Can Technology Help Fight Income Inequality?

It’s generally acknowledged that technology has had a major impact on the increase of income inequality for more than three decades, but can technology help reverse that trend?

That’s a big maybe at best, but George Mason University professor of economics Tyler Cowen, in a recent Economic View article in the New York Times, sketched out “some significant ways in which technology could reduce” income inequality.

Cowen said it’s worth exploring whether “market forces themselves might limit or reverse the trend.” For example, he continued, while computers have improved our lives in many ways, “they haven’t yet done much to make health care and education cheaper.”

That’s an arguable point, but he posited that, over the next few decades, that might change: “We can easily imagine medical diagnosis by online artificial intelligence, greater use of online competitive procurement for health care services, more transparency in pricing and thus more competition, and much cheaper online education for many students, to cite just a few possibilities.”

Another set of future gains, especially for lesser-skilled workers, Cowen said, “may come as computers become easier to handle for people with rudimentary skill. Not everyone can work fruitfully with computers now ... Our dynamic sector has concentrated its gains among a relatively small number of employees, thus leading to more income inequality.”

Then Cowen talked about a future that extends a growing employment category, “namely workers who team up with smart robots that require human assistance.” Hmmmm.

Cowen said a final of set of forces to reverse inequality could come from emerging economies, mainly China. “Perhaps we are living in a temporary intermediate period when America and many other developed nations bear a lot of the costs of Chinese economic development without yet getting many of the potential benefits. For instance, China and other emerging nations are already rich enough to bid up commodity prices and large enough to drive down the wages of a lot of American middle-class workers, especially in manufacturing.” This situation “will probably end.” Over the next few decades, Cowen wrote, “we can expect China, India and other emerging nations to supply more innovations to the global economy, including to the United States.” This will lead to “many good things” especially for low-income Americans.

Cowen’s conclusion? “Even if income inequality continues to increase in the short run, as I believe is likely, there exists a plausible and more distant future in which we are mostly much better off and more equal. The history of technology suggests that new opportunities for better living and higher wages are being created, just not as quickly as we might like.”

Oh please! This is simply a lot of debatable speculation based on a multitude of “ifs," “maybes," “coulds,” "probablies" and an almost ludicrous trust in a benign and distant market-based future in which everyone prospers if we simply remain patient. Utopia courtesy of the free market! Capitalism simply does not work that way: “The main vice of capitalism,” remarked Winston Churchill, “is the uneven distribution of prosperity.”

And a recent article in Fortune notes that “while inequality is a natural result of competitive, capitalist economies, there’s plenty of evidence that shows that extreme levels of inequality is bad for business … Unless your business caters to the richest of the rich, opportunities for real growth are scarce.”

It’s the extreme and growing levels of income and wealth inequality where Cowen’s piece fails to convince. Even if he’s right about the potential role of technology, will it be enough to stem the tide in a major way? He’s presenting the 2014 version of “trickle-down” economics.

Image credit: (End) Income (in)equality by Quinn Dombrowski via Flickr CC