Looking at America’s future: economic stagnation, or will computers take our jobs?

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.

Crystal Ball

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The Productivity Paradox: Is Technology Failing or Fueling Growth?
By Andrew Flowers (senior economic research analyst)
EconSouth, of the Federal Research Bank of Atlanta
Q4 2013
“Is the economy in technological stagnation? Or will computers take all our jobs?”

Opening:

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.

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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.

Conclusions

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:

  1. 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.
  2. Good news: The Singularity is coming (again), 8 December 2007
  3. The Singularity is in our past, 29 March 2009
  4. Has America grown old, and can no longer grow? Or are wonders like the singularity in our future?, 28 August 2012
  5. 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.
  6. Ben Bernanke sees the great slowdown in technological progress, 20 May 2013

For More Information about the 3rd Industrial Revolution

These posts link to a wealth of information and speculation, helping you to prepare for what is to come.
Robot hand holding the 21st Century world

(a) Dynamics of the robot revolution

  1. The coming big increase in structural unemployment, August 2010
  2. The coming Robotic Nation, 28 August 2010
  3. The coming of the robots, reshaping our society in ways difficult to foresee, 22 September 2010
  4. Economists grapple with the first stage of the robot revolution, September 2012
  5. The coming big inequality. Was Marx just early?, 27 November 2012

(b) First signs of the robot revolution appear

  1. The Robot Revolution arrives & the world changes, Apr 2012
  2. In Friday’s job report you’ll see early signs of the robot revolution!, 5 December 2012
  3. Krugman discovers the Robot Revolution!, 9 December 2012
  4. How do we respond to the Robot Revolution?, 11 December 2012
  5. 2012: the year people began to realize the robots are coming, 3 January 2013
  6. Journalists reporting the end of journalism as a profession, 19 March 2013
  7. The next step of computer evolution: becoming bloggers, 20 March 2013
  8. A book about one of the trends shaping the 21st century: the next industrial revolution (robots), 29 December 2013
  9. The promise and peril of automation, 6 January 2014

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32 thoughts on “Looking at America’s future: economic stagnation, or will computers take our jobs?

  1. We’ll know that things are really getting bad when, by simply pressing a button, we can thereby generate fully automated responses to FM’s posts.

  2. One can sketch some answers based on historical precedents.

    — Will technology continue to drive economic growth?
    Economic growth depends on several significant factors such as demographics, availability and price of natural resources, availability of capital, inequality. Technology hardly drives economic growth by itself.

    — Will it destroy jobs as did the agricultural and manufacturing revolutions?
    There is no reason to assume that its consequences will be any different in this respect.

    — Will the owners continue to harvest most of the gains?
    Historically this is what happened, the top 10%-1%-0.1% has been reaping most if not all gains for the past several decades already, and on-going legal, political and economic factors push towards greater inequality anyway.

    — How long, with how much social unrest, will the adjustment process require?
    Historically, _major_ readjustments of economic benefits towards manufacturing labor took place from the 1920s till the 1970s — about 150 years after the IR started. Similarly, the heyday of peasantry in developed countries such as Germany, France, UK, etc, lasted from the late 19th century till WWII — 150 years after the agricultural revolution started. This is the order of magnitude. Perhaps 100 years for the initial, modest turnaround. Speed may vary according to country. Systemic automation became significant in the early 1970s — which is also the time at which wages started to stagnate, unemployment to rise irresistibly, and productivity to accrue entirely to capital owners. At historical rates, that makes still two generations to go before the population at large starts to get the initial benefits from the new revolution.

    — Will there be news jobs for the next generation? And if not, then what?
    If we do nothing, I am afraid it will be something very similar to what has been going on in many third-world countries (especially Latin America): militarized jobs (army, security guards, etc) for males, prostitution or domestic jobs for females (difficult to automate), day-to-day survival trade, criminal activities, and squalor, ignorance, want, idleness, and disease for those left on the wayside.

    1. adsf,

      I doubt if in real life you make bets on the basis of things that have happened twice. Doing so from two historical industrial revolutions is equally specious, especially as the structure of society has changed so greatly from the previous revolutions.

  3. Why “either/or”? Why not “both/and”?

    America’s economy will continue to stagnate while machines continue to destroy jobs. The only way to make real money in America these days is to find a way to destroy huge numbers of jobs. Google makes vast amounts of money by throwing enough numbers of advertising and copywriting and newspaper and live-TV video employees out of work. Craigslist makes vast amounts of money by throwing most of the journalists in America out of work. Facebook makes vast amounts of money by throwing most magazine employees out of work. Amazon.com makes money by throwing the employees of mom & pop video stores and bookstores and local small shops out of work.

    If you can figure out a way to make hundreds of thousands or millions of your fellow Americans employed, you’re going to do very well in 21st century America. Otherwise you can look forward to a future as a low-paid temp wage slave who gets fired every 6 months and spends another 6 to 8 months searching frantically for a new one in between job until age 50, at which time you become permanent unemployable.

    The U.S. economy is now a zero-sum game. Imagine a lifeboat with 300 million people in it. The only way to stay in the lifeboat is to throw someone else out — the only trouble is that everyone else is trying to throw you out. That’s America in 2013.

  4. How should the education system change to account for this?
    Perhaps it needs to produce more accessible, updated curricula in order to help people retrain.
    Or maybe it should focus on teaching non-automatable skills.

    1. Riffing off Fabius: Retrain to do what?

      More importantly education is expensive, from both a time and money perspective. Are people supposed to be working 60 hours at scut jobs to survive while also somehow learning video game programming or other technology professions (which can often be done overseas). How bad do you want the rat race to be?

      How do people survive during their constant retraining and schooling periods?

      Plus, I would note that one of the other “bubbles” that has not popped yet is the Education Bubble (I can still hear George Carlin in my head when I hear another middle class person talking about education, LOL). Who is going to pay for all this eternal “education”? Look at the rising rate of school loan defaults.

    2. Fabius M., education *can* create jobs, sometimes. I’m thinking of academic work which becomes a business (cf Google). There is also the sheer number of staff employed by schools, something which we famously haven’t been able to really streamline (cf Baumol’s cost disease).

    3. Greetings, Brian M. I hear you.
      For instance, the higher ed bubble is something I’ve been tracking for two years (most recent note here: http://bryanalexander.org/2013/12/31/trends-from-2013-the-higher-education-bubble/).
      And retraining has proven itself to be a weak reed, all too often.

      However, in response to this post’s point, if automation unemploys people, then those folks will have the unfortunate bonus of free time to pursue training/education. Assuming some form of social safety net keep them from starving to death.

  5. Bryan Alexander:

    Kudos.

    I don’t have an easy answer.

    Maybe we are thinking too narrowly, within the box of scarcity economics and the “Protestant Work Ethic” where we are defined by our jobs or our “professions” and “careers”. What if there is simply not enough to go around?

    So where I might disagree with you is the concept that “training” is a big part of what we need. Maybe we need a more “aristocratic” or “diletantte” view of things? I don’t remember where I recently came across this quote, but it was fascinating:

    “We should do away with the absolutely specious notion that everybody has to earn a living. It is a fact today that one in ten thousand of us can make a technological breakthrough capable of supporting all the rest. The youth of today are absolutely right in recognizing this nonsense of earning a living. We keep inventing jobs because of this false idea that everybody has to be employed at some kind of drudgery because, according to Malthusian Darwinian theory he must justify his right to exist. So we have inspectors of inspectors and people making instruments for inspectors to inspect inspectors. The true business of people should be to go back to school and think about whatever it was they were thinking about before somebody came along and told them they had to earn a living.” -R. Buckminster Fuller

    Of course, Dr. Fuller is assuming that formal “schooling” is the “correct” path for everyone. Not every person wants to be a bookworm studying stuff.

    1. Brian,

      “We keep inventing jobs because of this false idea that everybody has to be employed at some kind of drudgery because, ”

      I agree in some sense. But the cold reality is that our system forces people to find jobs to survive.

      The obvious, perhaps even likely, outcome from a society growing more unequal (one possible outcome of the next industrial revolution) is that the excess workers become servants of the upper classes.

      This is the solution of the first industrial revolution, the 17th – 19th century. Personal servants, colleges educated secretaries (as aristos had, not in the narrow sense of modern businesses), full-time mistresses (capable of moving in an aristos social circles), part-time mistresses (much cheaper), nannies, cooks, household servants of many kinds.

      It is already happening as illegal and legal immigrants arrive, willing to work for bedrock low wages. See the increased use of such servants in the upper-middle class.

      Possession of servants was, and might again become, a major class marker. A must-have for people interesting in moving up into the classes that matter.

    2. Fabius Max beat me to it, Brian. Our system insists on something short of full employment.
      Note when Fuller wrote that statement: before America decided to make us work even *longer* hours. Remember when the Japanese salaryman was considered extreme?

      Well, one possible future is that we back away from this. If, as you wonder, “there is simply not enough to go around”, then we end up with more people working fewer hours/week, generally. The 40-50+ workweek becomes 30. I’m not sure by what mechanism this would occur.

      The other future is what some are now calling “the gig economy”. Instead of working full-time for Acme Innovations, you work part-time there, do a short-term gig with Coyote Enterprises, spend some time underemployed, then work an intensive month with Roadrunner Ltd, etc. You piece together benefits (health, retirement) yourself. It’s a far cry from the 1950s model of one job for life.

    3. Bryan,

      What you describe are fruits of what Marx described as having a “reserve army of the unemployed.” Marx was proved wrong by the second industrial revolution. He might be proven correct by the third.

      “we end up with more people working fewer hours/week, generally. The 40-50+ workweek becomes 30. I’m not sure by what mechanism this would occur.”

      The future has arrived. Talk to employees at your local WatMart, or the nearest Amazon warehouse.

      “The other future is what some are now calling “the gig economy”. Instead of working full-time for Acme Innovations, you work part-time there, do a short-term gig with Coyote Enterprises, spend some time underemployed, then work an intensive month with Roadrunner Ltd, etc. You piece together benefits (health, retirement) yourself. It’s a far cry from the 1950s model of one job for life.”

      Ditto. “Independent contractors” are one of the fast-growing job categories. This insecure usually low wage gig is what republicans mean by “entrepreneur”. It shifts many of the costs of work from the firm onto the worker (e.g., training, health care, employment taxes, retirement).

    4. Fabius also writes “Possession of servants was, and might again become, a major class marker.”
      Indeed. That’s the dark pun behind “service economy.”
      Now, it’s more democratic than the old times, so we all get the chance to buy a bit of service/servants. Some of us, of course, are more equal than others.

  6. And at least the servants during the Gilded Age had employer-provided garrets to live in. Today? Cheap motels and shared apartments are the only solution. Or your van down by the river.

  7. Fabius: Have you read “The Silver Age” by Neil Stephenson? He describes a neo-feudalism…with the final pages, however, representing the conquest of the feudalists by a kind of Maoist distributed technology mass army. Interesting stuff. I need to re-read the novel!

    1. It’s a fun, strange book. I love the Primer sections, but the bits about going beyond today’s computing paradigm, while brave, fall flat.
      The Victorian stuff… Stephenson has an odd conservativism that pops out from time to time, like the way he often punishes characters for being sexual (unless they’ve villains). So I wonder about this book’s love of the Vicks.

  8. In reply to Fabius: interesting idea about Marx and our industrial revolution, rather than his. This current one seems retro in that sense. If so, should we expect a similarly retro politics of open socialism, labor organization, communism?

    NB: I wrote “expect”, not “eagerly anticipate”.

  9. This is a great article and I think computers are going to play a huge effect in our society’s future. I personally think it already does but technology keeps improving so who knows what will happen next. I know a lot of businesses rely on computer technology for business plans. Some big companies even have serious control rooms with a lot of systems. Most control rooms use equipment such as Wall Mount Cabinets to keep it all organized.

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