editors, physicians, graphic designers, and more were some of the professions seemingly at risk of losing their livelihood to machines that quickly replicate their work at a fraction of the cost.

We should draw two conclusions from these large language models and past technological transitions: First, some of their features are truly remarkable and can very well compete with (some) lawyers, writers, musicians, or graphic designers over the next few years. Second, radical, labor-saving technologies are slow to diffuse across the economy, so these mainly middle-class professions are probably safe from mechanization and automation a while longer.

Take the iconic horses-to-tractor transition in agriculture over the 20th century. From invention and commercial availability, tractors took decades to overtake horses. The same was true for steam engines, that iconic energy invention powering the Industrial Revolution—which itself was both one of most radical and life-changing events in all of human history and pretty dull on account of its slow changes.

“Over the sweep of history the tractor has indeed had an immense impact on people’s lives,” The Economist said in December 2023, “but it conquered the world with a whimper, not a bang.” In all ages, tech innovations have defused across societies slowly: the old technology remains relevant for decades. Even in the 1930s, two to three decades after the first tractors were built, there was more equine than mechanical horsepower on American farms. Scholars usually put the cutoff point for when tractors overtook horses on farms after World War II, a generation or more after they were first employed.

The story in The Economist also highlights the connection to real wages and overall economy. Productivity and economic growth are a tide that lifts all boats. A rule of thumb is that labor-saving technology gets adopted only once it makes sense to replace labor with machines. That happens when the machines get good enough, the cost of running them falls sufficiently, or the alternative uses for labor get high enough.

For the first few decades of the tractor’s existence, they weren’t obviously better than the source of literal horsepower that preceded them. They were expensive to run, were not that powerful, and couldn’t do many things that a horse could. For one, they compelled farmers to purchase gasoline—a resource they didn’t have—rather than putting horses out to grazing on land or having children (or cheap labor) tend to the animals—resources that they did have. And during the Great Depression in America, cheap labor wasn’t that hard to come by.

In time, those trends reversed; real incomes and better-paid manufacturing jobs bid labor away from the farms, and the demographic transition to smaller families meant that children couldn’t be routinely relied upon to, for example, care for the animals. In economic speech, the optimal size of farms grew, and on these larger farms the now much better tractors came into their own right.

In contrast, the labor that large language models like ChatGPT purport to displace is often highly remunerated, while the costs of running the operations are pretty low, which suggest that artificial intelligence (AI) might displace some such workers.

Yann LeCun, chief AI scientist at Meta/Facebook, is less convinced. In an interview with Wired magazine’s Steven Levy, LeCun says that “chatbots can produce very fluent text with very good style. But they’re boring, and what they come up with can be completely false.” For Reason magazine last year, I reflected on the promise of ChatGPT along similar lines: “Bad writers, cheating students, lazy professors, and journalists echoing press releases have clearly met their match. But the more human, creative, authentic storytelling that is the center of all meaningful writing has not.”

The tractor attempted to compete directly with a farming industry routinely employing over a third of the labor force in the 1800s and early 1900s in the United States, constituting some 15 percent of gross domestic product. What is the total addressable market for large language models and by extension general AI? Statista estimates that the market size of AI in the United States, a $27 trillion economy, is some $100 billion—a fraction of a percent. Even if that grows seven-fold this decade in line with projections (nothing to scoff at!), that’s also not as revolutionary as most pundits have claimed in this the first year of their widespread adoption.

Solow, who died late in 2023, might have repeated his statement about this new form of the computer age. Like the computer in the 1990s, the onset of AI and large language models make more media puff and noise than they have real-world, real-economy impact.

There is some suggestion that adoption of new technology and consumer items happen somewhat faster today than, say, in the 1940s or 1980s, but not by a lot. Still, what is more likely to happen than mass white-collar unemployment is that we’re going to have a symbiosis for a while. The old human-labor technology and the new machines will coexist, and human workers will gradually employ the machines in different ways. An evolution, not a revolution.

At the end of the day, writes Mike Munger for the American Institute for Economic Research, ChatGPT is just a calculator. And like calculators did, it will obsolete some human labor. And that will be fine.

BusinessMirror | Poverty Rates

PHL Could Hit Single-Digit Poverty Years Ahead of Schedule

“Better labor market conditions and slower inflation in the country could turn the administration’s single-digit poverty incidence aspirations into a reality two years ahead of schedule.

This was according to the latest Macro Poverty Outlook for the Philippines, released by the World Bank on Monday. It estimated that poverty incidence in the country could decrease to 9.3 percent in 2026 from 12.2 percent this year and 17.8 percent in 2021.”

From BusinessMirror.

Blog Post | Economic Growth

Measuring Freedom and Flourishing | Podcast Highlights

Chelsea Follett interviews Leandro Prados de la Escosura about the long term trends in wellbeing, inequality, and freedom.

Listen to the podcast or read the full transcript here.

Let’s discuss your latest book, Human Development and the Path to Freedom.

I have spent many years working on economic performance in the long run, and while I don’t have anything against GDP, I was always uneasy with the idea of using GDP per head as a shortcut for wellbeing. GDP is a good indicator of output but a very deficient indicator of wellbeing.

Most economists say, “This is true, but it’s highly correlated with non-economic dimensions of wellbeing.” There is also a tendency to produce a dashboard of indicators, basically GDP and some additional measures that create a more nuanced picture.

I was unhappy with that. Then I realized that, since the beginning of modern national accounts in the 1950s, there have been attempts to produce alternative measures. More than 30 years ago, the United Nations Development Programme produced the Human Development Index. I was very interested, but at the same time, I was frustrated when I saw that countries with no freedom at all ranked very highly in the index.

For example, in the first report in 1990, they had a retrospect going back to 1975, and I found that Spain, under Franco’s dictatorship, ranked very highly in human development. How come? It wasn’t satisfactory to rank a nasty dictatorship so highly. And then I read the literature accompanying the report and found this very candid assertion: “The purpose of human development is to increase people’s range of choices. If they are not free to make those choices, the entire process becomes a mockery.”

This is an important philosophical point: Human development is not just about living longer or having a higher material standard of living. You can get that in a high-security prison in Norway. Choosing between alternative ways of life is what makes the difference.

To make a long story short, they have tried time and again to introduce freedom, but they never managed to do so because of strong political opposition from country members of the program. So, as an independent scholar, I thought, “Look, nobody is going to read it, but I have the freedom to introduce the freedom dimension.”

Tell me about what you found.

Perhaps what makes sense is to compare what I found to what you would get on the basis of per capita income. If you look at the average increase from 1870 to 2020, the growth in income and wellbeing is very similar.

But if you look closer, you realize there are large differences across different periods. During first globalization before 1913 and between 1970 and 2000, they are relatively close. During the last two decades, the difference is huge in favor of material living standards measured by per capita income. The first part of the 20th century is just the opposite.

What next? Well, try to provide an explanation.

I went in two steps. One was asking, “Why has this growth in human wellbeing happened? What is the intuition?” The intuition is that if you get richer, you’re going to become better fed, healthier, better educated, and freer. But you can also have different levels of wellbeing at the same income level, and the most important finding from a historical perspective is that at any point of income, you have higher wellbeing today than in the past.

If you compare 1870 to 1913, you see that for most of the income levels, you get the same association between health and income, but at high levels of income, you get higher levels of health. Improvements in health techniques and medical knowledge were restricted to the most advanced countries. But if you look at the 1950s, at any income level, you get higher levels of health than in 1913 or 1870. You also find this for education and freedom. If you move to 2000, there is another upward shift.

Of course, there are reversals. There have been four moments in time in which the progression, the positive progression of human development stopped or declined. One was the Great Depression. The second one was during Mao’s Great Leap Forward. Then there were the oil shocks in the early ’70s, but the most damaging one has been COVID. COVID is the first period in which wellbeing measured in terms of augmented human development has declined

However, over the long run, for any income level, whether you are rich or poor, nowadays you have higher wellbeing than in the past.

Those findings are fascinating. What would you say is the biggest implication of your work?

The first thing is that wellbeing, broadly defined, has expanded worldwide more steadily than per capita income.

Secondly, the phases in which we conventionally associate improvements in wellbeing are not necessarily the same as those in which actual wellbeing improved. For instance, there was an important improvement in the so-called interwar period, even though economic growth stagnated. In 20th-century India, before independence, there was a stagnation in real average income but a remarkable improvement in health. This was because of the discovery of the germ theory of disease, which brought simple hygienic practices like washing your hands before eating and not sleeping near animals.

We also tend to forget that the association between wellbeing and income is not fixed. There are movements along the function: if you are richer, other things being equal, you’re going to be healthier, more educated, and freer. But this is not the whole story. There are also upward and downward shifts.

For instance, you could say that in terms of freedom in 2020, we are worse off than we were 20 years ago. This doesn’t mean that people were richer 20 years ago—we’re richer now—but at the same income level, 20 years ago, people were freer than we are today.

So, it’s a nuanced picture. Overall, things are improving, but there are also worrying declines in freedom.

Exactly.

Can you talk about inequality?

In 1870, in the case of wellbeing, inequality was high, and it increased up to the end of the century, then went down. Then, because of World War I, it increased again. But from the late 1920s to the present, with the exception of a reversal because of World War II, there has been a steady decline in inequality of wellbeing.

In the case of per capita income, inequality increased until the end of the 20th century, around 1980, and only began declining after 1990.

Here, I’m referring to relative inequality. If we increase wealth by 10 percent everywhere, inequality in relative terms doesn’t change. Some people are a bit pickier and think, “If my income increases 10 percent and my income is 100, I get 110. If your income is 1000, you now get 1100.” This is absolute inequality.

Relative inequality in per capita income increased until 1980 and has declined since 1990. But absolute inequality in per capita income, the distance between rich and poor, continues growing.

Absolute inequality in wellbeing has declined since 1960. Today, it is similar to what you would find in 1938, 1913, or 1900, but higher than in 1870.

It’s also important to look at what happens to different parts of the distribution. Who are the winners and losers? Broadly speaking, the middle class of the world gained the most, and the lower classes and those at the top won relatively less. If you look at absolute gains, those who were at a higher level of wellbeing got more. But that changes for different dimensions. Those at the bottom, for example, were the main winners in terms of education, while those in the middle were the main winners in terms of health.

I know that your current focus is on freedom. Could you tell me a little bit about that?

I became interested in human development after reading Amartya Sen, who emphasizes what Isaiah Berlin would call positive freedom. Freedom to. But he also emphasizes negative freedom, the absence of coercion and interference. And I think this is interesting because many people think there is a trade-off between negative and positive freedom.

At the end of the day, everybody wants to have negative freedom, but there are those who think negative freedom has nothing to do with income, that would be Hayek, and those who think negative freedom can only be reached as a second stage once you provide for those who don’t have access. For some, positive freedom is a socialist lie to reduce negative freedom. For others, they are two faces of the same coin.

As an economic historian, I find this is an interesting topic for research. If you look at the world, and you can see this in the Human Freedom Index that Cato publishes, you see the countries at the top in terms of negative freedom are also at the top in terms of positive freedom. For instance, Denmark is at the top of the list in terms of economic freedom, but also in terms of education and health.

My question was, well, maybe this trade-off is only a short-run phenomenon. Maybe if you look at the long run, the trade-off doesn’t hold or only holds for a certain period. So why not construct two alternative sets of estimates, one for positive freedom and the other for negative freedom? And this is what I’m trying to do now.

My main discrepancy with the Fraser Institute economic freedom index is that I don’t take into account the size of government. I know this is a contentious issue. People say, “the larger the government, the less room for private initiative.” At a point in time, this is true. And if you look at similarly developed countries, this is true.

But if you take a cross-section at a point in time, you can see that there are countries in which the size of government is much, much smaller, that are not necessarily freer, in terms of absence of coercion and interference, than countries with larger governments. Look at, for instance, Latin American and Sub-Saharan African countries. Think of Somalia. Or think of my own country under Franco. It was a right-wing, but, in many aspects, very socialist dictatorship in which the government was everywhere. But the size of government was very small.

In 1980, do you know what percentage the income tax contributed to the revenues of the central government in Spain? Give me a figure. You would say 40 percent?

Sure, 40 percent.

2 percent.

Wow.

Nobody paid income tax. So, there was no redistribution.

My point is that the size of government matters less than the nature of government. Perhaps Denmark would have more economic freedom with a smaller government, but if you compare Denmark to other countries, you can see that even though the Danish government is larger, Denmark’s degree of economic freedom is higher. Why? Because the nature of government action is different. It doesn’t interfere as much as another government that is less intrusive in quantitative terms but more intrusive in qualitative terms.

So, if you are looking at a point in time, it makes sense to say, “mutatis mutandis, if a rich country nowadays has a smaller government, this country is going to be freer.” That is true. But the action of government varies from one case to another.

Get Leandro Prados de la Escosura’s book, Human Development and the Path to Freedom: 1870 to the Present, here.

The Human Progress Podcast | Ep. 48

Leandro Prados de la Escosura: Measuring Freedom and Flourishing

Leandro Prados de la Escosura, an emeritus professor of economic history at Carlos III University in Spain, joins Chelsea Follett to discuss long term trends in wellbeing, inequality, and freedom. To see the slides that accompany the interview, watch the video on YouTube.

Board of Governors of the Federal Reserve System | Economic Growth

Income Growth Over Five Generations of Americans

“We find that each of the past four generations of Americans was better off than the previous one, using a post-tax, post-transfer income measure constructed annually from 1963-2022 based on the Current Population Survey Annual Social and Economic Supplement.”

From Board of Governors of the Federal Reserve System.