Summary: “Is the economy in technological stagnation? Or will computers take all our jobs?” An analysis from the Fed gives us an answer. Another in a series of posts about the future of America’s economy and the coming of the next industrial revolution.
“The Productivity Paradox: Is Technology Failing or Fueling Growth?”
By Andrew Flowers (senior economic research analyst)
EconSouth, of the Federal Research Bank of Atlanta
“Is the economy in technological stagnation? Or will computers take all our jobs?”
The U.S. economy has grown slowly since the recession ended in 2009, more slowly than in past recovery periods. The depth of the recession, and the financial crisis that exacerbated it, surely explain this sluggishness — right? Not according to some economists, who think we have a bigger problem on our hands: that the underlying dynamics of the economy are impaired and our ability to innovate new technologies is the root cause of the current stagnation. In other words, they argue, slow growth is the new normal.
But other economists take the opposite stance. These economists say that technology is improving so rapidly that machine intelligence and automation will replace much of human labor. And while overall growth will improve, technology is bound to radically reshape our economy, making it more unequal.
Which story is correct? Let’s look at some evidence found in long-run trends. …
That’s an important question, about which he provides an excellent summary. It is also discussed in several posts (links below). But it’s not our focus today.
Labor market implications
Considering these competing views on productivity and technology, we come to the most salient economic issue of our time: jobs. The rate of technological innovation obviously has major labor market effects. What is the relationship between new technological advances and the current skill distribution of the labor force?
Skill-biased technical change is the economic theory for how advances in technology can increase worker productivity, given compatible skills, but how they also displace certain workers. Think of the automation improvements in U.S. manufacturing. Total inflation-adjusted manufacturing production has never been higher than it is now, and manufacturing productivity, if anything, increased following World War II. But the total number of persons employed in manufacturing industries fell sharply, even more so as a percentage of the labor force.
… Cowen and the authors of Race Against the Machine foresee skill-biased technical change as accelerating in the future. They see the fruits of this third industrial revolution — information technology — as having just begun to disrupt the labor market.
This view is augmented by the recent research of David Autor, an MIT economist, who highlights a slightly different, and perhaps more disturbing, phenomenon: labor market polarization. Autor and his coauthors document the rise in demand for both high- and low-skill occupations alongside a decline in demand for middle-skill workers. They then tie technological automation to this erosion of middle-skill occupations. Manufacturing is one big area where these middle-skill jobs exist.
… If the techno-optimists are correct about the future, the combination of skill-biased technical change and greater labor market polarization will complicate the already serious state of the U.S. labor market.
But is it mostly cyclical?
To put all this in perspective: the techno-pessimists and techno-optimists are likely outnumbered by the mainstream view, held by most economists and policymakers. Atlanta Fed President Dennis Lockhart expressed the mainstream view in a 2013 speech titled “Is the U.S. Economy Losing Its Dynamism?”:
“I have assumed we are experiencing a temporary spell of low productivity growth that will correct itself. I am assuming this will happen as demand kicks into higher gear and as businesses expand production somewhat faster than they expand their payrolls. In other words, the recent low productivity readings and the weak labor market are primarily symptoms of an economy slowly recovering from the greatest recession and financial crisis since the Great Depression.”
In this view, technological innovation has not plateaued or become permanently depressed, nor are we on the precipice of massive labor-displacing technological revolution. Economic growth in the long run will be driven by productivity increases, and thus by technology. The debate between techno-pessimists and techno-optimists is not going away, and it could not be more relevant to our future standard of living.
This is classic Fed research. Fact-rich and well-reasoned. Myopic and backwards-looking. Much like their research showing there was no housing bubble in 2005 — when they could have mitigated it (here and here).
Let’s return to the report’s tagline, illustrating the poor vision of the future seen here:
“Is the economy in technological stagnation? Or will computers take all our jobs?”
This is a false dilemma. We can get economic stagnation with massive unemployment from automation. In fact the next wave of automation might greatly increase productivity, destroy millions of jobs, shift income from the middle class to the rich (with their high savings rates) — creating at best slow growth. At worst economic decline.
This is the 15th post in this series. By now the questions are clear (unfortunately there are as yet no answers):
- Will technology continue to drive economic growth?
- If yes, will it destroy jobs as did the agricultural and manufacturing revolutions?
- If yes, how will the new bounty be distributed among Americans? Will the owners continue to harvest most of the gains, or will they be more fairly distributed? How long, with how much social unrest, will the adjustment process require.
- If yes, will new jobs be quickly created to re-employ the unemployed? If not what will happen to the unemployed?
- Will there be news jobs for the next generation? And if not, then what?
The 21st century will have challenges equal or greater to those of the last. Let’s hope their resolution will not require two world wars and a Great Depression. Let’s hope that we manage this industrial revolution as well — or better — than we managed the first two.
For more information about growth: stagnation or singularity?
About the slowdown in progress:
- Let us light a candle while we walk, lest we fear what lies ahead, 10 February 2008 — Compare the changes seen by Bat Masterson (1853-1921) with those in our lifetimes.
- Good news: The Singularity is coming (again), 8 December 2007
- The Singularity is in our past, 29 March 2009
- Has America grown old, and can no longer grow? Or are wonders like the singularity in our future?, 28 August 2012
- Why America’s growth is slowing, and a solution, 28 January 2013 — Transport June Cleaver from her 1957 home to today’s equivalent; she’d be astonished at our lack of progress. Look at how we’ve underperformed futurist Herman Kahn’s 1967 expectations for the year 2000.
- Ben Bernanke sees the great slowdown in technological progress, 20 May 2013
For More Information about the 3rd Industrial Revolution
(a) Dynamics of the robot revolution
- The coming big increase in structural unemployment, August 2010
- The coming Robotic Nation, 28 August 2010
- The coming of the robots, reshaping our society in ways difficult to foresee, 22 September 2010
- Economists grapple with the first stage of the robot revolution, September 2012
- The coming big inequality. Was Marx just early?, 27 November 2012
(b) First signs of the robot revolution appear
- The Robot Revolution arrives & the world changes, Apr 2012
- In Friday’s job report you’ll see early signs of the robot revolution!, 5 December 2012
- Krugman discovers the Robot Revolution!, 9 December 2012
- How do we respond to the Robot Revolution?, 11 December 2012
- 2012: the year people began to realize the robots are coming, 3 January 2013
- Journalists reporting the end of journalism as a profession, 19 March 2013
- The next step of computer evolution: becoming bloggers, 20 March 2013
- A book about one of the trends shaping the 21st century: the next industrial revolution (robots), 29 December 2013
- The promise and peril of automation, 6 January 2014