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Everyday Economics (15 videos)

Do you live in a “bubble?” There’s a good chance that the answer is, at least in part, a resounding “Yes.” In our algorithm-driven world, digital servants cater to

Do you live in a “bubble?” There’s a good chance that the answer is, at least in part, a resounding “Yes.”

In our algorithm-driven world, digital servants cater to our individual preferences like never before. This has caused many improvements to our daily lives. For example, instead of gathering the kids together for a frustrating Blockbuster trip to pick out a VHS for family movie night, you can simply scroll through kid-friendly titles on Netflix that have been narrowed down based on your family’s previous viewing history. Not so bad.

But this algorithmic matching isn’t limited to entertainment choices. We’re also getting matched to spouses of a similar education level and earning potential. More productive workers are able to get easily matched to more productive firms. On the individual level, this is all very good. Our digital servants are helping us find better matches and improving our lives.

What about at the macro level? All of this matching can also produce more segregation – but on a much broader level than just racial segregation. People with similar income and education levels, and who do similar types of work, are more likely to cluster into their own little bubbles. This matching has consequences, and they’re not all virtual.

Power couples and highly productive workers are concentrating in metropolises like New York City and San Francisco. With many high earners, lots of housing demand, and strict building codes, rents in these types of cities are skyrocketing. People with lower incomes simply can no longer afford the cost of living, so they leave. New people with lower incomes also aren’t coming in, so we end up with a type of self-reinforcing segregation.

If you think back to the 2016 U.S. election, you’ll remember that most political commentators, who tend to reside in trendy large cities, were completely shocked by the rise of Donald Trump. What part did our new segregation play in their inability to understand what was happening in middle America?

In terms of racial segregation, there are worrying trends. The variety and level of racism of we’ve seen in the past may be on the decline, but the data show less residential racial mixing among whites and minorities.

Why does this matter? For a dynamic economy, mixing a wide variety of people in everyday life is crucial for the development of ideas and upward mobility. If matching is preventing mixing, we have to start making intentional changes to improve socio-economic integration and bring dynamism back into the American economy.

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