Your new robot overlords: are we heading for a great economic bifurcation?

• Author: Bailey, Ronald
• Position: Average Is Over: Powering America beyond the Age of the Great Stagnation - Book review

Average Is Over: Powering America Beyond the Age of the Great Stagnation, by Tyler Cowen, Dutton, 290 pages, $26.95

THE RISE AND SPREAD of intelligent machines has led to increasing income inequality and anemic job growth. And this dynamic is likely to be permanent. Such is the arresting and depressing thesis proposed by the George Mason University economist Tyler Cowen in his provocative new book, Average Is Over.

The American economy is becoming a "hyper-meritocracy" in which workers will either be big earners or big losers, Cowen believes. He blames this bifurcation on the rise of "genius machines," which are increasingly doing the routine intellectual work that once supported millions of middle-income workers. If your skills enhance the work of ever-more intelligent machines, you'll likely be a big earner. If your skills do not complement the computer, you're liable to be a big loser. "Ever more people are starting to fall on one side of the divide or the other," writes Cowen. "That's why average is over."

Those middle-class jobs just aren't coming back, Cowen claims. "The financial crash was a very bad one-time event that revealed, rather suddenly, this more fundamental long-term structural problem, namely that a lot of workers had been overemployed relative to their skills," he writes.

Trend data on American household earnings since the 1970s do show that incomes in the top 20 percent rose steeply while those in the bottom 80 percent experienced more modest increases. Writing in the online financial newsletter Advisor Perspectives, economic analyst Doug Short reported in September 2013 that between 1967 and 2012, the incomes of the top 5 percent increased 88 percent in real dollars. Incomes in the top quintile rose 70 percent, the second quintile went up 38 percent, the middle increased 20 percent, the fourth gained 12 percent, and the bottom quintile grew by 20 percent.

While the average real incomes of Americans in all categories have fallen since the Great Recession, those of middle and lower quintiles remain still lower than they were in 2000. As Short reports, the average income of the middle quintile fell 9.1 percent (in constant dollars) between 2000 and 2012; the fourth quintile fell 12.2 percent; and the bottom quintile dropped 15.9 percent. The economics consultancy Sender Research reported in July 2013 that real median household income is 7.2 percent lower than it was in 2000. Even more tellingly, the real median household income at its height, just before the 2008 recession, was only 0.7 percent higher than it was in 2000.

Cowen interprets all this stagnation and decline as a signal that a "lot of jobs aren't worth as much as before, and they are not being replaced by a comparable number of high-earning slots." And he is particularly alarmed about the trends in men's unemployment and incomes.

Citing data from the Brookings Institution's Hamilton Project, Cowen writes that between 1969 and 2009, "wages for the typical or median male worker have fallen by about 28 percent." This stark claim has been challenged, and Cowen notes that other analysts have argued that men's average wages have fallen by only 9 percent since 1969. That...