Streets of Gold (part 2)

October 22, 2025

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Here I will describe what Abramitzky and Boustan have to say about the economic impact of immigration, public attitudes toward immigration, and immigration policy in general.

Economic impact

We can easily imagine a situation in which an immigrant takes a job that otherwise would have gone to a US-born worker. We may be tempted to generalize that as the number of immigrants goes up, the employment prospects of US-born workers go down. The trouble with that generalization is that it treats the economy as a zero-sum game, where any gain is someone else’s loss. A capitalist economy is better understood as a growth game, where economic growth creates jobs, boosts output, and raises incomes in general. That has been our history, although the process has been interrupted by recessions and marred by racial and ethnic discrimination.

If there were a fixed number of jobs, then more immigrants would necessarily mean fewer jobs for the US born. But the number of jobs is not fixed, and by contributing to innovation and starting new businesses, immigrants often create new employment opportunities for others. Think: everything from big tech giants like Google and eBay to small local businesses like dry cleaners and restaurants. And immigrants need new housing and consumer products themselves, all of which helps put Americans to work.

Economists are generally receptive to moderate population growth, because they view it as a normal part of economic growth. A growing population will have more people looking for jobs, true; but it will also have more consumers demanding products, entrepreneurs to start businesses, and savers and investors to finance them. That means more jobs looking for people.

The country’s current rate of population growth is one percent per year, not particularly high by historical standards. Almost all of that is due to net migration, since our rate of natural increase is near zero. But suppose the situation were reversed, with near-zero net migration and one-percent natural increase. That would please nativists, who want more US-born babies and fewer immigrants. But would it make it easier for job-seekers to get good jobs? They would still be competing with new entrants to the labor force, just ones born here instead of somewhere else. Would competing with more English-speaking Americans fresh out of school be easier than competing with immigrants? If we are always competing with someone—except in the zero-growth society America has never been—why blame the competition on immigrants?

Now, as the authors acknowledge, “Some workers who do the same jobs as immigrants…stand to lose from immigration.” But they go on to say:

But immigrants tend to concentrate in tasks that don’t require English language skills (like landscaping or construction), while the US born are more likely to hold jobs that require interacting with customers or the public. What’s more, immigrants often fill positions that many US-born workers would not take at wages that consumers are willing to pay, such as picking crops or taking care of the elderly. In this way, immigrants create markets for certain products that otherwise might not exist.

Just as letting immigrants in does not hurt US workers as much as people think, keeping them out does not help US workers very much either. Employers usually find ways to avoid hiring very many more US workers or increasing wages very much to attract them. They outsource work to foreign countries or replace workers with machines.

Blaming our economic problems on immigrants may be distracting attention from the larger issue of how to create good jobs in a global, high-tech economy. This book does not develop that line of thought, but meeting that challenge would have to include training workers for the jobs of the future and clarifying what humans can do better than machines.

Public opinion

With all the hostile rhetoric being directed at immigrants these days, readers may be surprised to see the authors asserting that “attitudes toward immigration are more positive now than at any time in US history.” They also say that “two out of three Americans think that ‘immigrants strengthen the country because of their hard work and talents,’ as opposed to burdening ‘the country because they take jobs, housing and health care.'”

I checked to see if that claim is consistent with the latest Gallup polling. It is, with one qualification. Gallup reported some decline in support for immigration between 2021 and 2024. Not surprisingly, the decline was greatest among Republicans, as the Biden administration reversed many of Trump’s hardline policies, such as requiring asylum seekers to remain in Mexico while they applied and separating families at the border so that parents could be prosecuted for entering illegally. Even then, the percentage of respondents agreeing that immigration was mostly a good thing only declined to 64 percent.

Then, Gallup’s 2025 survey found that support for immigration rebounded to 79 percent, the highest on record. Under the headline, “Record High Say Immigration Benefits Nation,” Gallup reported:

The recent jump in perceptions of immigration being a good thing is largely owed to a sharp increase among Republicans and, to a lesser extent, independents. These groups’ views have essentially rebounded to 2020 levels after souring in the intervening years.

This helps explain why the politics of immigration are so volatile. Attitudes toward immigration are turning surprisingly positive just as the most anti-immigration administration since the 1920s is trying to implement its mass deportation policy.

Public policy

Streets of Gold includes a very useful timeline of US immigration policy from 1790 to 2020. Abramitsky and Boustan do not make any specific proposals for changing immigration law. They are more interested in letting their findings inform the general spirit of the laws.

Given the recent trend in public opinion, the authors say, “A positive and optimistic message about immigration is broadly popular and might even be a political winner if politicians embrace it proudly, rather than cringing from it out of fear of backlash.” They state their own main message this way: “[A]s a society, we need to design our immigration policy at the level of generations: the immigrants of today are the Americans of tomorrow.”

The record shows that immigrants and their children usually move toward becoming contributing members of society before long. If we have the imagination to envision their future, we can become more tolerant of the short-term costs, like paying taxes to educate their children or allowing them to participate in health insurance programs. Depriving them of education or health care is neither in their interest or ours.

The most extreme opponents of immigration do not want to imagine children of the undocumented as future Americans even if they were born here. (Until recently, everyone assumed that the Constitution had settled that question, but now President Trump’s executive order to the contrary is forcing the Supreme Court to rule on it.) Others we might readily imagine as citizens are “Dreamers” who were brought here as small children and adults who have lived and worked in the country for many years.

Those who boast of their love of America, and who accuse the administration’s critics of hating America, might ask themselves whether their love of country extends to the millions of immigrants and their descendants who have—to coin a phrase—made America great. And they can do it again if given the opportunity.

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Streets of Gold

October 16, 2025

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Ran Abramitzky and Leah Boustan. Streets of Gold: America’s Untold Story of Immigrant Success. New York: Public Affairs, 2023.

As we witness the efforts of the Trump administration to carry out their mass deportation policy, this is a good time to review some of the basic facts about immigration. I found this book by economists Ran Abramitzky and Leah Boustan very helpful.

They wrote the book to expose some of the most common myths about immigration. They especially wanted to question the unflattering comparison of today’s immigrants to those of an earlier era. Many people seem to think that immigration was once a “rags-to-riches” story, but that more of today’s immigrants get stuck in poverty and put a strain on public resources. They fear that immigrants are failing to learn English and integrate into American culture, reducing job opportunities and wages for other workers, or even becoming a criminal underclass raising rates of violent crime. While some of that may be true in individual cases, most of the evidence does not support these generalizations.

The great strength of this book is that the authors have solid data on which to base their conclusions. They say that “we were able to compile what is the first set of truly big data about immigration.” They did this by getting permission to tap into Ancestry.com’s digitized database of census records. Linking family records from decade to decade and generation to generation enabled them to study both intragenerational and intergenerational economic mobility. (At least they could compare fathers and sons; women were harder to track because they so often changed their last names.)

The researchers supplemented this database with other sources of information, including Social Security and IRS records, interviews from the Ellis Island Oral History Project, and their own interviews and surveys of today’s immigrant families.

Two waves of immigrants

One of the biggest questions the researchers wanted to answer was whether the immigrant experience has changed very much over the past century. To find out, they compared the two biggest waves of immigration in US history—1880 to 1920 and 1980 to today.

Some differences between the two waves were apparent. The earlier wave featured large numbers of immigrants from Southern and Eastern European countries, such as Italy, Poland and Russia. That was before the restrictive immigration laws of the 1920s both reduced the number of legal immigrants and imposed quotas that favored Northern and Western Europe, the places from which earlier generations of Americans had come. After those restrictions were lifted in 1965, immigrant origins shifted to regions with large and growing populations, especially Latin America and Asia.

During the first of the two waves, legal entry was much easier, especially for unskilled laborers. Once the steamship made the ocean crossing faster and cheaper, poor immigrants arrived in large numbers. Although some returned to their native country voluntarily, less than two percent were barred from entry or deported. During the recent wave, legal entry has been more selective, with preference given to immigrants with skills or links to relatives already here. A special provision for refugees fleeing oppression was added in 1980, although it was slow to be implemented. With the demand for legal entry above the supply of legal slots, stopping illegal immigration has been difficult, especially because of the 1000-mile southern border we share with a relatively poor part of the world.

Another difference is that the initial earnings gap between immigrants and the US-born is larger now than it was in the earlier wave. That’s because the United States is now a very wealthy country and most immigrants come from distinctly poorer ones. As we’ll see though, that gap does not prove to be insurmountable once they get here.

The similarities between the waves are as important as the differences. In both cases, the impact of immigration on the percentage of foreign-born in the population has been about the same. It rose to about 14 percent in both eras. Add in the children of the foreign born, and then their children, and we have truly been a nation of immigrant families.

Also in both eras, the rapid increase in the foreign born provoked an anti-immigrant reaction. My impression is that the hostility was worse during the nativist movement of the 1920s, which inspired the most restrictive immigration laws in our history.

Despite the challenges, the immigrant story in both eras is largely one of success and assimilation. The progress was gradual rather than instantaneous, but “the American Dream is just as real for immigrants from Asia and Latin America now as it was for Immigrants from Italy and Russia one hundred years ago.”

Dispelling the myths

With regard to economic success, the immigrant story is neither one of rags to riches nor persistent poverty. On the average, the income gap between immigrant and non-immigrant families gets cut in half after twenty years.

Even more noteworthy is the success of the second generation. The children of immigrants have the advantage of being exposed to the domestic economy and culture from an earlier age.

[W]e find that the children of immigrants surpass their parents and move up the economic ladder both in the past and today. If this is the American Dream, then immigrants achieve it—big time.

The researchers focused on second-generation children who grew up with family incomes at the 25th percentile, the point that demarcates the lowest quarter of the distribution. These children were more likely to move up to the 50th percentile (the median income) than US-born children who started out at the same low level. The authors suggest a couple of reasons why immigrant children might surpass US-born children in upward mobility. First, when their families immigrated, they chose to move to cities with job opportunities, while equally poor non-immigrant families were often “rooted in place” in locations with depressed economies. Second, the immigrant children’s initial low incomes might be misleading, since their parents experienced language barriers and other adjustment difficulties that kept their abilities from being fully rewarded. Less disadvantaged by those problems, the children moved briskly ahead.

When children of immigrants are themselves undocumented, their job and income prospects are much more limited. But that applies to only 5% of the children of immigrants, since the vast majority are either citizens born in the US or members of families that entered legally (or received amnesty under the 1986 Immigration Reform and Control Act).

Fears that the more recent wave of immigrants are failing to learn English and integrate into US culture have proven to be mostly unfounded. The authors find that ethnic distinctiveness declines rapidly over time, as measured by such indicators as English fluency, residential desegregation, marriage across ethnic boundaries, and the kinds of names parents give their children. “In one generation’s time, we find that it becomes hard to tell apart the children of immigrants from the children of the US born. Both groups are simply American.”

Finally, the connection between immigration and crime has been greatly exaggerated, especially to scare voters into supporting a policy of mass deportation. In general, the researchers find that “immigrants are less likely to be arrested or incarcerated today relative to the US born.” The opposite impression is created by selectively publicizing incidents of immigrant violence, especially gang violence, although the US-born population has its criminal gangs too.

The most thorough study of immigrant crimes rates was based on Texas data. It found that:

…undocumented immigrants were half as likely as the US born to be arrested for violent crimes. For property crimes and drug violations, the gaps between undocumented immigrants and the US born were even larger. (The rates of criminal behavior for legal immigrants were substantially closer to, but still below, the rates for the US born.) Similar patterns have been documented for the country as a whole, albeit with less complete data.

One reason why immigrant crime rates tend to be low is that immigrants in general—and the undocumented in particular—take pains to avoid getting in trouble because of their great fear of deportation.

In my next post, I will tackle the contentious issue of how immigrants impact the US economy and affect the economic prospects of other Americans.

Continued

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Excellence in Higher Education, Trump Style

October 6, 2025

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Last week, the Trump administration unveiled its “Compact for Academic Excellence in Higher Education.” The idea is to offer preferential access to federal funding for universities that will embrace certain educational policies. They would lose their funding if they failed to enforce the provisions of the compact on their campuses and to document their continued compliance. This offer is for nine large universities for now, but I suspect the intention is to use it as a model for higher education more broadly.

Equality and nondiscrimination

The most prominent of the compact’s stated goals are equality in admissions and nondiscrimination in hiring:

Therefore, no factor such as sex, ethnicity, race, nationality, political views, sexual orientation, gender identity, religious associations, or proxies for any of those factors shall be considered, explicitly or implicitly, in any decision related to undergraduate or graduate student admissions or financial support, with due exceptions for institutions that are solely or primarily comprised of students of a specific sex or religious denomination.

The compact asserts not only that favoritism toward underrepresented minorities violates civil rights laws, but it damages the very people it is intended to help. “Treating certain groups as categorically incapable of performing—and therefore in need of preferential treatment—perpetuates a dangerous badge of inferiority….” If the administration believes this, I find it strange that the compact requires universities to “publicly report anonymized data for admitted and rejected students, including GPA, standardized test score, or other program-specific measures of accomplishment, by race, national origin, and sex.” If the university is supposed to be race-blind in admissions, then why require it to measure and publicize racial disparities in achievement?

Ironically, this insistence that universities base their admissions and hiring decisions strictly on merit comes from an administration that is noted for placing political loyalty above merit in its own hiring. In the Justice Department, the President has been replacing career prosecutors with less qualified loyalists who are willing to drop investigations against his supporters and bring dubious charges against his enemies.

The marketplace of ideas

Here the compact starts with a noble intention:

Truth-seeking is a core function of institutions of higher education. Fulfilling this mission requires maintaining a vibrant marketplace of ideas where different views can be explored, debated, and challenged.

Again, the issue of hypocrisy looms large, since this administration is hardly a paragon of truth-seeking. Trump is the first president to fire the head of the Bureau of Labor Statistics because he did not like the monthly employment numbers. The “truths” he posts on his Truth Social website are rife with misinformation.

When the compact elaborates on this academic marketplace, it takes a partisan stance. Institutions are charged with the responsibility of “transforming or abolishing institutional units that purposefully punish, belittle, and even spark violence against conservative ideas.” Nothing is said about protecting liberal ideas.

Some might say that liberals are currently too predominant on college campuses to need protecting. But not every university—and certainly not every academic department—is a bastion of liberalism. There is always a danger that people with minority viewpoints will be treated badly, but conservatives are hardly the only ones to experience this. There are staunchly conservative business departments as well as staunchly liberal sociology departments. Wealthy donors like the Koch brothers have funded academic programs explicitly designed to promote their conservative or libertarian views. (See Nancy MacLean’s Democracy in Chains for a description of an academic program designed to produce more right-wing judges.)

In a variety of disciplines, liberalism and conservatism have ebbed and flowed in the natural evolution of intellectual and cultural life. In economics, the conservative views of Milton Friedman were in the ascendancy around the time of the “Reagan Revolution,” but have lost support more recently. Now that conservative ideas are on the defensive in many disciplines, the idea of using government power to bolster conservative views has its appeal, especially to right-wing autocrats and oligarchs. That is not the path to excellence.

The compact calls for a marketplace of ideas with civility on all sides. In practice, we can easily imagine censorship of liberal professors or publications if MAGA supporters have their way. This is, after all, the administration that cheered when corporations used their market power to force liberal comedians off the air, hoping to expand that power by currying favor with the government. This administration has been working to consolidate media under the control of wealthy conservatives like the Ellisons. Are its hopes and plans for our universities any more benign?

Far better to let different schools of though rise and fall on their scholarly merits, without a highly politicized federal administration putting its thumb on the scale.

Science and the public good

The compact says that “signatories shall responsibly deploy their endowments to the public good. Any university with an endowment exceeding $2 million per undergraduate student will not charge tuition for admitted students pursuing hard science programs.”

Like the commitment to truth, the commitment to science may be more than a little hypocritical, considering this administration’s habit of rejecting science in favor of entrenched ideology or personal opinion. On climate change, on covid, on autism, on tariffs, on immigrant crime, the administration has made many claims unsupported or contradicted by scientific facts. The President does seem to like computer science and the technological elite who are making their fortunes from it, but he is far from a student of scientific disciplines, “hard” or otherwise.

Without in any way disparaging science, I doubt that showing favoritism to science majors is good policy in the long run. Now that he has made himself Chairman of the Board of Trustees of the Kennedy Center, perhaps Trump would do well to read the quotation from JFK inscribed on its outer wall:

There is a connection, hard to explain logically but easy to feel, between achievement in public life and progress in the arts.
The age of Pericles was also the age of Phidias.
The age of Lorenzo de Medici was also the age of Leonardo da Vinci.
The age of Elizabeth was also the age of Shakespeare.
And the New Frontier for which I campaign in public life, can also be a New Frontier for American art.

Trump wants to make America great again, but his conception of American greatness is depressingly narrow. The liberal arts and humanities have their place, especially as Americans struggle to define their humanity in the age of smart machines and find work that computers cannot do. As a Washington Post editorial put it:

Yes, “hard” sciences are important, but the artificial intelligence revolution could play out in unexpected ways. Many computer science majors might soon be unemployed, for example, because coding is easily automated. History or philosophy majors might find themselves better equipped to confront the hardest intellectual challenges of the years ahead.

Affordability

The compact is on firmer ground when it expresses concern about the affordability of college and the “life-altering debt” that students have had to take on. It asserts that “universities that receive federal funds have a duty to reduce administrative costs as far as reasonably possible and streamline or eliminate academic programs that fail to serve students.” I would like to see the federal government keep its focus on affordability, while leaving decisions about what to think and what to study to academic professionals and their students.

Here too, I am skeptical of the administration’s intentions. Threatening to withhold funding from American research universities that are the envy of the world does not inspire confidence. Nor is it encouraging that the same administration is making health insurance less affordable by cutting hundreds of billions of dollars from Medicaid and other health insurance subsidies. If Republicans are serious about supporting excellence in higher education or health care, they need to put their money where their mouth is.

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Power and Progress (part 3)

August 28, 2025

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Acemoglu and Johnson argue that the link between technological progress and general prosperity is not automatic. It depends on other variables, especially how well new technologies sustain the demand for labor and how much workers share the benefits of rising productivity. Having supported their argument with historical examples, they now apply it to the more recent economy, especially the period since 1980.

The “graveyard of shared prosperity”

At the height of the postwar prosperity, believers in the “productivity bandwagon” expected further technological breakthroughs to raise productivity and wages, continuing and even surpassing the postwar prosperity. Digital technologies, like the mainframe computers already in use in the 1960s, looked very promising. As the digital revolution took off, the rate of innovation soared.

“Digital technologies, even more so than electricity…are general purpose, enabling a wide range of applications.” They have the potential not only to replace human labor with smart machines, but also to complement and enhance human labor. During my university career, I used computers to enhance my teaching, research and administrative work in numerous ways, but they never replaced me in any of those roles. Many manufacturing workers weren’t so lucky, as new technologies were used more to replace labor than to augment it. As the authors put it, “Digital technologies became the graveyard of shared prosperity.” I would emphasize the word “shared” in that claim, since no one disputes that digital technologies have created great riches for some and modest gains for others.

The authors attribute much of the decline of shared prosperity to a more conservative vision of progress that developed in the 1960s and 70s and became dominant after the “Reagan revolution” of 1980. In this vision, the path to prosperity started at the top, with wealthy investors, high-profit corporations, and well-rewarded shareholders. If left alone by government, they would create more wealth and income for all. But to maximize investment, the rich needed low taxes; and to maximize profits, corporations needed low taxes, minimal regulation, and low labor costs. “Many American managers came to see labor as a cost, not as a resource…This meant reducing the amount of labor used in production through automation.”

Americans may place most of the blame for lost manufacturing jobs on foreign competitors like China, but automation is responsible for more job losses and downward mobility. While foreign workers and immigrants did take many of the of the low-wage manufacturing jobs, automation destroyed more of the jobs that had been paying good wages.

The workers who remained in manufacturing were more productive, but the demand for additional workers fell. In addition, total factor productivity grew at a much slower rate after 1980 than in the previous four decades. Median wages grew even more slowly, less than 0.45% per year.

Inequality increased in a number of ways:

[T]he share of the richest 1 percent of US households in national income rose from around 10 percent in 1980 to 19 percent in 2019…Throughout most of the twentieth century, about 67-70 percent of national income went to workers, and the rest went to capital (in the form of payments for machinery and profits). From the 1980s onward, things started getting much better for capital and much worse for workers . By 2019, labor’s share of national income had dropped to under 60 percent…

What income did go to labor was divided more unevenly across educational levels, with college-educated workers gaining some ground, while less educated workers saw actual declines in real earnings. Rather than train less educated workers, employers more often replaced them with fewer but more educated workers. Along with the destruction of manufacturing jobs came the decline of unions and the reduced power of workers to fight for good wages and job training.

The value of the five biggest corporations—Google, Facebook, Apple, Amazon and Microsoft—grew to about 20 percent of GDP, twice as much as the value of the five biggest corporations at the height of the Gilded Age in 1900.

Artificial intelligence

Acemoglu and Johnson see artificial intelligence making matters worse, since so many employers are using it to replace human labor rather than augment it. Rather than ask how machines can be useful to workers, proponents of new technologies ask how machines can equal or surpass human workers. Taken to an extreme, the goal of AI enthusiasts is to achieve a general machine intelligence that can make any decision as well as a human. From a business standpoint, it is the ultimate way of cutting labor costs, by replacing educated as well as less-educated labor.

So far, the results have been a lot of what the authors call “so-so automation,” with only modest gains in productivity. The reason, they think: “Humans are good at most of what they do, and AI-based automation is not likely to have impressive results when it simply replaces humans in tasks for which we accumulated relevant skills over centuries.”

What makes us think that the way to prosperity is to devalue the human capacities of the workers who are trying to prosper? That may generate short-term profits for the owners of the machines, but not shared and sustained prosperity. The authors warn that “infatuation with machine intelligence encourages mass-scale data collection, the disempowerment of workers and citizens, and a scramble to automate work, even when this is no more than so-so automation—meaning that it has only small productivity benefits.”

The threat to democracy

The part of the book I found most disturbing was the chapter, “Democracy Breaks.” It describes what some have called a new “digital dictatorship,” most evident in China. With the help of some of the world’s largest AI companies, the Chinese government has turned the data-crunching capacities of new technologies into tools of mass surveillance and control. The aim is to monitor, rate, and sanction the behavior of any citizen. Forty years after Orwell’s imaginary 1984, Big Brother is watching more efficiently than ever. Other authoritarian governments—Russia, Iran, Saudi Arabia, Hungary, and even India—are developing similar capabilities.

In the United States, “The NSA cooperated with Google, Microsoft, Facebook, Yahoo!, various other internet service providers, and telephone companies such as AT & T and Verizon to scoop up huge amounts of data about American citizens’ internet searches, online communications and phone calls.”

Digital media have also played a role in polarizing Americans and debasing civil discourse. Media companies whose business model was based on selling ads, such as Facebook, wanted to keep their users as engaged as possible. “Any messages that garnered strong emotions, including of course hate speech and provocative misinformation, were favored by the platform’s algorithms because they triggered intense engagement from thousands, sometimes hundreds of thousands, of users.”

The hope that digital media would—like the printing press of an earlier era—empower citizens and strengthen democracy has not been fulfilled. The underlying problem, according to Acemoglu and Johnson, is that technology companies prefer a more “technocratic approach, which maintains that many important decisions are too complex for regular people.” In the economy, that encourages the devaluation and replacement of human  laborers and a flow of economic rewards to the rich. In government, it enables the surveillance and control of citizens and a flow of political power to authoritarian leaders.

Redirecting technology

In their final chapter, Acemoglu and Johnson describe a three-pronged formula for redirecting technology: “altering the narrative and changing norms…cultivating countervailing powers…[and] policy solutions.”

The new narrative would reject “trickle-down economics” and shift the emphasis back to shared prosperity. It would encourage decision-makers to address the wellbeing of ordinary people, instead of assuming that what’s good for corporate profits or large fortunes is good for everybody. Hopefully it would influence how business managers think and what they learn in business school.

Countervailing power against self-serving technocrats and corporations can come from many directions—government, civic organization and online communities. Now that blue-collar manufacturing workers are a smaller part of the labor force, organized labor should grow to embrace many occupations. Workers should organize on a broader level than the plant or the firm and play a major role in national politics.

Here are some of the policy changes they recommend:

  • Subsidize socially beneficial technologies, especially those that augment human labor rather than replace it
  • Support research on such technologies, especially in education and health care
  • Break up technology companies that have become too monopolistic
  • Reform tax policies that favor investments in equipment over hiring of workers
  • Increase tax incentives for worker training
  • Repeal the law that exempts internet platforms from any accountability for what they post
  • Tax platforms that rely on advertising in favor of those with alternative revenue streams, such as subscriptions or nonprofit contributions
  • Raise the minimum wage, but do not provide a Universal Basic Income

The authors regard a Universal Basic Income as “defeatist,” since it “fully buys into the vision of the business and tech elite that they are the enlightened, talented people who should generously finance the rest.” What they support instead is a new vision committed to seeing the value and productive potential in all of us and investing accordingly.

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Power and Progress (part 2)

August 24, 2025

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In general, over the last millennium, technological advances have raised living standards. But this broad generalization obscures important historical variations. At least two conditions must be met if new technologies are to contribute to widespread prosperity. First, they must sustain labor demand by augmenting and not just replacing human labor. And second, high labor demand must generate high wages. According to Acemoglu and Johnson’s Power and Progress, directing new technologies toward these ends is a social choice, and the distribution of social power affects how that choice is made.

Even when couched in appeals to the common good, new technologies do not benefit everybody automatically. Often, it is those whose vision dominates the trajectory of innovation who benefit most.

An important implication of this argument is that the path to prosperity leads through democratization as well as through technological innovation. The middle part of the book supports their argument with many historical examples.

“Cultivating Misery”

The history of agriculture reveals that a positive relationship between technology and prosperity is mostly a modern urban phenomenon. For much of history, people who have worked the land have received little benefit from their own increased productivity. In Medieval Europe, the problem was not a low demand for labor, but the power of landowners over workers. England after the Norman conquest “was a dark age for English peasants because the Norman feudal system ensured that higher productivity would accrue to the nobility and the religious elite.” Farming methods gradually improved, but a coercive social system enabled the elites to claim the surplus product, while keeping the peasants at a subsistence level.

Beginning in the fourteenth century, this social order was disrupted by the high mortality rates of the Black Death. For a time, the demand for labor exceeded the supply, putting the surviving workers in a stronger bargaining position.

By the eighteenth century, agricultural laborers faced a new threat. The expansion of commercial agriculture led landowners to reorganize their holdings, throwing out peasants who worked the land for their own subsistence and replacing them with fewer workers producing commodities for the growing market. In the name of progress, “It was acceptable to strip the poor and uneducated from their customary rights and common lands because the new arrangements would allow the deployment of modern technology, hence improving efficiency and producing more food.”

Through much of history, therefore, agricultural systems have “cultivated misery.” When masses of farmworkers were in demand, they were usually dominated by more powerful landowners. When technology improved productivity, they were either worked harder so that others could profit, or else thrown off the land.

Acemoglu and Johnson worry that if the latest technologies replace too many workers and empower the few rather than the many, “our future begins to look disconcertingly like our agricultural past.”

Industrialization

The shrinking demand for farm labor would not have been an obstacle to prosperity if good jobs awaited the displaced peasants in the manufacturing sector. But in the early days of manufacturing, the factory system offered an alternative form of misery.

The Industrial Revolution was preceded by what the authors call a “middling sort of revolution.” By the mid-eighteenth century, a rising class of innovators, inventors and entrepreneurs were starting to reshape the economy. Innovations like the steam engine and the spinning frame appeared at this time. Just as important was a social transformation that weakened the power of the landed aristocrats and modestly expanded democracy.

As the rising entrepreneurs reorganized production and applied new technologies, productivity rose rapidly, especially in the textile industry. But the authors’ theory explains why this “progress” did not initially improve living conditions for the workers. The first reason was low labor demand. Because early industrialization emphasized the mechanization of existing tasks, notably spinning and weaving, the factory system created new jobs by destroying old ones.

The second reason was the power imbalance between entrepreneurs building capital and impoverished workers desperate for work. As the rising middle class expanded their wealth and political influence, their vision of progress increasingly dominated public discussion. The “industrial entrepreneurs’ choices of technology, organization, growth strategy, and wage policies enriched themselves while denying their workers the benefits of productivity increases—until the workers themselves had enough political and social power to change things.”

The result was that early factory workers—despite their high productivity—were made to work very long hours under dismal working conditions for very low wages. They were also crowded into urban factory districts plagued by coal-dust pollution, poor sanitation, unclean water, and related diseases.

As the rising middle class gained wealth and political power, their vision of progress dominated public discourse. Obsessed with how industrialization created new wealth—for them—they had little sympathy for those who earned too little to share in the benefits of their own productivity.

Conditions improved in the second half of the nineteenth century. New technologies like railroads and the telegraph created more jobs than they destroyed. Workers began organizing to exert countervailing power against employers. Social critics and reformers scandalized by social conditions began to challenge the dominant vision of progress. Governments took a few steps to improve public health and other urban conditions. With labor demand and labor power rising along with productivity, real wages could increase.

In the United States, conditions were generally better than in Europe because land was more abundant but labor was more scarce. That combination put workers, especially skilled workers, in a position to command a higher wage.

Rising real wages in Western Europe and America did not stop the rich from getting richer even faster, so that economic inequality increased during the Gilded Age. It also increased globally. At a time when the fruits of technological progress were starting to benefit more Europeans and Americans, colonialism impeded that process in many other places. The large flow of manufactured textiles from Britain to colonial India destroyed indigenous textile jobs, retarded industrialization, and confined a greater proportion of Indian labor to rural occupations.

A formula for prosperity

The time and place best characterized by a “productivity bandwagon” was the mid-twentieth century in Western Europe and the United States, especially the three decades after World War II. It had all the elements of an economically successful application of technology: Sustained growth in productivity; high labor demand in expanding occupations, and institutional structures supporting a more egalitarian distribution of power.

In the twentieth century, the proportion of the workforce needed in agriculture dropped sharply, but that was offset by a rising demand for labor in manufacturing and services. This was due to a better balance between labor replacement and labor augmentation. “The reduction in labor requirements driven by automation was offset, sometimes more than one for one, with other aspects of technology that created opportunities for workers.” Large-scale manufacturing needed not only blue-collar workers to run the assembly lines, but engineers to create them, technicians to repair them, and white-collar workers for managerial, clerical and sales jobs.

Operating the machinery of modern manufacturing required some skill, but the skills were not too hard to learn. Union contracts stipulated that employers would train their union employees. Rapid expansion of formal education provided qualifications for higher-level jobs.

Public policy supported broad-based prosperity in several ways: protecting the right of workers to organize and bargain collectively, spending tax dollars on public works and income support, and regulating business to place limits on corporate power.

The results were spectacular. Real wage growth averaged almost 3 percent per year for both more educated and less educated workers. The income distribution became more egalitarian, with labor’s share of national income rising and the share of the richest 1% falling.

Acemoglu and Johnson emphasize how exceptional the link between technology and prosperity was during this period:

In the long sweep of history, the decades that followed the end of World War II are unique. There has never been, as far as anyone knows, another epoch of such rapid and shared prosperity.

Even as they celebrate the accomplishments of the twentieth century, the authors are careful to acknowledge those who were left behind. Black Americans and immigrants were excluded from many of these gains. As individual earners, women were too, although they benefited indirectly as wives and daughters of upwardly-mobile men.

Despite these failures, we can understand why so many of the people who lived in that era—including many economists—came to accept the “productivity bandwagon” as a normal and natural phenomenon. That may have left them unprepared to appreciate the challenges of our new technological era. That is the issue for the last four chapters of the book.

Continued

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