August 12, 2016
Yes folks, this is yet another example of the which way is up problem in economics, which seems to badly afflict the Washington Post opinion pages. It’s the old story of someone being told that its incredibly hot and humid outside and then rushing to put on hat, gloves, and an extra sweater.
The Labor Department released new data on productivity growth this week showing that in the second quarter of 2016 productivity actually fell for the third consecutive quarter. While this decline is likely an anomaly, and may even be reversed in revisions to the data, productivity growth has been extraordinarily slow the last six years, averaging less then 0.5 percent annually. This compares to rates of 3.0 percent annual growth in the decade from 1995 to 2005 and 2.9 percent in the long Golden Age from 1947 to 1973. Even the 1.4 percent rate of the slowdown years (1973 to 1995) looks great compared to the recent productivity performance.
Given this pattern of weak productivity growth, we would naturally expect to see David Ignatius on the Post’s oped page warning us that rapid productivity growth is going to cost huge numbers of jobs, in a column titled, “the brave new world of robots and lost jobs.” Ignatius notes job insecurity and concerns that people are losing jobs to trade.
He then tells readers:
“A look at the numbers suggests that the country is having the wrong economic debate this year. Employment security won’t come from renegotiating trade deals, as Donald Trump said in a speech Monday in Detroit, or rebuilding infrastructure, as Hillary Clinton argued in Warren, Mich., on Thursday. These are palliatives.
“The deeper problem facing the United States is how to provide meaningful work and good wages for the tens of millions of truck drivers, accountants, factory workers and office clerks whose jobs will disappear in coming years because of robots, driverless vehicles and ‘machine learning’ systems.”
Of course “a look at the numbers” tells us the opposite, as noted above. These new technologies are thus far having a minimal impact on reducing the demand for labor. That could of course change, which would be a great thing, it would open the door for higher wages and more rapid improvement in living standards.
One of the studies that he cites projects that automation could cost us as much as 47 percent of current jobs over the next two decades. While Ignatius calls this a “automation bomb,” this rate of job loss translates into 3.1 percent annual productivity growth, roughly the same pace as during the long Golden Age. That was a period of low unemployment and rapidly rising real wages and living standards, which can also mean more leisure and shorter work years. Are you scared yet?
It is probably worth mentioning that if we see productivity growth anything close to the pace that Ignatius is warning us about then it makes the demographic concerns so frequently touted by the Post look even more ridiculous. With productivity nearly doubling over the next two decades, the cost of supporting a somewhat higher ratio of retirees to workers (we are projected to see a fall from around 2.8 workers per retiree to 2.2 workers per retiree in the next two decades) seems altogether trivial. Maybe Ignatius can persuade his colleagues at the Post to stop screaming about the demographic disaster facing the country.
Of course there actually are risks to living standards, but they do not stem from the technology. The protectionists that control public policy are looking to make the patent and copyright protections that redistribute income upward ever stronger and longer. This is one of the major purposes of the Trans-Pacific Partnership. If these protectionists have their way, they will be able to keep most of the population from enjoying most of the benefits from automation, ensuring that the gains go primarily to the people who hold the patent monopolies. This is a very real concern, but has nothing to do with the technology.
We also have to worry about other policies that could have the effect of keeping ordinary workers from sharing in the gains of productivity growth. For example, the Fed could raise interest rates, as it is now considering, in order to slow the rate of job creation. By reducing the number of jobs in the economy, the Fed can prevent workers from getting the bargaining power needed to share in the gains of productivity growth. Policies designed to produce large trade deficits (e.g. a strong dollar), and to keep budget deficits low, will also reduce the demand for labor and undermine workers’ bargaining power.
In short, there are very real risks to workers living standards in the future, but these stem from economic policies designed to redistribute income upward, not robots.
Comments