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1 MIT Initiative on the Digital Economy
The Second
Machine Age Erik Brynjolfsson
MIT Sloan School
Director, MIT Initiative on the Digital Economy
@erikbryn
2 MIT Initiative on the Digital Economy
The Second Machine Age
2
Changing the world requires two things: • Physical Power: move or transform things
• Mental Power: decide where and how
Industrial Revolution = Physical Power • Steam engine (and Internal combustion engine, Electricity)
• Mostly a complement to humans
Second Machine Age = Mental Power • Computers, Software, Big Data, Machine Intelligence
• Complement or substitute?
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State of Understanding, 2004 Uniquely Human Abilities - Autonomous mobility and fine motor
control - Language and complex communication - Pattern matching and unstructured
problem solving
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Machine Intelligence
Interacting with physical world
• Fine and gross motor control
• Vision and other senses
Language
• Voice recognition
• Natural language processing
• Creating narratives
Problem Solving
• Answering unstructured questions
• Rule based analysis
• Pattern recognition and classification
We’re in the midst of the greatest “one-time” event in history!
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Interacting with physical world
• Fine and gross motor control • Vision and other senses
Language
• Voice recognition
• Natural language processing
• Creating narratives
Problem Solving
• Answering unstructured questions
• Rule based analysis
• Pattern recognition and classification
Machine Intelligence
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Siri
Voice recognition
Lionbridge Translation
Narrative Science Authoring News Stories
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Machine Intelligence Interacting with physical world
• Fine and gross motor control • Vision and other senses
Language • Voice recognition
• Natural language processing
• Creating narratives
Problem Solving • Answering unstructured questions
• Rule based analysis
• Pattern recognition and classification
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The Digital Frontier
Accuracy and Questions Answered on Jeopardy!
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
0% 20% 30% 40% 50% 60% 70% 80% 90% 100%
10%
Percent Answered
Acc
ura
cy
11/2010 04/2010
10/2009
05/2009 12/2008 08/2008
05/2008
12/2007
12/2006
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The Digital Frontier
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The Digital Frontier
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Analytics is transforming
Sports Underwriting Politics
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What does this mean for the
economy?
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The Bounty
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$300 BILLION PER YEAR
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GDP, Profits, Investment, and Employment
Leve
l o
f G
DP
, P
rofi
ts, a
nd
In
ve
stm
en
t (J
an
-95 =
100
)
Trends in US GDP, Profits and Investment
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GDP, Profits, Investment, and Employment
Em
plo
ym
en
t-P
op
ula
tio
n R
ati
o
Leve
l o
f G
DP
, P
rofi
ts, a
nd
In
ve
stm
en
t (J
an
-95 =
100
)
Trends in US GDP, Profits, Investment, and Employment
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WHAT’S GOING ON?
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“Digital technologies change
rapidly, but organizations and
skills aren’t keeping pace.
As a result, millions of people
are being left behind.”
Our View
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The Great Decoupling
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The Hard Truth
Digital progress makes the
economic pie bigger.
But there is no economic
law that everyone, or even
most people, will benefit.
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The Spread: Individuals
18%28%
35%43%
65%
278%
0%
50%
100%
150%
200%
250%
300%
Lowest Quintile Second Quintile Middle Quintile Fourth Quintile 81st-99thPercentiles
Top 1 Percent
Percent Change
Growth in Real After-Tax Income, 1979-2007
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Three Sets of Winners and Losers
1. High Skilled vs. Low & Mid Skilled Workers
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Skill Disparities
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Polarization of the Labor Market Mid-wage workers have been hit hardest in both
employment and wages
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Three Sets of Winners and Losers 1. High Skilled vs. Low & Mid Skilled Workers
2. Capital vs. Labor
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Capital vs. Labor
Corporate Profit as % of GDP
Labor Share of GDP 96
99
102
105
108
111
114
117
120
0
2
4
6
8
10
1947 1958 1969 1980 1991 2002 2013
Lab
or
Shar
e (
20
09
= 1
00
)
Co
rpro
ate
Pro
fits
as
% o
f G
DP
Corporate Profits After Tax as % of GDP & Non-Farm Labor Share, 1947-2013
Source: research.stlouisfed.org
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Three Sets of Winners and Losers 1. High Skilled vs. Low & Mid Skilled Workers
2. Capital vs. Labor
3. Superstars vs. Everyone Else
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Superstars
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WHAT IS TO BE DONE?
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The New Grand Challenge
• Digital technologies will continue to accelerate.
• Our skills, organizations and institutions are lagging.
• Business as usual won’t solve this problem.
We need to reinvent our economy and society to keep up with accelerating technology
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The New Landscape
• What challenges and opportunities do you see?
• What are your concerns and questions?
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The Initiative on the Digital Economy
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To learn more, visit:
http://digital.mit.edu/erik
http://digital.mit.edu/ide
http://secondmachineage.com