(soft music) - [Presenter] The internet
has changed the world around us in too many ways to list.
I personally can't remember the last time
that I went a full day without using the internet
for work, entertainment, and convenience.
Some of the world's largest companies have been built
on providing services through the internet.
And three years ago when a global pandemic put the world
into lockdown, the internet was there for us,
so that we could work from home and play among us
with our friends to avoid going crazy in isolation.
So, with all of that in mind, what do you think
has had more of an impact on the global economy,
the internet, or the washing machine?
Go on, answers in the comments section.
It sounds like a pretty dumb question,
but it's actually one that a lot of economists disagree on.
The argument in favor of the washing machine
is that we no longer appreciate how much
of an impact the automation of domestic duties
has had on our lives and we simultaneously overestimate
the impact that the internet has had on our economies.
Even if I can't change your mind,
the debate is really quite interesting
and it can teach us a lot about how we have changed
the way that we add value to the world around us
on an individual, national and even global level.
Working out what tools add the most value
to an economy can be crucial to getting some
of the poorest nations in the world off the ground.
Yet, if you were to ask most economists
whether you would rather supply washing machines
and therefore supporting infrastructure to people's homes,
or the internet and supporting infrastructure,
they would most likely choose the latter
without appreciating the benefits
that the other option could bring.
It can also act as a case study for what happens
when automation makes our jobs obsolete,
which with this latest wave of AI programs
is something that we should probably want an answer to.
So, what was the impact of the washing machine
on the global economy and how has it been underappreciated?
What was the impact of the internet on the global economy
and how has it been over appreciated?
And finally, what can this debate teach us
about the role of future innovations
on the way that run our economies and live our lives?
Okay, before I get too into the fascinating details
of this debate, I have to admit that the idea
that washing machines could have changed the global economy
more than the internet is not my idea,
nor the idea of anybody else here on the EE team.
It has mostly been argued by this man here, Ha-Joon Chang,
Development Economist from Cambridge,
who is far more brilliant in his field
than I could ever hope to be.
His argument is that most economists overestimate
the impact that the internet has had on the world
around us and underestimate the impact that domestic tools,
like washing machines have had.
Washing machines were first invented in the 1850s,
but the problem was that they required a lot of power
to operate and most homes didn't have electricity
at this point.
The few houses that did have the incredible luxury
of electrical power also had little use
for an automated washing machine,
because if they could afford a fancy new technology,
like electricity to be supplied to their home,
they could also afford domestic servants
to clean their clothes and there was no point in buying
an expensive machine just to make their job easier.
By the 1930s that started to turn around, and by this point,
despite the Great Depression, a majority of homes were
connected to electricity.
At the outbreak of World War II,
automated machines to take over domestic duties
became incredibly important as women were needed
in the workforce to replace men on production lines
while they went off to fight in Europe and the Pacific.
Cleaning clothes by hand for a family
could easily be a whole days worth of work,
which was fine when the expectation was that women
would stay at home and perform these duties.
But when they also got regular jobs, losing a whole day
to just one of many tasks that needed to be done
around the home wasn't feasible.
Washing machines, vacuum cleaners, electric irons
and all of the conveniences that we take
for granted today, reduced the time that it took
to run a household so significantly
that a lot of women were able to stay
in the workforce even after the war was over.
And one of the first things that they wanted to buy
with the money that they had earned by themselves
was appliances to make their life easier at home.
In economics, we study something called labor productivity,
which is one of the most important measurements
in economics and is very often totally overlooked.
Labor productivity is how much output
an average worker producers in a single hour of work.
For example, the average worker
in the USA produces around $73 worth of output
for every hour worked
according to the most recent data available.
Increasing worker productivity is really important
to economists because it means that workers
can get paid better while not causing inflation,
which leads to increasing living standards
and a wealthier economy, all other things being equal.
Improving worker productivity is primarily achieved
by making workers that are better educated
and giving them better tools to do their jobs
more efficiently.
We can see this with a worker productivity difference
between Canada and the USA.
Despite having similarly skilled workforces,
US workers produce almost $20 an hour more
than Canadian workers because businesses in the US
on average invest a lot more into tools
and equipment for their workers,
meaning they can get a lot more done
in the same amount of time.
Now, we have already covered this in our most recent video
on the Canadian economy, so I don't wanna repeat too much,
but one thing that might surprise you
about labor productivity is what it can teach us
about things that we think are threats
to our individual economic prosperity.
For starters, labor productivity actually tends
to go up during economic downturns.
One of the steepest improvements in US labor force
productivity was after the GFC.
The reason this happens is because as unemployment rises
companies tend to get rid of their worst
and least experienced employees first,
which means the ones that are left over
are going to be better workers on average.
Those workers will also have access to more equipment
because it won't be spread around as much
and they'll also be incentivized to work really hard
because they know they might be next
if the company decides to get rid of more workers.
Now, women entering the workforce,
particularly from the 1960s onwards,
both increased labor force participation
and also increased labor productivity.
Increased labor force participation is not surprising.
More people entering the workforce
means a higher participation rate,
but all other things being equal,
adding more people should have decreased labor force
productivity because new workers
with not much experience are going to bring
down the average and also require businesses
to spread their equipment wider across a larger workforce.
But that didn't happen, and the reason why was
because those new workers were able
to make the existing workers more efficient by taking
over low end jobs, which enabled the experienced
workers to leverage their skills
by managing larger teams that were there to help them out.
The most common example of this was something
like a lawyer getting a personal assistant,
so that they could spend more time billing clients
and less time worrying about everything else.
It also made workers productive
because it gave them more to do.
Women entering the workforce opened
up an entirely new consumer market
that for the first time in history,
had their own money to spend on things that they valued.
Freeing half of the population from full-time
unpaid services and giving them the ability
to join the workforce and become independent consumers
was one of the biggest drivers of economic growth
in the past half century and it was enabled by machines
that made it possible for those unpaid services
to be far more efficient.
This change is also why a lot of economists
are not very worried about the future of automation
making us all irrelevant.
Machines that take over the tasks that we currently
have to do ourselves will either give us more time
to go out and pursue more value adding tasks,
or it will mean that more is taken off our plate
in the work that we already do.
I am personally experimenting with artificial intelligence
to do a lot of the detailed research
that goes into these videos.
My time is best spent explaining economic concepts
through case studies like national economies
or Ha-Joon Chang's washing machine theory,
like right here in this very video.
In most cases, I can explain the economic theories
more or less off the top of my head,
but linking those theories up with real world events
and data to make those theories more engageable
and understandable takes hours of reading and research.
Artificial intelligence could fill in those facts
and figures for me, making the whole process much faster
and potentially even more accurate.
This means that I could make more videos
or have more free time to go out and consume things,
contributing to the economy either way.
As of now, most of the tools are still not really as good
or reliable as just doing the work myself.
So, I promise this wasn't secretly written
by a robot to tell you not to worry about
the robot revolution, but they are improving every day
and they will eventually be so useful
that we can't do our jobs without them,
just like it would be very hard to do a lot
of our jobs today without other computer programs.
A more real world example that I'm sure a lot
of you are aware of is that programs like Chat GPT
can now write basic code in lots of different languages
based on simple inputs.
A developer using a program like this could spend
most of their time linking these basic commands together
into a production ready program,
rather than creating them individually themselves
or editing whatever they found on stack overflow.
Tools that allow people to create more stuff
in a given amount of time are almost always a good thing
for the economy overall.
It's also worth noting that labor force participation
in most advanced economies right now is at record lows
and has only been reduced further by the pandemic.
Labor force participation is calculated by taking the amount
of people currently employed, adding in the people
that are unemployed, but looking for work,
and then putting that number over the total number
of working age people in an economy.
Those not participating in the workforce,
are therefore, people unable to work due to a disability
or choose not to work because they're supported
by their partner, family or are independently wealthy.
Most of the drop-off since the peak in 2008
has been caused by people retiring
before they fall outside the working age population,
so they still get counted.
Either way, the labor force participation rate
is now reaching levels similar to what it was
before women started entering the workforce
in large numbers in the 1960s and 70s.
So, there is a lot of headroom for technical capital
to make sure that these people still working
are making up for everybody else sitting out.
Now, a lot of what of what has made the latest developments
in artificial intelligence so powerful
is the way that these programs can pull information
from the internet, which if they are supposed to be
the next economic revolution, really undermines
Ha-Joon Chang's argument that the internet is overrated.
We always talk about how the internet has revolutionized
the way that we do business
and just accept that to be true on face value.
But Ha-Joon Chang challenges this idea
and proposed its contributions aren't as significant
as we might think.
The internet is a vital tool for business,
but it's not radically changed the way
that most work is done.
It is primarily a communications tool,
but before this businesses still had fax machines,
telephones and pages that could send
most business information just as fast.
The internet has allowed for non-text information,
like video and audio files to be sent
much more quickly and easily,
but most businesses don't use these very much
for their regular operations.
Professor Ha-Joon Chang proposed that the telegraph
reduced the amount of time it took to send a message
across the Atlantic from three weeks to around 30 minutes,
an improvement of 2000 times.
This was a significant improvement
and started to make global trade
and international corporations economically viable.
Sending four pages of information
via a fax machine takes about 30 seconds,
where an email takes two seconds,
an insignificant improvement since most of the time
it's going to take a few minutes for the recipient
to read through the information either way.
So, the saved time might only be a few percent
by using the internet.
There are businesses that are unable to use the internet
to make massive profits.
The example Ha-Joon Chang gave were commodities traders
using the constant flow of information to speculate
on futures contracts, which while being profitable
contributes very little to the economy as a whole.
The other examples are things like social media companies
that use the internet to supply us
with a constant stream of entertainment.
It's up to you to decide how much economic value
they really provide, but Chang argued
that they were more of a distraction than anything else.
It's important to remember that his argument
is not that the internet wasn't important
or that it didn't contribute to the global economy.
It's just that it contributed less than the technology
that allowed us to effectively
double our available workforce.
The reason that we find this argument so hard to fathom
is that most of us have lived our entire lives
with washing machines and haven't witnessed
that technology develop in any significant way.
The internet, on the other hand, has changed radically
in just the last decade and demands a lot more attention
from us pretty much by design.
We don't spend hours in front of our washing machines
every week because they were designed to save us time
to be more productive than washing clothes by hand.
We do spend hours on the internet every week
and that time is not always very productive.
Chang's argument might sound crazy,
but the numbers kind of agree with him.
Global growth has been lower
in the period following the widespread adoption
of the internet when compared
with the period following the widespread adoption
of the washing machine.
It's not by a significant amount, but remember the time
since 1990 also includes the growth in China,
which has improved global
average growth rates significantly.
If the internet really was as important
as we thought it was, growth should now be easily
outpacing the time before it existed.
The outcome of this debate, beyond being very interesting,
has some really important consequences,
and it should make us reconsider how we achieve growth.
Today, there are more people with access to the internet
than there are with access to basic plumbing.
A lot of growth initiatives in undeveloped economies
are built around giving people access to the internet
because it can be used for education and communication,
which is hoped will spur economic development
to improve the lives of everybody in that economy.
If the importance of the internet really is overestimated,
this means that there could be better investments
to make to improve economic prosperity
and living standards in these countries.
If you're still not convinced then that's probably
a good thing because it shows that you are capable
of strong critical thought.
Yes, there are some arguments that can be made
that washing machines did more for the global economy
than the internet, but those arguments require us
to leave out a lot of details as well.
It's also really hard to verify
because we can't go back in time
and uninvent the washing machine to see what happens,
but there is a chance that all of the other things
going on in the world at the time would've allowed women
to enter the workforce with or without the automation
of a lot of their other unpaid work.
I personally struggle to believe that Ha-Joon Chang
even really believes his own argument,
but he makes it for the same reason that we made this video.
He uses the debate as a platform to teach his students
about the importance of technical development,
labor force dynamics
and the role of technology in our economies.
I think you also know that even the best lessons
in the world are pointless if nobody listens to them.
So, an outrageous statement like washing machines
have done more for the global economy than the internet
brings that attention to a very important argument.
I mean, at the end of the day,
it got you to click on this video, right,
and I sure hope even if you don't agree
that you learnt something along the way.
Thanks for watching, mate, bye.