My elderly rabbit Giggles has unfortunately been quite sick the past two days (he’s recovering now), so I haven’t had as much time to write. Instead I thought I would repost a book review I did two years ago. I’ll be back with more original content tomorrow!

In my post yesterday about the “We Must Act Now” statement, I noted that Daron Acemoglu successfully got the writers to alter some key language in exchange for his signature — most likely, adding the “steering” idea that I took issue with. Technological “steering” is the central policy recommendation of Acemoglu’s 2023 book Power and Progress, with Simon Johnson.

As it happens, I wrote a review of Power and Progress, back in 2024. In fact, it was by far the longest book review I’ve ever written.1 I actually read the book cover to cover in detail, marking passages and looking up sources as I went; this took a very long time, and it was very frustrating, since I had serious objections to nearly every part of the book. I took out that frustration by writing a very long and highly critical review.2

So anyway, here’s that review for you to enjoy. Hopefully it gets a few people to think a little harder about the AI-related ideas that Acemoglu has been promoting throughout the econ world, and why it would be a big mistake to make those ideas the default position of the economics profession on the AI issue.

“Do not be fooled by the monumental technological achievements of humankind.” — Acemoglu and Johnson

It’s hardly surprising that Power and Progress made it onto practically every list of the most important business books of 2023. First, there’s the unrivaled pedigree of the authors themselves. To call Daron Acemoglu a powerhouse in the world of economics would be a ludicrous understatement:

Acemoglu is also the main proponent of the institutional explanation for national development, through his famous book Why Nations Fail and its sequel, The Narrow Corridor (both with James Robinson). If you hear me talk about “inclusive institutions” and “extractive institutions”, I’m channeling Acemoglu.

Simon Johnson, meanwhile, is the author of some of my favorite popular books about economic policy, especially Jump-Starting America (with Jonathan Gruber) and 13 Bankers (with James Kwak). When I write more about the need to spend more on science and to restrain the excesses of the finance industry, I’m channeling Johnson.

The second reason this book was destined to garner attention is that it brings together two extremely timely strains of thought: 1) the widespread distrust of tech companies that has grown in American society over the last few years, and 2) the wave of anxiety over AI-driven automation. Power and Progress weaves those two anxieties into a more-or-less coherent whole — a sum of all technological fears, if you will. And it seems to have been spectacularly well-timed, since its release coincided closely with the coming of ChatGPT and other generative AI.

But given all of those powerful tailwinds, I have to say I’m kind of surprised at how little of a splash Power and Progress seems to have made. This is anecdotal of course, but in the 9 months since it came out, I’m not sure I’ve once heard someone reference the book or any idea in it. The authors clearly intended it to be a handbook for people who are scared about AI putting humans out of a job, the way Thomas Piketty’s Capital in the Twenty-First Century became a handbook for people worried about inequality, or Robert Gordon’s The Rise and Fall of American Growth became a handbook for people concerned about technological stagnation. But I don’t think it did.

Why not? One reason might be that the timing wasn’t as favorable as it might appear. Contrary to Acemoglu and Johnson’s assertion (on p.24 of the hardcover edition) that we live in an age of “blind techno-optimism”, the internet is absolutely chock-full of arguments and warnings about the downsides of AI. Concerns over the risk of rogue Artificial General Intelligence resulted in a boardroom coup attempt that almost drove Sam Altman out of OpenAI. Worries that AI wouldn’t uphold diversity led Google to implement some pretty hilarious countermeasures. Fears of mass surveillance, deepfakes, etc. are widespread. And of course the idea that AI is going to lead to mass unemployment is absolutely ubiquitous — so much so that practically every San Francisco tech event I go to features discussions about exactly this subject. Yes, even dance parties.

In other words, Power and Progress may have come out a little too late to make a big splash, and instead ended up just being one more voice shouting in the chorus.

On top of that, though, I have to say that this book…well, I just don’t think it’s very good. I winced while I wrote that sentence, because Simon Johnson is a personal friend, and Acemoglu is a celebrated genius, and because both of them have written such good books in the past. This is the first broadly negative book review I’ve written since 2014, and I’m a lot less combative of a blogger than I was a decade ago. I did not want to pan this book, especially because I think the topic is a good and important one, and I think the authors are brilliant people whose hearts are in the right place.

But I just don’t think the way this book was written ends up supporting the conclusions it draws. The historical examples it cites simply don’t support a narrative of out-of-touch technologists inventing the wrong sorts of technologies and hurting workers in the process. The book embraces a highly questionable definition of “power” in which persuasion in an open democratic society is painted as a threat. It often seems to assume its conclusions about the impacts of specific technologies, and it tells a jumbled and confusing story about the role of productivity growth. And its central claim — that society can push entrepreneurs to steer innovation in a direction that augments humans instead of replacing them — is not well-supported.

All in all, Power and Progress just fails to convince.

The basic idea

Power and Progress is of the “magisterial sweeping tome” class of econ book, like Capital in the Twenty-First Century, The Rise and Fall of American Growth, or Brad DeLong’s Slouching Toward Utopia. Much of the book is a history of technological innovation in general. As such, it tends to ramble; the authors often seem to get so caught up in the telling of this history that they neglect to tie each event to their central theses. In fact, those are often the most fun and fascinating parts of the book. But if I were to boil down Power and Progress to a set of core ideas, it would be:

Technological innovation’s impact on human welfare depends crucially on social choices about how those innovations are used.
Those choices are determined by the relations of power in a society, and in recent decades our choices have been steered in a negative direction by the power of tech company founders and venture capitalists.
The type of technologies that society invents can be chosen so as to distribute benefits more widely, by avoiding technologies that replace workers and inventing technologies that complement workers.

It’s the last of these that the book is most known for, because it’s the boldest, the most original, and the most controversial. But first let’s talk a bit about the other two.

Questionable historiography

The idea that technology’s impact on society is not determined solely by the nature of the tech itself, but depends on how we choose to use it, is obvious enough to be a truism. Everyone knows how the industrial technologies that have created so much wealth are also put to destructive uses in wars. Everyone knows that the same camera technology that lets you talk to your friend in a different city can allow governments to spy on their citizens. Everyone knows that there is a vast system of laws, international agreements, and social norms whose purpose, at least in theory, is to ensure that technology is used for good and not for ill.

But even though “technology can be used for bad purposes” should be a simple truism, Acemoglu and Johnson pick some very odd examples to illustrate the principle. For example, in the prologue, they have a list of what they claim are “new inventions that brought nothing like shared prosperity”. Here’s the fifth item on their list:

At the end of the nineteenth century, German chemist Fritz Haber developed artificial fertilizers that boosted agricultural yields. Subsequently, Haber and other scientists used the same ideas to design chemical weapons that killed and maimed hundreds of thousands on World War I battlefields.

The idea that the Haber-Bosch process has “brought nothing like shared prosperity” is an absolutely wild claim. Nitrogen fertilizers are so important to human existence that by the most common estimates, about half of the entire population of Earth — 3.5 billion people — is only sustained thanks to this technology. But because that same chemical reaction was used to create one particular type of chemical weapon that was responsible for a tiny fraction of the deaths in one particular war, Acemoglu and Johnson feel comfortable saying that a technology that literally gives life to half of humanity “brought nothing like shared prosperity”. It is the kind of claim that is so obviously wrong as to leave the reader slack-jawed — and yet it is deployed in support of an overall thesis for which countless better examples exist.

Unfortunately, this kind of questionable selection of historical examples is a hallmark of Power and Progress all the way through. For example, in Chapter 6, the authors write:

[Belief in the power of productivity] suggests that as technology advanced rapidly during the early phases of the Industrial Revolution, wages should have risen. Instead, real incomes of the majority stagnated.

Acemoglu and Johnson conclude that because textile manufacturing technologies were biased toward automating workers, they immiserated the working class of 1700s Britain. But those same textile manufacturing technologies have been at the center of the early stage of every other country’s industrialization as well. China went through a period where it made most of the world’s clothes, with its share peaking in the late 2000s. In 1995, apparel was China’s biggest export category.

But during this time, when Chinese garment workers were getting the descendants of the original British industrial technologies of power looms, their wages were skyrocketing — as were wages in the economy as a whole. The same is now true of Bangladesh — the country focuses relentlessly on the garment industry, and has access to all of the old automation technologies, and yet incomes in the country have tripled since 1990.

(As a side note, it’s kind of funny that after we’ve used “Luddite” as a slur for technophobes for all these years, Acemoglu and Johnson explicitly try to rehabilitate the original Luddites, writing that they “were right to worry about knitting frames decimating their livelihoods”. For this reason, I considered subtitling this review “the Bible of the Luddites”, but decided that the negative connotation of the word was too strong and it would be rude.)

A third questionable example in the book is the story of the Panama Canal. Acemoglu and Johnson describe the brutal exploitation of the workers who built the canal, and declare the project a “colossal failure”. That brutality was certainly real. But the authors cite it as a reason that the technology of the canal itself failed to bring broad-based prosperity. In fact, the opposite seems true; thanks to the canal, the people of Panama today enjoy a standard of living much, much higher than that of their Central American neighbors. This is not to say those economic benefits were worth the human cost. But the canal’s problems clearly seem associated with its construction, rather than unfair distribution of the benefits from the technology itself. Could the same canal have been built using more humane labor standards? The authors decline to speculate, simply declaring the whole project a failure and not even mentioning Panama’s prosperity.

A fourth dodgy example is the story they tell about Japan. In Chapter 8, Acemoglu and Johnson praise Japanese companies for “combin[ing] automation with the creation of new tasks”, noting that Japanese automakers didn’t reduce their workforces like American automakers did. But Japan’s manufacturing sector wages, like wages throughout the rest of the country, have been falling since the early 1990s, while American wages have stagnated but not fallen. So this story doesn’t fit the data.

A fifth example is in Chapter 7, when Acemoglu and Johnson write that “Henry Ford was a pioneer” in developing “a more cooperative relationship” with his workforce. I’m just wondering how this “more cooperative relationship” involved hiring thugs to gun down union organizers. Ford did pay higher wages to increase efficiency, but his actual dealings with representatives of labor was brutal and intolerant.

I could go on citing these questionable examples — my copy of Power and Progress is stained blue with all the notes I made in the margins — but this review would run into the dozens of pages, and you would quit long before you finished. But because there are so many questionable examples, Power and Progress is the kind of book that must be read closely and with a critical eye.

Update: In the comments, Brian Potter adds:

Another strike against this book is its terrible scholarship: it frequently gets basic facts incorrect because the authors haven't bothered to actually research the topic. Example: it claims at several points that Eli Whitney was responsible for the development of interchangeable parts, a claim that has been widely and thoroughly debunked.

Source?

Another issue with the book’s examples is the lack of footnotes or endnotes. Instead of citing specific works in support of each specific claim — as most books do — Power and Progress has a bibliographic essay at the end. Many sources are mentioned in this essay, but it’s often difficult, and sometimes impossible, to match the sources to specific claims. As a result, you often end up having to choose between exhaustively searching multiple sources to figure out where the authors got a particular point, or simply giving up and trusting that the authors are accurately representing the data.

For example, in Chapter 1 the authors ask “What if…AI also impoverishes billions in the developing world?”, and asserts that “evidence is mounting” that this concern is “valid”. But where is the evidence that AI threatens to impoverish billions? That’s an astonishingly strong claim about a technology about which little is known, and I can’t find any source in the bibliographic essay. An empirical study I do know is Acemoglu, Autor, Hazell and Restrepo’s 2022 paper “AI and Jobs: Evidence from Online Vacancies”, whose abstract concludes:

We find no discernible relationship between AI exposure and employment or wage growth at the occupation or industry level, however, implying that AI is currently substituting for humans in a subset of tasks but it is not yet having detectable aggregate labor market consequences.

So that paper certainly doesn’t include mounting evidence that AI threatens to impoverish billions. But I can’t find which paper the authors relied on to make this claim.

In fact, because I’ve read many of the Acemoglu papers that undergird this book, I also know that there are instances where the data doesn’t quite say what the authors claim. For example, in Chapter 8, Acemoglu and Johnson argue that “digital technologies became the graveyard of shared prosperity” over the last few decades. In this chapter, they attribute some meaningful piece of the recent rise in inequality to the introduction of digital technologies to the workplace. But because I’ve read Acemoglu and Restrepo’s 2020 paper “Robots and Jobs: Evidence from U.S. Labor Markets”, as well as the working paper version from 2017, I know to be skeptical of this claim.

Acemoglu and Restrepo found that a narrow category of automation — industrial robots — was associated with decreased employment and wages. But as the Economic Policy Institute’s Larry Mishel and Josh Bivens noted, when Acemoglu and Restrepo measured the effect of workers’ “exposure to IT capital” in general — i.e., how much the employers invested in IT tech overall — they found either no effect or a positive effect on employment and wages. Here’s the relevant table from the 2020 version of the paper:

The estimates of a positive impact of IT capital on employment and wages are in the original working paper version, in table A9.

Now, this doesn’t mean that computers and the internet weren’t a driver of mass unemployment or stagnant wages. Maybe they were! Acemoglu and Restrepo (2020) could simply be wrong; in fact, since their working paper first came out in 2018, many other studies have ended up contradicting their findings about the negative impacts of robots. And all of these papers look within specific industries or companies — as does Acemoglu and Restrepo’s 2022 follow-up paper about automation and inequality between demographic groups. The overall effect of automation on economic growth, absolute wages, and the composition of industries in the economy simply isn’t known.

In other words, it could be very well be that automation has been impoverishing people, or it could be that it has been enriching people overall. I’d simply like to know where the authors get the data to back up their claim about information technology, especially when one of the authors’ most famous papers appears to contradict that claim.

To sum up, footnotes and endnotes are a technology that has unambiguously benefitted the world, and even though they can be a bit of a pain the butt, authors should include them.

A questionable definition of “power”

Anyway I digress; back to the book’s central theses.

Despite the questionable examples, it’s clearly true that technology can be used to benefit average people or to hurt them. But how does society choose how to use technologies? Acemoglu and Johnson’s answer is “power”, from which they get the title of their book. But what is power? Here, in Chapter 3, Acemoglu and Johnson deploy a definition that veers into the tautological:

Power is about the ability of an individual or group to achieve explicit or implicit objectives. If two people want the same loaf of bread, power determines who will get it.

Using this definition, how could we ever conclude that power wasn’t the reason for an observed outcome? Two people want a loaf of bread, and one of them gets it; we know this was due to “power”, because “power” is defined by who gets a loaf of bread. This kind of definition is semantically valid, but empirically useless; if you define “power” such that it simply means “whatever caused an outcome to happen”, you haven’t isolated causality, you have simply given it a new name.

Acemoglu and Johnson have a reason for employing a definition this infinitely broad; it allows them to include persuasion and compulsion in a single category of “power”.

The authors’ historical examples of when power determined the distribution of the benefits of technology include cases when laws and the threat of violence allowed some people to extract the benefits of technology for themselves — the cotton gin increasing slaveowners’ profits in the American South, or lords extracting agricultural surplus from peasants in medieval Britain. These are instances of compulsion, which certainly fit with our common, everyday, colloquial use of the word “power”.

But Acemoglu and Johnson also spend a lot of time arguing that persuasion is also a form of power. They cite instances in which techno-optimists and businesspeople in 18th century England and 21st century America persuaded the public to enact pro-business policies, through articles, speeches, conversations, and so on. Their explanation for why inequality has increased since the 1970s is, in effect, that silver-tongued technologists managed to persuade American society to weaken pro-worker institutions, and to allow the technologists to invent technologies that replaced human labor instead of complementing it.

The authors don’t venture to say exactly why these techno-optimists’ pro-business vision prevailed — they write that “an idea is more likely to spread if it is simple, is backed by a nice story, and has a ring of truth to it,” but they admit that “quite a bit of this process [of persuasion] is random,” and declare that “you are enormously lucky if you get the right idea, with just the right ring to it, at just the right time.”

I have to admit, this kind of surprised me. I expected to see some sort of pseudo-Gramscian theory of cultural hegemony (or at least some references to Gramsci or similar writers). Instead, the authors just sort of shrug and put it all down to luck. For some reason, the techbros just wrote really good posts, and by doing so they ruled the world — at least until their luck ran out and the world turned against them, I suppose.

In fact, I have to confess that the entire chapter on power and persuasion left me bewildered. I do not understand why we should put accidental success in a nonviolent marketplace of ideas in the same conceptual category as chattel slavery and feudalism. It seems to yield neither understanding nor solutions. Perhaps the historical example of the cotton gin might give us some insight about how to explain the spread of laissez-faire economics, but simply labeling both things as varieties of “power” does not yield that insight. And the idea that persuasion is power doesn’t seem to suggest any kind of systemic fix for the problem that sometimes society is persuaded to do things that increase inequality.

That doesn’t mean Acemoglu and Johnson have no solutions to recommend, though. They want to strengthen institutions like unions and labor laws, but their main idea is to redirect technological innovation toward technologies that complement workers instead of replacing them.

When all you have is a hammer, everything looks like a loom

“With such persuasiveness, you tend to convince yourself that you are correct.” — Acemoglu and Johnson

Over the last six years, Acemoglu and Restrepo wrote a series of theoretical papers in which they lay out a number of different ways that new technology can affect workers’ jobs and wages. Basically, this ends up being a fancier version of a very old idea — capital can either substitute for labor or complement it. If capital substitutes for labor, then capitalists win, because they can replace people with machines, and pay people accordingly less. But if capital complements labor, then workers win, because capitalists have no choice but to hire them to work the new machines, and pay them good wages. Acemoglu and Restrepo make this theoretical breakdown a bit more nuanced, but in the end it really boils down to whether machines replace people or augment their abilities (either by making them more productive or by giving them new things to do).

Power and Progress attempts to analyze the history of technology through the lens of this theory. In eras where technology seemed to progress rapidly but workers’ wages didn’t grow much, like 18th century Britain, Acemoglu and Johnson argue that the main cause was technologists inventing machines that replaced human labor; in other eras where wages grew rapidly, like the late 19th century, they argue that technologists were inventing machines that created new tasks for humans to do.

At times this can begin to feel like a just-so story. For example, Acemoglu and Johnson cite electricity as a technology that was good for workers, because it created so many new industries for people to work in. But didn’t electrification also replace human labor in quite a large variety of ways? Electric lights save us the labor of making candles, electric dishwashers and washing machines and dryers automate our housework, and so on. How do we know this task automation outweighed by the new tasks electricity creates?

They also argue that wages in industrial Britain began to increase in the late 19th century because steamships and telegraphs — as opposed to looms — “expand[ed] the set of tasks and opportunities for workers”. As far as I can tell, this is a claim without evidence. Why was the telegraph’s automation of message couriers less significant than its creation of new jobs for telegraph operators? In Chapter 8, Acemoglu and Johnson blame communication technology for increasing inequality by enabling the offshoring of jobs to China and other countries. Why would modern communication technologies have exactly the opposite effect of the telegraph?

And in Chapter 6, Acemoglu and Johnson praise the early United States for its direction of innovation, writing that American businesses compensated for a lack of skilled labor by, in the words of engineer Joseph Whitworth, “call[ing] in the aid of machinery in almost every department of industry.” In Chapter 7 the authors write that the American use of interchangeable parts “was first and foremost an effort to simplify the production process so that workers lacking in artisanal skills could produce high-quality products.” But how is that any different from the British use of power tools to help unskilled make textiles in the 1700s? The difference is never explained.

On the other side of the coin, Acemoglu and Johnson cite most modern information technology as something that automates more tasks than it creates. But what about all the new tasks that IT creates — mobile developers, web designers, digital media marketers, content moderators, and so on and so forth? Why are these less economically important than the tasks that the internet automates away (encyclopedia salespeople, etc.)?

One answer is that if we assume that Acemoglu’s theory of automation is the main thing that’s going on, we can just infer the effects of particular technologies from macroeconomic outcomes — if we see wages stagnate, it must be because task automation outweighed task creation. But for anyone who suspects that Acemoglu’s theory might not actually be the main thing going on in the economy, just saying that the proof is in the pudding is a bit unsatisfying. It feels like a just-so story.

Is productivity good or bad?

In fact, the historical examples in Power and Progress leave themselves open to alternate narratives. The main alternative narrative is about productivity.

Acemoglu and Johnson repeatedly argue that if productivity gains are produced by automation, workers don’t see the benefits. They cite the idea that productivity naturally uplifts workers — which they call the “productivity bandwagon” — as one of the main nefarious narratives that technologists use to persuade society to allow them to invent technologies that replace workers.

But what if the “productivity bandwagon” narrative is true?

There are two main historical periods the authors cite as examples of excessive automation leading to stagnant wages — the early Industrial Revolution in 18th century Britain, where textile machines like looms replaced human artisans, and America since the 1970s. (Note: they make an error when they say, in Chapter 8, that “declines in real wages…have been a major part of U.S. labor market trends.” In fact, when you include benefits, real hourly compensation has grown a bit more slowly since 1973, but has still consistently risen.)

But Acemoglu and Johnson also note that both of these eras had sluggish productivity growth. Perhaps wages were stagnant in those eras because productivity was also stagnant?

Regarding the early Industrial Revolution, some researchers argue that the labor share didn’t actually fall. For example, here’s Crafts (2020):

[R]eal wages grew more slowly than real GDP per worker during the industrial revolution. However, the discrepancy was much less than has been claimed such that in 1820 the former had risen by about 12 per cent since 1770 and the latter by about 16 per cent. Second, labour productivity grew quite slowly prior to 1830 averaging a little below 0.4 per cent per year in the 60 years after 1770. Nevertheless, in the context of demographic pressure this was a very good outcome by pre-industrial standards. Third, as relative prices changed and exportable manufactures became cheaper, over the long run real product wages grew somewhat faster than real consumption earnings. Fourth, the share of profits in GDP rose over time from 17.2 per cent in 1770 to 31.3 per cent in 1860 but this was associated with a decline in the share of land rents and the share of labour was little changed. Fifth, looked at through the lens of growth accounting the evidence is of total factor productivity (TFP) growth accelerating only gradually to 0.6-0.8 per cent per year during 1830 to 1860 with the steam age only materializing after 1830.
In sum, this looks more like a story of paradoxically slow productivity growth than of pro-rich growth. The story of the industrial revolution is definitely not one of a new general-purpose technology boosting productivity growth at the expense of a big shift in the distribution of income which is the current fear about AI.

As for the U.S. since the 1970s, inequality has definitely increased, but — contrary to what you may have heard — pay has largely kept pace with productivity. Automation may have made wages more unequal (this is the argument of Acemoglu and Restrepo’s 2022 paper), but the modest decline in labor’s share of the national pie was probably mostly about land values increasing. Which means that aggregate wage stagnation was largely due to slowing productivity growth in recent years as well.

In fact, Acemoglu and Johnson also blame automation for stagnating productivity! In Chapter 8, they write that “productivity gains from automation may always be somewhat limited.” They coin the term “so-so automation” to describe technologies that take humans out of the loop but fail to increase productivity much by doing so. They argue that technologies that make better use of human capabilities lead to faster productivity growth as well as higher wages and lower inequality.

OK so…why isn’t that the book’s central this? You could write a very interesting book about how technologies that complement humans are better for both productivity and broad-based prosperity than technologies that try to substitute for humans wholesale. I would definitely read that book! But Acemoglu and Johnson did not choose to write that book; instead, they warn against a focus on productivity, claiming that it’s a seductive but dangerous narrative used by the greedy, fast-talking techbros. In my mind, this weakens their overall narrative.

Where’s the menu?

Throughout Power and Progress, the authors tell a story about a “menu of technologies” that entrepreneurs can choose from. On one hand, companies can choose to invest in automation, replacing workers, increasing inequality, causing slow wage growth, and maybe reducing productivity in the process. On the other hand, they can choose to invest in technologies that create new tasks for humans to do, thus increasing wages and decreasing inequality. Their story is that out of greed and/or elitism, entrepreneurs often choose the former, so it’s in the interests of society to push them toward choosing the latter.

But when the authors approvingly cite examples of new industries springing into being, they never give an explanation of why entrepreneurs and technologists chose to create these new industries, instead of trying to cut costs in existing industries. My default assumption would be that the people who invented and commercialized steamships, telegraphy, interchangeable parts, autos, electricity, and telephones were driven by the same sort of motivations that animated the people who invented and commercialized power looms, computers, and the internet. If not, why not? Was there ever a case when governments or unions pushed entrepreneurs to select Option A from the “menu of technologies” instead of Option B?

When Acemoglu and Johnson do discuss union power, it’s in the context of worker training. In Chapter 7, they write:

In fact, for unions [in the 1960s] the central issue was worker training. They insisted on training provisions to ensure that workers could be brought up to the necessary skill level to operate the new machinery and benefit from it.

This is very different from affecting the direction of innovation! This is a case of workers collectively pushing companies to invest in human capital, so that worker skills can catch up to the direction in which innovation was already going.

As far as I can tell, this book does not contain even one single example of when a union or government supposedly pushed an entrepreneur or company to choose a different path of technology in order to benefit workers. As far as I can tell, it does not even contain one single example of when an engineer, entrepreneur, company or investor chose to create a technology in order to benefit workers more.

In other words, there is no evidence here that the “menu of technologies” actually exists. It’s not clear that technologists and industrialists even know in advance whether the inventions they create and commercialize will create more new tasks than they automate. And this raises pointed and troubling questions for the authors’ preferred solution to the problems of inequality and wage stagnation.

Can the mandarins act as a check on the techbros?

In Chapter 11, Acemoglu and Johnson roll out their proposed solutions. Having concluded that inequality and wage stagnation are due to “tech billionaires and their agenda” choosing the wrong technologies from the “menu”, they call for democratic people-power to force the techbros back onto the labor-augmenting path.

What’s totally unclear is how to do this. Acemoglu and Johnson admit that “redirecting” the path of technological innovation is going to be an incredibly tall order:

Determining how different digital technologies are used and their impact on wages, inequality, and surveillance is much harder [than assessing their climate impacts]…Moreover, given the difficulty of distinguishing automation from other uses of digital technologies, automation taxes are currently not practical.

And yet the authors still claim that this can be done! Yet they’re maddeningly vague on the details:

There is a telltale sign of automation technologies: reducing the labor share of value added, meaning that once these technologies are introduced, how much of value added goes to capital increases and how much gets captured by labor decreases…On this basis, technologies that increase the labor share can be encouraged via subsidies for their use and their development.

But how do we know in advance, before a technology is invented, whether it will increase or decrease the labor share? This is just replacing one target of guesswork — new task creation vs. automation — with another target of guesswork.

Fundamentally, it still boils down to some sort of mandarins in a room somewhere — economists? government engineers? bloggers? — trying to assess the economic effects of a technology that doesn’t even exist yet.

As I wrote in a post last June, this is probably an impossible task. Some of the world’s top experts thought that AI would replace radiologists within a few years, but demand for radiologists boomed even as the new AI tools were coming online. The technologists got it wrong.

And the economists are just as likely to get it wrong. For example, industrial robots are the one technology that Acemoglu consistently rails against as an example of harmful automation. That’s based on his 2020 paper with Restrepo, where they found that companies that buy more robots employ fewer humans. But a whole bunch of other economists followed up on this research and found the exact opposite — robot adoption is correlated with more jobs at a company or in an industry. Here was a list I made back in 2022:

I’ll list a few of these studies:
1. Mann and Püttmann (2018) — Where Acemoglu and Restrepo…looked at correlation, this paper attempts to identify causation. They look at automation-related patents in an industry — a proxy for innovation in the automation space — and then look to see whether that industry gains or loses jobs. They find that “advances in national automation technology have a positive influence on employment in local labor markets”, though this isn’t true for every area.
2. Dixon, Hong and Wu (2021) — These authors looked at robot adoption in Canada, at the level of the individual company (or “firm”, as economists say). They found that companies that adopted more robots hired more people, while also improving the quality of their products and services.
3. Koch, Manuylov and Smolka (2019) — This paper looks at firm-level data for manufacturing companies in Spain. They find that robot adoption is associated with a substantial increase in employment as well as output.
4. Adachi, Kawaguchi and Saito (2020) — This paper finds the same thing as the previous one, but for Japanese companies over the course of a 40-year period.
5. Eggleston, Lee and Iizuka (2021) — These authors look at robot adoption by nursing homes in Japan, and find that it strongly increases employment, although it does result in existing nurses working fewer hours (and thus getting paid less).
6. Hirvonen, Stenhammar, and Tuhkuri (2022) — This paper looks at a technology subsidy program in Finland that increased adoption of a broad range of advanced technologies at Finnish firms. They find that this led to employment increases.
In fact, by this point the trend is clear. Essentially everyone is finding that, contra Acemoglu and Restrepo…robots are correlated with — and probably cause — higher employment in the companies and areas where they’re adopted.
What’s happening is that companies that use more robots hire more humans (and retain their existing humans) in jobs that complement the robots. That’s exactly what we saw with previous waves of automation — people find new roles, robots increase their productivity, and they get paid more. Looking at the countries that use the most robots in their manufacturing industry, it seems likely that this virtuous cycle is happening even at the level of whole nations.
Zooming out from just the manufacturing sector, Hötte, Somers, and Theodorakopoulos have a very interesting 2022 review paper in which they look at the literature on the entire range of automation technologies. Here’s an article in which they explain their results. Hötte et al. find that automation does replace jobs, but that this effect is outweighed by the “reinstatement” effect — in other words, people find new jobs to do. And their incomes generally rise as a result.

So no, there’s no possibility that a council of mandarins — engineers, economists, or whoever — can sit there evaluating every potential new technology that companies or inventors want to create, and deciding whether it will raise or lower the labor share. I mean, you could make a council of mandarins, and it could look at plans for new technologies, and it could issue decisions, but in practice it would be throwing darts at a dartboard. And it would be an incredibly costly tax on our companies, since it would introduce massive delays into their decision-making process. Their Chinese rivals, on the other hand, would suffer no such delays.

In other words, I see no hope for Acemoglu and Johnson’s preferred solution. The utter vagueness with which the idea is presented in Power and Progress doesn’t suggest that the authors have thought carefully about how this solution might work in practice.

In particular, these solutions seem inferior to something far simpler: policies to increase labor share ex post. Labor market institutions like co-determination and sectoral bargaining, and direct interventions like wage subsidies funded by taxes on capital income, can push up the labor share without requiring panels of experts to predict the unpredictable. And if entrepreneurs really do have any degree of foresight about whether their innovations will tend to push the labor share up or down, these policies will act like a Pigouvian tax on the kind of cost-cutting that Acemoglu and Johnson decry. With a wage subsidy, for example, the higher the market rate you can afford to pay your workers, the more of a rebate you can get from the government. So if there are technologies that augment your workers and let you hire new workers, a wage subsidy gives you an incentive to create them.

Anyway, I think simple policies like these should be economists’ first go-to solutions, rather than the creation of whole new social institutions.

The old narrative, and the new

At the start of this review, I talked about how Power and Progress may have missed its moment by getting lost in a flood of fears about AI. But there’s another way in which the book might be poorly timed. Wage inequality — the very thing that Acemoglu and Restrepo (2022) try to explain — has flatlined since the early 2010s.

Meanwhile, real wages have been rising strongly for years now, interrupted only by the post-pandemic inflation. And wages for production and nonsupervisory workers have risen more robustly than those for managerial workers:

Meanwhile, employment for prime-age Americans is near all-time highs, and unemployment is at record lows; everyone who wants a job in America has one.

All this has happened in exactly the time frame during which AI has exploded. Predictive AI burst onto the national scene in 2012 with the ImageNet paper, the basic technology for generative AI was created in 2017 with the transformer paper, and generative AI became really widespread in 2022-23 with LLMs and AI art programs. To reiterate: essentially all of the commercialization and implementation of artificial intelligence has happened during a time in which wages have been rising, inequality has been flat or falling, and employment has been high.

Maybe AI just isn’t big enough to kill all the jobs yet; maybe we just have to wait a few years and we’ll all be unemployed or working for pennies. Or maybe AI is actually the kind of technology that improves task productivity and creates new tasks instead of automating old tasks away. Or maybe Acemoglu has something wrong in his models, and further theoretical and empirical explorations will overturn his conclusions about the key role of automation in fostering inequality. I’m not sure.

Whatever is going on, though, I think it should give the AI worriers pause. This was not on the menu. If you went back to 2012, and asked people to predict the impact of a new machine that could recognize objects and imitate speech and create beautiful art, they probably would have assumed that the rising inequality that they had experienced for the last 30 years would now be turbocharged. And — at least so far — they’d have been completely wrong.

To me, that thought experiment illustrates the folly of trying to predict the economic effects of new technology. It also suggests another reason why Power and Progress didn’t make the same kind of splash it might have made in 2018. Obviously, our economic problems haven’t all been solved. But perhaps, underneath all of the anger and pessimism, Americans realize that something has shifted in their economy, for the better. And perhaps that’s making them a bit less interested in the kind of pessimistic economic narratives that flew off the shelves in the 2010s.

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It was about 7000 words, which is 2000 words longer than the review of The Courage to Act that I wrote for International Finance.

I also paywalled it, which was probably a stupid decision. Book reviews, especially highly critical ones, shouldn’t be paywalled; they should be disseminated as widely as possible, in order to reach as many of the book’s readers as possible.

I was delighted to be invited to discuss healthcare with Drs Wendy Dean and Matt Ramsey. We had a discussion ranging from the health care markets described in Moral Economics, to the experiments on trust in medicine conducted by my colleague Marcella Alsan And there's a transcript for those who prefer to read than to listen.

53 min 35 sec

Episode Description
What does a morally defensible, healthy, legal, commercial marketplace look like, and how can we design one for healthcare? Nobel laureate Alvin Roth, Professor of Economics at Stanford University and the George Gund Professor of Economics and Business Administration Emeritus at Harvard University, joins us to about his new book, Moral Economics: From Prostitution to Organ Sales, What Controversial Transactions Reveal About How Markets Work.

And here's a largely A.I. generated transcript (which I've edited very lightly and reproduce here with permission):

Ep. 079 Alvin Roth FINAL June 29 2026.mp3

Wendy Dean, MD: [00:00:00] This is a moral matters podcast. Good human healing. Well, I was a science kid in college, but I do remember taking econ 101, and I loved it because it made so much sense. But I was also really stubborn and I was not going into the family. Well, shall we say the business of business, so to speak. What about you, Matt?

Matt Ramsey, MD: [00:00:32] Well, I loved economics 101. Economics 201 was my downfall. Uh, I got in way over my head in economics way too early. And that was the end of that. So beyond supply and demand, beyond macroeconomics, that was the end for me. And I too was a science kid. And, you know, economics is somewhat science based and can make sense mathematically, but there was a lot of soft, gushy stuff in economics that I couldn't really get my arms around. So it was like, I'm out. Let's get me back to the chemistry lab, please.

Wendy Dean, MD: [00:01:19] Yeah. Well, I mean, today we're getting a master class in market design from a Nobel Prize winner.

Matt Ramsey, MD: [00:01:25] So yeah. So buckle up. Um, this is a rare privilege. Um, you know, it's I don't know that I've talked to many Nobel Prize winners in my life, and I probably would be safe to say probably it's a one and done for me. So I'm going to really relish, uh, this conversation we have tonight.

Wendy Dean, MD: [00:01:47] Yeah. Well, our guest today is Alvin Roth. He's the Craig and Susan McCaw professor of economics at Stanford University and the George Gund Professor of Economics and Business Administration emeritus at Harvard University, a pioneering expert in the field of market design. He was awarded the Nobel Prize in Economics in 2012. His latest book is Moral Economics, and in it he asks what a morally defensible, healthy, legal commercial marketplace might look like in controversial markets such as organ sales or prostitution. But we'd like to ask, what does a morally defensible, healthy, legal commercial marketplace look like in health care? And how can we design it?

Matt Ramsey, MD: [00:02:27] That is a great question. I'm Matt Ramsey.

Wendy Dean, MD: [00:02:32] And I'm Wendy Dean, and this is the 43 CC podcast. Welcome to the show.

Alvin Roth, PhD: [00:02:41] Thank you. Happy to be here.

Wendy Dean, MD: [00:02:45] All right. Can we just start with the very basics. What does moral economics mean.

Alvin Roth, PhD: [00:02:52] So moral economics is, I guess, an economics that tries to understand where moral questions are important and critical and unavoidable, and where what sometimes appear to be moral questions are really just questions about what trade offs we can and must make and how we should make them.

Matt Ramsey, MD: [00:03:11] So how does the average Joe know when they encounter a morally healthy market? Or in a broader sense, I guess, a morally healthy economy?

Alvin Roth, PhD: [00:03:23] Well, I think our intuitions about moral decisions of all sorts come to us fairly quickly. I think it's now a commonplace observation that we quickly decide what we think is right and wrong, and then we look for reasons to explain why we feel that way. So I think that's as true in economic environments as it is in other environments.

Matt Ramsey, MD: [00:03:46] So you write that stories about market design often begin with failure. Failure to provide what you describe as thickness, which I love that term, by the way, to ease congestion or to make participation safe and simple. that sounds very much like health care today. can you talk to us a little bit about what a failing or unraveling market, as you describe it looks like, and what happens when those on the receiving end, specifically patients are unable to exercise their control in that market?

Alvin Roth, PhD: [00:04:25] Okay. So that's a good question. Unraveling and control. let me spend a moment talking about how those play out in non-health care markets. when I speak about unraveling, I'm often talking about decisions unraveling in time, becoming earlier and earlier than would be a really timely time to make the decisions. Because decisions take time or because some decisions have to be planned in advance. And, and therefore, people can't wait to take care of all the decisions that they have to, which will be time consuming at a time when they would like to. So just incidentally, American doctors get their first jobs through a centralized clearinghouse that I've had a hand in helping design. And that's because before there was such a clearinghouse, doctors often were asked to say yes or no to job offers years before they graduated from medical school, before they could properly plan. And this was a burden also on the employers. They had to hire doctors before they knew what kind of doctors they would become. That's called unraveling in time.It’s one of the places where you see worries about the timeliness of decision.

Alvin Roth, PhD: [00:05:36] One controversial medical market right now is the controversy over medical aid in dying. So there are now a dozen jurisdictions in the United States, and there'll be a few more come the fall that have legal medical aid in dying. And there are a number of countries that allow medical aid in dying, Canada being one of them. And the Canadian Supreme Court had a very interesting decision, explanation of its decision to legalize medical aid in dying in Canada. What they said is Canadians are entitled to security in their lives, and if there's no medical aid in dying, then there may be people with terrible diseases who feel compelled to take their own life while they still can, because they won't be able to get aid if their illness becomes unbearable. And so to prevent that, to prevent that unraveling in time, that might force people to take their own life, the Canadian Supreme Court said, we're going to authorize Canadian doctors, under some circumstances, to give aid to people who are dying so that they don't have long, lingering, painful deaths.

Wendy Dean, MD: [00:06:44] That is such a fascinating topic. Medical assistance in dying is such a timely topic right now.

Alvin Roth, PhD: [00:06:54] Where are you located?

Wendy Dean, MD: [00:06:55] I'm in Pennsylvania. Well, we're both in Pennsylvania. Jill is in Boston.

Alvin Roth, PhD: [00:07:00] Okay. Well, so I'm not sure what the Pennsylvania story is, but New York will have medical aid in dying in the fall. And I think so will Illinois. They're the latest two states. And there are some states that don't have residency requirements. And of course, there are countries that you can go to, to, to access medical aid in dying. So one of the things about bans, of course, is they they put up barriers, but they don't necessarily stop people from accessing things that they want to access.

Matt Ramsey, MD: [00:07:32] Yeah, exactly.

Wendy Dean, MD: [00:07:33] So true. And, you know, just this is just a question that I'm going to throw out there. But, um, on the back end of it, we're offering medical assistance in dying while people are still struggling to get access to the full range of health care.

Alvin Roth, PhD: [00:07:50] Yes. And of course, one of the controversies about medical aid in dying is, people who are opposed to medical aid in dying laws say, some people just want to access medical aid in dying because they don't have access to medicine, to medical care. And we'd be better off working as hard as we can to give everyone good access so that they don't think of medical aid in dying as an attractive alternative. And of course, there's an association of palliative care doctors in the United States who deal with hospices, and their position is interesting. They have a policy statement that says they are studiously neutral on the question of whether medical aid in dying should be legal, but they worry about the slippery slope that might come with legal medical aid in dying. But they also acknowledge that there's covert medical aid in dying. That is, even in places where it's not legal, there is medical aid in dying because the same pharmaceuticals, the same drugs that can ease pain can shorten life. And so they know, and the doctors I talked to know of cases where someone in great pain is given enough morphine so that they won't wake up in the morning.

Wendy Dean, MD: [00:09:03] Yeah. Yeah. There's no easy answer there, which is probably why you're studying it.

Alvin Roth, PhD: [00:09:12] Oh, yeah. I don't propose answers. I mean, the answers to many of these questions are above my pay grade.

Wendy Dean, MD: [00:09:19] You know.

Alvin Roth, PhD: [00:09:20] I know you've looked at my earlier book called Who Gets What and Why, and that was sort of an optimistic book about market design. It was a book that says sometimes markets are broken and we can fix them. It was a good feeling book for an economist. And this is a less optimistic book, Moral Economics. This says there are markets that aren't working very well at all. They're broken, but it's going to be hard to fix them because we don't necessarily agree on what we want them to do. And that coming to agreement is going to be an important part of, of trying to improve the function of these markets. And it may not be easy to do.

Wendy Dean, MD: [00:09:53] Yeah. Well, one of the things that you write about is that the importance of reputation and trustworthiness in health, health care markets, like in healthy markets as a whole. What happens when those elements aren't viewed as priorities, when trustworthiness and reputation take a back seat to something else?

Alvin Roth, PhD: [00:10:13] Well, so one of the big points in my book that I look at in a lot of controversial markets is that markets need social support to work well, and so do bans on markets. But medical care sometimes suffers from lack of social support that it needs to work well. I have a colleague here at Stanford named Marcella Alsan, who studied the perception of American medical care among black Americans. And one of the things she finds is that everyone she talks to, whether or not they're highly educated, know about the Tuskegee experiments. They know that there were unethical experiments in which black men were left untreated for syphilis, and that that gives them some distrust of the American medical system. And she ran an experiment in a black barbershop in Oakland. Apparently, hypertension, high blood pressure is quite common among black men. And so she had an experiment in which she came armed with a leaflet that said, if you want, I can put you in an Uber right now and take you to a nearby clinic. Where this doctor (and there would be a picture of the doctor on the leaflet) will take your blood pressure and talk to you about it and what you might do about it. And the experimental control was either the leaflet had a white doctor or a black doctor, and she followed not just how many people went to see the doctor, but often they had high blood pressure and the doctor would recommend that they do something about it. She tracked how often they took the advice of the doctor, and it turned out that black doctors were more effective at getting young black men who had apparently very high blood pressure to do something about it. So this question of trust doesn't isn't just a hypothetical question. It's a question of compliance. You know, someone who's giving you advice and is it advice that's good for you or good for them? And believing that it's advice that's good for you makes it more likely that that you'll follow it.

Wendy Dean, MD: [00:12:16] Yeah.

Matt Ramsey, MD: [00:12:18] So I'm, I'm fascinated. I'm fascinated in both of your books, but about the whole concept of market design, you know, that, you know, my economics 101 in college, where it was a supply and demand was. So, you know, that was so kind of superficial. And the fact that you can actually design markets. Um, and have them work effectively is fascinating to me. Um, you know, one, one concern that you talk about in market design is objectification, you know, the fear that the act of putting a price on certain things and then buying or selling them might move them into a class of impersonal object to which they should not belong. That is, they risk losing their moral value. Uh, I guess a question very specific to health care is how can we maintain a moral value in health care in, in a, in a market that demonstrates some elements of objectification?

Alvin Roth, PhD: [00:13:21] Okay, that's a complicated question, for which I bet we'd have different discussions on different parts of health care. But one place it's come up a lot for me is in organ transplantation and donation. And so, in particular, I've been involved with kidney transplantation and how it's organized, and it's against the law almost everywhere in the world to pay a kidney donor, a living kidney donor, or the family of a deceased donor for their donation. So, kidneys are a little special when it comes to organs because healthy people have two and can remain healthy with one. And so healthy people can donate a kidney to someone who's dying of kidney failure. but we have 130 000 new cases of kidney failure in the United States each year. And we do fewer than 30,000 transplants each year. So most people who might be able to profit from a transplant will die without receiving one, because there's a big shortage of kidneys, we get about 27,000. About 22,000 deceased donor kidney transplants a year in the United States, and not quite 7000 living donor transplants. So a lot of the work I've been involved with has involved kidney exchange, ways to increase the chance that someone can get a compatible kidney from a living donor without involving any payment to the donor, so that just circumvents that problem. and we've made a lot of success: on a different kind of podcast, I could tell you about victory after victory and how we've increased the number of transplants, but it's in a war that we're losing. The incidence of kidney failure has risen faster than the number of kidney transplants.

Alvin Roth, PhD: [00:15:05] But so, so one thing that comes up when economists see there are not quite 100,000 people waiting for a deceased donor kidney in the United States now, and they would be more on that waiting list if, if it were more possible to, to survive the waiting list and get a kidney. when economists see a long line of people waiting for a scarce resource, we know that prices aren't being allowed to increase the supply of the scarce resource. And indeed, That's true around the world. It's against the law to pay a donor for a kidney. Everywhere in the world for it's against the law to pay a living donor for a kidney. Everywhere in the world except in the Islamic Republic of Iran. And I've read some of the Shia fatwas on that. And they're interesting to read. But the concern that you raised that by allowing people to be paid for kidneys, we might be treating people more as means than as ends, we might be commodifying them, treating them as a carrier of a kidney rather than as a person, that plays a significant role in the distaste, the repugnance of, not allowing kidney sales. Now, it's not just kidneys that people feel that way and legislators have legislated that way. There are other substances of human origin that play important roles in medicine, and one of them is blood and blood plasma. So ever since World War One, when we started to have blood banks and blood transfusions, blood has played an important role in medicine.

Alvin Roth, PhD: [00:16:43] And increasingly now, plasma plays a very important role. The World Health Organization has a list of essential medicines. If you want to start a hospital anywhere in the world, they have a list of things that you have to have in your pharmacy. And on that list are many plasma pharmaceuticals, pharmaceuticals made from human plasma, which so far still has to be donated by a person, by a living, healthy person. But many countries in the world, including a lot of the countries in Western Europe, not all of them, have laws against paying plasma donors. And so they would have great shortages of plasma. None of the countries that that have laws against paying plasma donors are able to collect as much plasma as they need from unpaid domestic donors. But it turns out there isn't this great shortage of plasma in Europe, Because you can buy the plasma you need from the United States. In the United States, we allow plasma donors to be paid, and we export tens of billions of dollars a year of plasma pharmaceuticals to save lives around the world. And indeed, many of the biopharma companies that collect plasma from paid donors in the United States are subsidiaries of biopharma companies in countries like Spain, where it's illegal to pay plasma donors. But I guess their feeling is it's immoral to pay for plasma. It commodifies the donor. And besides, you can buy all you need from the United States. So.

Matt Ramsey, MD: [00:18:12] Exactly.

Alvin Roth, PhD: [00:18:13] So, you know, so out of sight, out of mind is one of the ways of dealing with moral complexities.

Wendy Dean, MD: [00:18:21] I could have had 1 or 2 fellow medical students who were supplementing their income in medical school with plasma donation.

Matt Ramsey, MD: [00:18:29] Count a third.

Alvin Roth, PhD: [00:18:33] There's a recent paper by two economists about another controversial market I talk about. They're not all medical markets. Another controversial market I talk about is payday loans. People who live paycheck to paycheck have more trouble getting loans than you and I do. And they pay higher interest rates. But if they have regular paychecks, they can get a loan secured by their next paycheck at high interest rates. It's not a great part of the financial system at all. But someone did a study, two economists did a study that looks at the opening of plasma donation facilities, where plasma donors are paid. And they find that in regions where plasma donation becomes available, payday lending goes down. In other words the same urge, the same need that says, you know, I, I need my car to get to work and it's just broke down and it's going to cost something to fix it. That same need could cause you to go to a payday lender and have a loan at a higher annual interest rate than your credit cards have, because these guys don't have credit cards. Instead, you could donate plasma and save lives. So, so you know, there's something. The world is a complicated place. We might want to live in a world where no one felt a need to donate plasma for money. But, uh, just passing a law against it doesn't make the need go away. And it's, it's a pretty good thing to do. I sort of hope that people who sell their plasma are proud of it. I was a very early adopter of Covid, and when I started to get well, the local Stanford blood bank, which doesn't pay for plasma, wanted my plasma as convalescent plasma. And so I donated plasma after I recovered for a couple of months, unpaid, until they fired me when my antibody titer got too low.

Matt Ramsey, MD: [00:20:27] You're of no use to us anymore.

Alvin Roth, PhD: [00:20:29] Yeah, exactly. But I no longer donate plasma, although I still donate whole blood because in the United States we get our whole blood from unpaid donors. And so it's a good thing to do, but I don't feel any urge to donate plasma. There's plenty of plasma. I don't want to take jobs away from people.

Matt Ramsey, MD: [00:20:46] Who need it.

Alvin Roth, PhD: [00:20:47] Right. So a lot of the argument about not paying for substances of human origin, I think, is, is based on bad economics. It's that people won't want to do it anymore if, if other people are paid for it. And there's some truth in that: I don't want to donate plasma anymore, but there's no shortage of plasma because people are paid for doing it. So, I think that carefully regulated markets in which people can be paid for plasma are a good thing, because plasma saves millions of lives every year around the world.

Wendy Dean, MD: [00:21:18] Yeah. So you've mentioned the term the phrase repugnant transaction a couple of times. Could you just define it for the listeners?

Alvin Roth, PhD: [00:21:28] Okay, so I use that as a technical term. Repugnance, of course, is a word that has existed in English for a long time. And I started using it when I was writing about the repugnance of paying donors for kidneys, but in general, and I've now started to see it all over. There are many causes of controversy, moral controversy, moral contests that I talk about in my book, but one kind that's really interesting to me involves what I call repugnant transactions, which are transactions that some people want to engage in and other people think shouldn't be allowed, and particularly the other people who think it shouldn't be allowed feel that way because of moral or religious arguments, not because they're personally harmed by the transaction. And indeed to make it clear, I say it might even be that they can't even tell if the transaction has happened unless someone tells them. By this definition, same sex marriage is a repugnant transaction. And when I say that, I don't mean that I disapprove of it or that you should, but that some people want to marry each other and other people don't think they should be allowed. And you can't tell whether someone is married unless they tell you which they might do by wearing a wedding ring. So it's not because of the direct personal harm the people who object to same sex marriage suffer when someone gets married. but of course it was a giant political issue for the first part of this century.

Alvin Roth, PhD: [00:22:54] It became legal in the United States and maybe anywhere for the first time, in 2004 in Massachusetts from a court decision. And it became legal in every state in the United States in 2015 with a Supreme Court decision about equal protection under the law. but it was a tough fight for, for a long time. You know, the idea of same sex marriage had been around for decades before without making any progress. And of course, there are other controversies, many, many controversial markets in the United States get adjudicated by the Supreme Court, and some of them are medical in nature, like abortion. And so what we've seen recently is those can go both ways. Roe v Wade had established a personal right to abortion under some circumstances for Americans that stood for 50 years. And then the Dobbs decision sent it back to the States. And in his concurring opinion to the Dobbs decision overturning Roe v Wade, Justice Thomas had said that there were other judicial decisions that he thinks are mistakes that we should reconsider, including banning. There were laws that banned selling contraceptives, for instance. and of course, similar to the abortion laws, we've now had controversies about, uh, aid in, in reproduction, like in vitro fertilization. So there are a number of medically adjacent markets that, that are contested in this way.

Wendy Dean, MD: [00:24:36] Yeah. Well, I'm, I'm going to ask you to, to come up, you know, to 50, zero zero zero feet and think about health care as a whole. Um, so for decades, healthcare has been treated like almost any other market yet it is a little bit different in some ways. It is. And I think there are some people who would argue that it is repugnant. It has repugnancy at its core, meaning that we're profiting in some places from other people's misfortune. Right. So how do we square health care decisions driven by money rather than morals? Especially when the AMA code of ethics says the practice of medicine is fundamentally a moral activity And so we're asking clinicians to behave in ways that will benefit the system, but might work against the clinicians oaths, for example. So the administrators want them to act in one way. They don't want to act in that other way. The patients don't know the difference. Maybe who's being who's being asked to work in what way would you define that as a repugnant system? And if so, how do we mitigate it?

Alvin Roth, PhD: [00:25:52] Okay. So when you talk about medicine as a whole, you're talking about lots of different kinds of transactions. And as a market designer, I find myself forced to get down in the weeds and deal with details. So, so I can tell you a little bit about, you know, artificial reproductive technologies. I can tell you a little bit about abortion. I can tell you a little bit about transplantation. When you say health care as a whole, I get a little nervous because that's a big bundle of things. But let me start by saying that I don't think there's much traction in the idea that medicine as a whole might be repugnant because doctors profit from people's illness any more than farmers profit from people's hunger or roofers profit from people's desire not to be rained on. Uh, on the contrary, I think of all those people as, as helping people meet their needs, right? Doctors help you when you're not feeling well, or maybe they ideally, maybe they help you to avoid not feeling well by, by practicing preventive medicine. You know, farmers grow food, so we're not hungry. And so we don't have to grow our own food. We can be doctors. I mean, there was a lot less, uh, medical care provided for people before the invention of agriculture. Uh, so filling needs is not a wrong thing, and filling needs as a way to earn your living is often the way we fill our most basic needs. Because if you couldn't make a living as a farmer, there'd be a lot fewer farmers. If you couldn't make your living as a doctor, there'd be a lot fewer doctors. If people who wanted to do health care, if physicians had to make their living some other way, they'd be a lot less experienced in health care.

Alvin Roth, PhD: [00:27:40] They'd spend their days, you know, doing, doing lawn care or whatever we made doctors do instead of being paid for health care. And they'd have a lot less experience doing knee surgeries or, diagnosing unusual illnesses. So. So I'm very glad that my medical care is provided by professionals who can devote themselves full time to medical care and who can, you know, get educated in medicine. That being said, you know, we're a rich country that doesn't have universal health insurance. So there's lots of things to worry about. And market designers worry about these things. There'd be a lot less repugnance in the world, There'd be a lot less moral contest about markets if there wasn't so much income inequality and wealth inequality. If we were all roughly as rich as each other, then the differences in what we consumed would be just a matter of taste as opposed to what we could afford. So that's a giant problem, not just of medicine, but of global economics, right? we're doing better and better at providing resources and making resources less scarce. And a sign of that is people are living longer than they used to and living longer, healthier lives. That's a good sign of human progress over the last 200 years and over the last hundred years, too. So some of that is medicine, some of that is public health. Some of that is good nutrition. I mean, a lot of things go into helping people live longer, healthier lives. But medicine is a significant part of it. So. So I don't think you have to feel bad about being a physician.

Wendy Dean, MD: [00:29:19] Uh, yeah. Um, so I spent an awful lot of time when I was reading your two books, thinking about just that, just that question of would this, would this largely not be an issue if there were more income equality? And it was so I'm so grateful to hear you say that.

Matt Ramsey, MD: [00:29:40] So, um, in, in, uh, the book Moral Economics, you write about how we should think about building societies that support human welfare, balancing the rights of people to pursue their individual and mutual goals with the need to protect society's most vulnerable members from harms that may arise from markets, including black markets growing without boundaries. So let's talk a little bit about boundaries. Um, you know, what does the point of no return look like in a poorly regulated market. And you know, how soon do new markets need regulation? And who is it? You know, you've just said that regulation can occur on multiple levels from multiple entities. Like who? Who is it who decides when and how regulation happens?

Alvin Roth, PhD: [00:30:34] Okay, so let's talk about the American experience with alcohol.

Matt Ramsey, MD: [00:30:39] Okay. So let's.

Alvin Roth, PhD: [00:30:42] Yeah, we can meet and have a drink later. But in the 1920s through the early 30s, we passed a constitutional amendment that made it illegal to produce or sell most alcoholic beverages, didn't make it illegal to drink them, but it made it illegal to to produce or sell them. Nevertheless, the consumption of alcohol didn't drop to nothing. On the contrary, it stayed pretty much as it had at pre-prohibition levels after an initial dip, and it gave rise to serious organised crime. People who competed for market share with machine guns. The Saint Valentine's Day massacre is a famous example. Al Capone's gang was the victim of that, incidentally, not the perpetrator, But he was a famous alcohol prohibition era gangster. Um, so in the early 1930s, we amended the Constitution again to repeal the amendment that banned the production and sale of alcohol. And so today we have legal regulated markets for alcohol. And they're regulated in lots of ways. Not every restaurant gets a liquor license. Uh, children can't buy alcohol. People under 21, not just children can't buy alcohol legally. Uh, there are different state rules in different places. I lived in a county in Illinois when I lived in Farmer City, Illinois, where, alcohol wasn't sold on Sundays, for instance. so there are regulations. The problems of alcohol have not gone away with the legalization of alcohol.

Alvin Roth, PhD: [00:32:23] There's still alcoholism and there's drunk driving. There are organizations like Alcoholics Anonymous that help people try to deal with alcohol addiction. So the problems of alcohol didn't go away, but the gangsters did. You can't buy moonshine whiskey from gangsters anymore. On the contrary, you buy it from fancy Scottish, producers who age their whiskey in American oak. And, you know, it's a sign of great prosperity to to be a judge of fine whisky. Uh, so, but the problems of alcohol didn't go away. But we're trying to manage them and we've been trying to manage them now for decades, and we like that better than we like the Wild West criminal market for alcohol. Now, that's the kind of market we have for opioids these days, right? There's great violence associated with the supply of, of heroin, for instance, heroin, fentanyl, I mean, all sorts of things. Fentanyl is funny, of course, because it's a prescription drug as well. I've had fentanyl, I've had too many surgeries and I've had fentanyl in many of them. Uh, you know, it comes and goes quickly. It's a good hospital kind of pharmaceutical, but it can also be mixed with heroin and, and cause people to have to be uncertain about what doses they're taking.

Alvin Roth, PhD: [00:33:50] so getting your opioids from criminals on the street is much more dangerous than getting them from pharmacists, who would be responsible for what you're getting. So I think we're at a point where we have to rethink the market for heroin. and again, it's because not just that markets need social support, but bans on markets need social support. So one of the things I talk about in the in the moral economics book is why is it so easy to buy drugs but so hard to hire a hitman? you know, we have very little commercial murder in the United States. It doesn't even make it into the national crime statistics. And part of the reason is, if I suggested to you that I was looking for a hitman, you'd be surprised and horrified. And later you might decide to call the police. You know, if I pressed you to tell me where I could find a hitman in Pennsylvania, and the police, when you call them, they would be interested. They would say, you know, when he comes to Philadelphia, tell them to go to this bar and bring $5,000 in 20s and ask for for Sam and Sam will take care of him. And indeed, the way we catch most of the people who try to hire hitmen as they end up trying to hire a policeman.

Alvin Roth, PhD: [00:35:06] Undercover policeman. But if I said to you, I'm coming to Pennsylvania, and I wondered if you would know where I could buy some heroin in Pennsylvania, you'd also be very surprised. But you wouldn't call the police. And you may even know where heroin is sold in Pennsylvania. Um, so we just react, you know, the ban on hitmen has much more social support from from you, from the police, from, everyone than the ban on heroin, because there are people who live in neighborhoods where heroin is sold and, and, you know, you can learn to live with it. So, coming back to heroin and to other kinds of drugs, we can't even in the US, we can't even keep drugs out of our prisons. And prisons are the places where there's the most possibility of using police and armed methods for keeping control. So the chance that we can use police and military methods to keep drugs off the street, we've pretty much convinced ourselves we can't do that. And so it might be time to start thinking, as we did at the end of prohibition, of how are we going to reduce the harm that this criminal market. We so much don't like heroin.

Alvin Roth, PhD: [00:36:16] We made drugs of that sort illegal to sell. And as a result, we have a market for just those drugs run by criminals. And are we happy with that? Maybe we should think about legalizing and then regulating. You know, I say in the book that having a legal market for heroin doesn't mean there'd be vending machines in elementary schools for heroin. You know, it would presumably be something more like the prescription drug market. And it might come together with diagnoses that in order to be prescribed heroin also required other kinds of treatment for your disease of addiction to heroin. And maybe we could do a better job because the violence we saw of prohibition era gangs In the 1920s, and 30s is not on a bigger scale than the violence we're seeing around the world associated with drug cartels today. So so we have a lot of trouble in the United States as a consumer of heroin and other kinds of drugs. But there's countries where drugs are produced, where the drug cartels are alternate governments. I mean, they're in military conflict with the authorities. So so there's lots of harm coming. It might be time to think about harm reduction and and at least in some dimensions, treating opioid addiction more like a medical problem than a crime.

Matt Ramsey, MD: [00:37:40] That drives us right back to the repugnancy discussion, though. So it's not often that we get to speak with the architects of health care's infrastructure. So as a person who directed the redesign of the national Resident Matching program's matchmaking algorithm, we have to ask you about the match program. As a practicing physician, one of the most memorable days in my life was the day I matched in orthopedics. And it is a very.

Speaker 4: [00:38:10] What year was that?

Matt Ramsey, MD: [00:38:11] Oh, that was 1990. 1990. Okay.

Alvin Roth, PhD: [00:38:16] And you're talking about your residency or did you do a specialty?

Matt Ramsey, MD: [00:38:19] I did both actually. And I, I can tell you the story about markets unraveling because we didn't have a match for fellowships for many years. And it was a complete circus.

Alvin Roth, PhD: [00:38:32] I remember I actually helped that organization to get some fellowship matches.

Matt Ramsey, MD: [00:38:37] Yeah. So, so. You know, one of the, when we talk to folks about the residency match, we have, I mean, one, one of the things that the residency residency match has is an antitrust exemption. Um, and Until recently it's been unchallenged. And I guess a question, and because I have some very strong thoughts about this, can can something like a residency match exist without the exemption or regulation?

Alvin Roth, PhD: [00:39:14] So, so I remember the circumstances in which that exemption came. It came in reconciliation, in a pension bill.

Matt Ramsey, MD: [00:39:26] Of course, buried deep in some other legislation.

Alvin Roth, PhD: [00:39:30] Yeah, exactly. Exactly. Uh, and before that, the match had operated for many years without an antitrust exemption. What now? Now, I've talked to lawyers about this, and they say it's a real antitrust exemption, but it does have an exception. What it says, well, this is not the legal reading,it says running a match is not itself a violation of the Sherman Antitrust Act. Well, maybe maybe the Clayton Antitrust Act, I forget. But but if you can show harm to to doctors or to residents or to hospitals, you can still sue under the antitrust laws. But you have to show harm. You can't just say that it's a per se violation. Now, that's not the plain language of the of the legislation. It's my interpretation. but the reason it came about was there had been a class action, a double class action lawsuit against the match and all the medical associations, associated with it and all the hospitals that involved themselves in resident training. And when I say double class action, a class action lawsuit has a class of, of plaintiffs. And this was a class action lawsuit on behalf of all doctors who had had residencies, which is to say all doctors, but it was suing the class of all hospitals that employed residents And what that meant was the legal defense bills for the hospitals. Every hospital had to have its own law firm. And I would meet with some of these guys in those days. And their tickers were running. I was at Harvard and I didn't like to travel for this. So they would come to me and they would be these big groups of, of, of lawyers with their, with their meters ticking.

Alvin Roth, PhD: [00:41:17] So there was a lot of pressure to try to settle. And the, the class action lawsuit, which was brought by 16 law firms on behalf of, I think half a dozen named residents, they appeared to be interested in a settlement. That was what they were shooting for. And the reason they were suing a whole class of hospitals was to make it easier to to get a settlement, to extract a settlement because the the defense costs were so high. But at the same time, that was sort of a strategic error because every senator has hospitals. So the AMA and some of the related organizations, were able to get legislative relief that said, you'd have to prove harm. You can't just say what the antitrust laws do, among other things, is they forbid conspiracies in restraint of trade. And the main object of the suit was that the match itself was a conspiracy. They say, what could be more conspiratorial than than a centralized clearinghouse that, uh, you know, that tells every doctor where to go. And one of the arguments against that was what could be more conspiratorial than the New York Stock Exchange, which at every moment in the day determines the prices of all the commodities, all the all the securities that are being sold on the stock exchange. So the argument in defense was, this is a marketplace. That doesn't mean that it violates the antitrust law. But the exemption cut off this source of contention through class action lawsuits. So it's true that that one of the House committees is now thinking that that they should repeal that exemption, and maybe they will. I don't think that will necessarily interfere with the match if it doesn't lead to more extensive litigation.

Matt Ramsey, MD: [00:43:07] Well, I can just tell you personally, unraveling of that market will be a wild experience because I've lived through an unmatched fellowship kind of, and it was no fun. I mean, I can tell you that once the match happened, it was a big sigh of relief that we could.

Alvin Roth, PhD: [00:43:26] Well, so let me tell you a story about the organization of the fellowship Orthopedic surgery matches of which there are many, because orthopedic surgeons divide up the parts of the body. You know, there's hand and wrist and shoulder and elbow. And, you know, it's sort of like going into an old timey butcher and seeing the cow.

Matt Ramsey, MD: [00:43:48] Give me some shoulder.

Wendy Dean, MD: [00:43:49] With better tools, though.

Speaker 4: [00:43:50] Yeah, yeah, yeah.

Alvin Roth, PhD: [00:43:52] so that was a market that had unraveled and people were getting exploding offers as early as the second year of their five year general surgery residency. So I started to talk to orthopedic surgeons when I heard about these problems. And I would say to them, gee, can you really tell who's going to be an orthopedic surgeon at the second year of their general surgery residency? And the first reactions I got said, well, you know, that's not a problem. I mean, we can tell who's going to be a good surgeon. And then sometime later, they came back to me and they said, you know, actually there is a problem. The problem is not who's going to be a good surgeon. It's that sometimes we've hired people who, when they arrive three years later to be orthopedic surgery fellows, turn out to be assholes.

Alvin Roth, PhD: [00:44:43] And what they meant By that is they're disruptive in the O.R.. They're not nice to the nurses, things like that. And you couldn't detect that when they were second year surgical residents because as second year surgical residents, they were still polite to everyone, but that if you could have delayed hiring them until they had time to blossom, then you could have avoided some problems.

Speaker 4: [00:45:01] In the Or.

Matt Ramsey, MD: [00:45:02] Oh, the stereotype of orthopedic surgeons, my lord.

Speaker 4: [00:45:08] These were.

Alvin Roth, PhD: [00:45:08] Orthopedic surgeons telling.

Speaker 4: [00:45:09] Me this. Yeah, of.

Matt Ramsey, MD: [00:45:10] Course, of course.

Wendy Dean, MD: [00:45:13] Yeah.

Alvin Roth, PhD: [00:45:14] So there's a problem on both sides of hiring people well before you have enough information. And that's of course each year there are more fellowship matches as, subspecialties that don't have matches run into the same problems that the market ran into in the 1950s and the 1980s and the 1990s.

Matt Ramsey, MD: [00:45:39] Yeah. For sure. Well, al, thanks so much for being here. This was a wonderful conversation. Um, you know, obviously we're talking big issues and, um, you've solved a lot of issues in health care with.

Alvin Roth, PhD: [00:46:03] Very good. Well, I had a lot of fun writing the book. I learned a lot, and I'm glad to have had the opportunity to talk to you about it.

Wendy Dean, MD: [00:46:09] Yeah. Thank you so much. I really loved reading both of the books. Not not just not just the optimistic one, but moral economics was great too.

Speaker 4: [00:46:17] Well, I'm.

Alvin Roth, PhD: [00:46:17] Still optimistic about market design.

Alvin Roth, PhD: [00:46:20] But, you know, nobody said it was going to be easy.

Speaker 4: [00:46:23] Right.

Wendy Dean, MD: [00:46:25] Right. Well thank you.

Alvin Roth, PhD: [00:46:26] Thank you.