Smart Machines and Long-Term Misery

20 Pages Posted: 22 Dec 2012  

Jeffrey D. Sachs

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

Laurence J. Kotlikoff

Boston University - Department of Economics; National Bureau of Economic Research (NBER); Gaidar Institute for Economic Policy

Date Written: December 2012

Abstract

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.

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: https://ssrn.com/abstract=2192802

Jeffrey D. Sachs (Contact Author)

Columbia University - Columbia Earth Institute ( email )

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National Bureau of Economic Research (NBER)

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Laurence J. Kotlikoff

Boston University - Department of Economics ( email )

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617-353-4002 (Phone)
617-353-4449 (Fax)

National Bureau of Economic Research (NBER)

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Gaidar Institute for Economic Policy

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Russia

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