Education as a force of convergence | Macroeconomics | Khan Academy

We talked about the dissemination of information being a force of convergence on the global scale, but what about on the individual scale? When we're talking about knowledge dissemination on an individual scale, we're really talking about education on some level. So, once again, this is a topic very close to my heart. Let's just go through a few thought experiments here.

In general, you have income, and in order to produce it, you need capital. You need capital and you need labor. For example, if you're running a farm, you need land, animals, and some equipment, but you also need people to run the equipment and manage the farm. If you're running a software company, you need a building, computers, and servers. I guess that's computers as well, but you need people to program the computers, and to sell the software, and to develop it, and whatever else.

So, these are the two things that you need in order to produce output, which you would recognize in terms of income. But then the question is, how does that income get split? How much of it goes to capital, and how much goes to labor? The idea here is that if you have dissemination of knowledge, and if knowledge work becomes more and more valuable—so if knowledge work—let me put a little aura around this—if this is knowledge work and it's less and less of a commodity, then maybe labor has more leverage.

On the other hand, if you have these hugely capital-intensive industries where labor is kind of this monotonous unskilled work, then maybe capital has more of the leverage. Now, let's just think about it. It tends to be a little dismissive of this happening on a large scale. He says it might be happening in pockets—maybe in certain industries, like the software industry. But in his mind, this knowledge dissemination isn't going to make labor important enough in order to offset this whole income going to capital, especially after generation to generation, potentially leading to dynastic wealth.

But the one thought experiment—once again, my goal here isn't to give my point of view; it's really to just give you things to think about and for you to come to your own point of view—is to think about the comparison between the present day and the Gilded Age, which the book makes. If we look at the Gilded Age—so let me write this here—the Gilded Age, so this is the end of the 19th century, the late 1800s.

What were the forces of growth in the Gilded Age? Where was a lot of the income being generated from? Well, this was really the peak of the Industrial Revolution. You have things like railroads, oil—energy from oil—and manufacturing. All of these industries are incredibly capital-intensive. Capital is very important; you can't even do these things without capital. In all of these, labor is a bit of a commodity. You just need people to kind of, you know, nail the railroad ties in and things like that. You need people to just work on the rig; you need people to work on the assembly line.

The Industrial Revolution was really a process of taking these crafts and turning them into more and more, you know, one-off almost, you could call it, commodity labor. Now, let's think about the present day. I think it's fair to call it the information age—information, information age. And what are the growth industries in the information age?

Well, one that's close to my heart—I'm making this video in the middle of Silicon Valley—is software. Actually, that's the one that really stands out to me as a major growth area. But there's also biotech; we could go on and on. What's common about all of these? Well, they're not necessarily as capital-intensive as what we see here. In particular, if we're talking about software, it's not very capital-intensive at all. You just need some computers and a place to program in; you could, in theory, do it inside someone's house.

This is really more about highly, highly skilled labor. The same thing with biotech—it does need capital, but that capital isn't for railroads, and it isn't for, you know, huge infrastructure. I mean, there is some equipment, but it's mainly for people. It's mainly for researchers and people to run the clinical trials and for whatever else.

It seems like we are in an age where labor is going to become more and more valuable—not just commodity labor; not just someone to kind of work one shift at the factory, but highly, highly skilled labor. Now, just because this is happening—or because this is happening—this could be a driver of more and more income going to labor, but that by itself wouldn't necessarily drive off inequality.

For example, you might have a situation—and there are some signs that maybe it's happening—where if you look at this, if this is the pool of folks, the people who are able to participate in these high-growth sectors where labor adds a significant amount of value, that's actually a small percentage of the population. So, a small percentage of the population is going to take advantage, could potentially take advantage of these dynamics. But if the rest of the population doesn't have the skills necessary, then they're going to essentially be left out of this growth.

That could still drive inequality. It wouldn't be driving inequality because of income going more and more to capital—because R is greater than G, because returns of capital are greater than growth. It wouldn't be because of that; it would be because of this differentiation in labor, where highly, highly skilled labor is getting a disproportionate share of the income relative to other labor.

So, the question is, can we get more people to participate in this? And once again, this is an issue of education. Can we get this pool as a percentage of the population to become a much larger pool of the population, so more and more of the world can participate? Once again, this is just something to think about. I don't know the answer to this, but there are some dynamics in play, and we're definitely in a different type of world than we were in the Gilded Age.

Another way that you could think about it—and this isn't from the book, but this is just a way that I sometimes think about it—if you think in the Industrial Revolution, the world was kind of a pyramid. Down here, you have your labor; you need a lot of folks there, but it was relatively unskilled. Then in the middle, you kind of have your white-collar jobs—these are the folks who are manipulating information, filing papers, etc. The office jobs.

Then at the top of the pyramid, during the Industrial Revolution and really going into the 20th century, you had your capital owners—your owners of capital—and then you had also a very small, I would say, creative class. So, this creative class would be folks like engineers, artists, and people doing research. So, this is essentially the dynamic you had. But now when we go into the information age, automation is making labor less important, and even white-collar jobs, information processing, and so there's two different realities that we could potentially go to.

There's one where essentially you still have a relatively small class of people who own capital or own most of the capital, or are in a creative class. Then you have a small—let me just take that triangle, that same triangle right over there.

So, you still have a small group of people who fall into the top of the triangle, and because automation is taking care of these middle two, you only need a small sliver of people participating in here. Therefore, everyone else here is essentially going to be left out, which isn't a good recipe for anyone.

But there's another reality: what if we could expand this top triangle, where we can have a larger and larger creative class? If these people can participate in the high-value labor jobs, I guess you could say, then they are going to be in a position to capture more and more of the income. They will also be in a position to have more and more capital.

You see that happening in Silicon Valley—people who get a neat software job at Google or Facebook or Apple—not only are they getting that through their labor, but because that income is larger than their expenses, they're able to start to accumulate capital and also become capital owners.

So, there's a reality that if we play our cards right in education—and once again, this is close to my heart—maybe instead of going to this world where we leave all of these people out, we can go to a world that looks more like this: where we don't need a lot of labor because of automation, more kind of commodity labor.

We don't need a lot of the traditional white-collar jobs, information processing, and then most people, if we can get education to be good enough, can now participate in these really high-value jobs where labor has a lot more leverage. If the returns to labor are larger than the returns to capital, and because the returns to labor are larger, you're going to have those people also getting a larger share of income, and they're also going to be able to start to accumulate capital.

So, getting to this reality where you're having a larger and larger percentage of people who are essentially capital owners—capital owners, software engineers, artists, and people doing R&D—in my mind, this is predicated on improving education. To get from here to here, and to avoid going to this top one, it really is about having a more talented labor pool or more educated labor pool.

If we pull this off, then we get into what could be considered kind of a Star Trek reality. People don't really view Star Trek from an economic point of view, but in Star Trek, you might realize that there aren't a lot of people kind of tilling the fields. There aren't a lot of people just doing desk jobs.

In Star Trek, everyone is either doing R&D, they are explorers, or they are artists. Once again, just something to think about: that education, that knowledge dissemination could be a very, very powerful force of convergence and keep us from going into another Gilded Age.