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Tuesday, June 17, 2014

No. 000023 Tax Cuts v. New World Order of Labor, Capital and Ideas in the Power Law Economy

This was not what I planned on writing about today but the piece is too important. 

Erik Brynjolfsson, Andrew McAfee, and Michael Spence have written a new essay for Foreign Affairs titled, New World Order
Labor, Capital, and Ideas in the Power Law Economy.
Machines are substituting for more types of human labor than ever before. As they replicate themselves, they are also creating more capital. This means that the real winners of the future will not be the providers of cheap labor or the owners of ordinary capital, both of whom will be increasingly squeezed by automation. Fortune will instead favor a third group: those who can innovate and create new products, services, and business models.
The distribution of income for this creative class typically takes the form of a power law, with a small number of winners capturing most of the rewards and a long tail consisting of the rest of the participants. So in the future, ideas will be the real scarce inputs in the world -- scarcer than both labor and capital -- and the few who provide good ideas will reap huge rewards. Assuring an acceptable standard of living for the rest and building inclusive economies and societies will become increasingly important challenges in the years to come
So how do you create innovation, new products, new services, and new business models?

Certainly, not with tax cuts said to targeted at increasing business investment. The world is flush with capital, for there is water water everywhere (Clay Christensen podcast). Readers here.

It is back to the block and tackling for Richard Florida's creative class. Great universities and dense, strong, powerful, robust regional governments.