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March 14, 2018

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1 big thing: Mind the gap...

1907: Michael Owens' breakthrough bottle-making machine eliminated the job of glass-blower. Photo: Science & Society Picture Library/Getty

In the 19th century, it took six decades after the Luddites for the wages of textile workers to recover after the advent of weaving machines. We are in the midst of another such gap now, according to David Autor, a pioneering labor economist at MIT.

What's happening now: Machines are creating more wealth, but workers are not getting their usual cut of the pie, Autor tells Axios.

"Automation is redistributing income from workers to owners," Autor says.

Between the lines: This partly explains why American wages have been largely stagnant despite one of the tightest job markets in decades. And no one knows how long the gap will last — when workers displaced by the new automation revolution will find employment at gainful wages.

The chronology: Blue-collar misery goes back to the 1980s, when such workers began to suffer job, wage and benefit cuts, Autor says. But in the late 1990s or early 2000s, they were hit by a new phenomenon: the divvying up of the total economic pie — steady for decades — suddenly changed, and labor's share dropped, according to a new paper by Autor and co-author Anna Salomons.

  • Autor, who presented the paper last week at the Brookings Institution, says he doesn't know what caused the gap to open.

Go deeper: Read the whole post.

Bonus: Watch a video produced along with the paper.

...and the "epicenter of troubled America"

Homeless in Biloxi, Mississippi, the poorest U.S. state. Photo: Spencer Platt/Getty

Harvard economist Ed Glaeser says something dark is going on within a chunk of U.S. geography stretching north from Louisiana to Michigan. The "Eastern Heartland," as he calls it, is an "epicenter of troubled America, an epicenter of hopelessness."

Why it matters: Some of the nation's most stubborn social problems are concentrated in the 12-state Eastern Heartland, and Glaeser argues there needs to be a new approach to attacking them.

What they're saying: In a new paper, Glaeser and two co-authors — former Obama administration chief economist Larry Summers and Harvard Ph.D. candidate Benjamin Austin — say that the government should recontemplate public assistance. Rather than attempting to revive blighted places by sending checks to people, public assistance should be determined by places.

  • Just as the government singles out certain areas with insurance against natural disasters, they say, it ought to stimulate demand for workers in places like the Eastern Heartland that are "semi-permanent" problem regions of the country.

The geography: The states have a concentration of "non-employment, disability, opioid-related deaths and rising mortality," the authors write. These are: Alabama, Arkansas, Illinois, Indiana, Kentucky, Louisiana, Michigan, Mississippi, Missouri, Ohio, Tennessee and West Virginia.

Look at this fact: In 2016, 51% of 25 to 54-year-old males in Flint, Mich., were unemployed.

Read the whole post.

2. Chinese AI isn't taking over yet

Illustration: Sarah Grillo/Axios

China, intent on dominating artificial intelligence in a race with the United States, is said to be on a steep ascent toward at least a tie. But a number of AI voices say that while China can come close, it will be hard to catch up completely.

Why it matters: Leading tech and geopolitical strategists believe that AI is the ultimate technology — whoever first invents a super-intelligent machine will attain undisputed leverage over everyone else. Last year, Russia President Vladimir Putin said the AI winner will be "ruler of the world."

What they are saying: Last July, China publicly set a goal of matching the U.S. in AI by 2020 and leading the field by 2030, per NYT. Kai-Fu Lee, CEO of Sinovation Ventures and president of the Artificial Intelligence Institute, is one of the main voices asserting that China is already matching the U.S. in AI.

  • A data point supporting Lee came in January, when Tencent's Fine Art program defeated Ke Jie, China's Go champion, who had been given a two-stone head start and still lost, writes Wired's Tom Simonite.
  • That came after AlphaGo — created by Alphabet's DeepMind — beat South Korean Lee Se-dol, then the fifth-ranked Go player in the world, and then, in May 2017, Ke Jie. Two Chinese professors told the NYT that DeepMind's Go triumphs were Sputnik moments for China, which led to its declaration of a race with the U.S.

But but but ... U.S. and Canadian AI researchers retain an advantage in what is an archetypically futurist field requiring serious conceptual skills, namely because they can do whatever they want. In many cases, the touting of intellectual freedom may sound like vapid nationalism, but it's actually crucial in AI research.

Read the whole post.

3. Culprit in the Toys R Us collapse

Greater than the sum of its parts: Toys R Us on Black Friday in November. Photo: Andrew Burton/Getty

Six months after filing for bankruptcy, Toys R Us is preparing to likely close all of its 800 U.S. stores, CNBC's Lauren Hirsch reports.

Why it matters: The Amazon effect is one reason for the iconic chain's misery. But the other is the $6.6 billion in debt that Vornado, Bain Capital and KKR laid on Toys R Us after a leveraged buyout in 2005, some $5.2 billion of which remains.

The bottom line: In an email, Thomas Paulson of Inflection Capital weighed in on Toys R Us and the general malaise of the retail industry:

"The culpability for the probable Toys R Us closure and the broader retail apocalypse lies partly with U.S. pension funds and their retirees."
"Starting in the early 2000s, pension funds aggressively shifted their asset allocation from public to private equity, partly in order to enhance returns. The volume added up to hundreds of billions of dollars per year. This included a shift into retail chains, whose valuations were relatively low due to skepticism about their business model. The view was that their business problems were fixable."
"But significant turmoil started in 2007. It stemmed largely from demographic change, competition from Amazon, and too much capacity. At once, the sector needed to invest more, adapt, and slim down. But private equity was at fault, too: Their owners had made Toys R Us and other retailers so indebted that they couldn't invest and adapt. A cascade set in — they lost material market share. Profits and cash flow collapsed, and bankruptcy ensued."

Read the rest of Paulson's remarks here.

4. Worthy of your time

Illustration: Sarah Grillo/Axios

Inside Alibaba's AI lab (MIT Tech Review's Will Knight)

Republicans on the anti-Big Tech bandwagon (Axios)

How White House free-traders lost (WSJ's Michael Bender, Peter Nicholas and Siobhan Hughes)

A burger-grilling robot loses its job to humans (USA Today's Jefferson Graham)

5. 1 fun thing: Robotic HQ2 picking

Amazon's HQ1 in Seattle. Photo: David Ryder/Getty

The stakes are so high in the contest to win Amazon's second headquarters and its tens of thousands of jobs — and the clues of who's winning so few — that observers are starting to use untested methods to determine the expected winner.

What's new: Some of the latest favor a single city — Boston.

  • Wells Fargo says it has plied AI to figure out who's ahead. The algorithm has singled out Boston, with Chicago a close second.
  • Paddy Power, the Irish betting website, also says it will be Boston.

But but but ... Those who actually know are not talking. Amazon tells Axios that "there are no front runners" at the moment and that a winner will be decided by the end of the year. Meanwhile, it has required the short list of 20 finalists for HQ2, as it's being called, to sign a legal non-disclosure agreement not to talk about the process.

In other words, we just have to wait.