Smart Machines and Long-Term Misery

Jeffrey D. Sachs

Columbia University - Columbia Earth Institute; National Bureau of Economic Research (NBER)

Laurence J. Kotlikoff

Boston University - Department of Economics; Gaidar Institute for Economic Policy

December 2012

NBER Working Paper No. w18629

Are smarter machines our children's friends? Or can they bring about a transfer from our relatively unskilled children to ourselves that leaves our children and, indeed, all our descendants - worse off? This, indeed, is the dire message of the model presented here in which smart machines substitute directly for young unskilled labor, but complement older skilled labor. The depression in the wages of the young then limits their ability to save and invest in their own skill acquisition and physical capital. This, in turn, means the next generation of young, initially unskilled workers, encounter an economy with less human and physical capital, which further drives down their wages. This process stabilizes through time, but potentially entails each newborn generation being worse off than its predecessor. We illustrate the potential for smart machines to engender long-term misery in a highly stylized two-period model. We also show that appropriate generational policy can be used to transform win-lose into win-win for all generations.

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Number of Pages in PDF File: 20

Date posted: December 22, 2012  

Suggested Citation

Sachs, Jeffrey D. and Kotlikoff, Laurence J., Smart Machines and Long-Term Misery (December 2012). NBER Working Paper No. w18629. Available at SSRN: http://ssrn.com/abstract=2192802

Contact Information

Jeffrey D. Sachs (Contact Author)
Columbia University - Columbia Earth Institute ( email )
314 Low Library
535 West 116th Street, MC 4327
New York, NY 10027
United States
212-854-8704 (Phone)
212-854-8702 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Laurence J. Kotlikoff
Boston University - Department of Economics ( email )
270 Bay State Road
Boston, MA 02215
United States
Gaidar Institute for Economic Policy
Gazetny per. 5-3
Moscow, 125993
Feedback to SSRN

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