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The NYT piece discussing Federal Reserve Board Chairman Ben Bernanke’s testimony before the House Financial Services Committee noted at one point the Fed’s assessment that growth is proceeding at a “modest to moderate pace.” It would have been worth noting that growth has been less than 2.0 percent for the last three years and is likely to remain below 2.0 percent at least for 2013.
This is below standard estimates of the economy’s potential growth rate, which is put at 2.2 percent to 2.4 percent. In other words, the economy is falling further behind its potential level of output at the current pace of growth. It would have been worth including the comparison to potential growth.
The NYT piece discussing Federal Reserve Board Chairman Ben Bernanke’s testimony before the House Financial Services Committee noted at one point the Fed’s assessment that growth is proceeding at a “modest to moderate pace.” It would have been worth noting that growth has been less than 2.0 percent for the last three years and is likely to remain below 2.0 percent at least for 2013.
This is below standard estimates of the economy’s potential growth rate, which is put at 2.2 percent to 2.4 percent. In other words, the economy is falling further behind its potential level of output at the current pace of growth. It would have been worth including the comparison to potential growth.
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A New York Times article reported on the aging of Italy’s population and bizarrely implied that this was the cause of high youth unemployment. The piece tells readers:
“With older people in the Mediterranean living longer and longer lives — and with fertility rates low and youth unemployment soaring in Italy, Greece, Spain and Portugal — experts warn that Europe’s debt crisis is exacerbating a growing demographic crisis. In the coming years, they warn, there will be fewer workers paying into the social security system to support the pensions of older generations.”
This paragraph came immediately after a paragraph telling readers:
“Many of their children [of today’s elderly] have high school or university degrees and are now retired from public or private sector jobs. And their children, the ones born after 1970, generally have university degrees — and are struggling to find work.”
The claim that Italy is suffering from too few young to support the retired population and that the young cannot find jobs are directly contradictory. This is like telling us that Italy is suffering from a heat wave and sub-zero temperatures.
The problem of not enough young people is a problem of lack of supply — too few young people to provide the goods and services the country needs. This should manifest itself in a labor shortage. Companies are trying to get workers but cannot find them. There will be large numbers of jobs going unfilled with wages rising rapidly as employers bid against each other to hire the workers who are available.
By contrast the high unemployment rate, even for university grads, is evidence of lack of demand. In this situation there is no shortage of available workers, the problem in the economy is not enough demand. In this story, if Italy had a few more million centenarians, who were spending pensions without working, then it could create the demand needed to employ the young.
Of course the world is more complicated. Because of the failed policies of the European Central Bank, prices in southern Europe got out of line with prices in northern Europe. As a result, much of the demand created by the elderly in Italy goes to Germany rather than Italy. But this is a story of incompetent central bankers, not demographics.
A New York Times article reported on the aging of Italy’s population and bizarrely implied that this was the cause of high youth unemployment. The piece tells readers:
“With older people in the Mediterranean living longer and longer lives — and with fertility rates low and youth unemployment soaring in Italy, Greece, Spain and Portugal — experts warn that Europe’s debt crisis is exacerbating a growing demographic crisis. In the coming years, they warn, there will be fewer workers paying into the social security system to support the pensions of older generations.”
This paragraph came immediately after a paragraph telling readers:
“Many of their children [of today’s elderly] have high school or university degrees and are now retired from public or private sector jobs. And their children, the ones born after 1970, generally have university degrees — and are struggling to find work.”
The claim that Italy is suffering from too few young to support the retired population and that the young cannot find jobs are directly contradictory. This is like telling us that Italy is suffering from a heat wave and sub-zero temperatures.
The problem of not enough young people is a problem of lack of supply — too few young people to provide the goods and services the country needs. This should manifest itself in a labor shortage. Companies are trying to get workers but cannot find them. There will be large numbers of jobs going unfilled with wages rising rapidly as employers bid against each other to hire the workers who are available.
By contrast the high unemployment rate, even for university grads, is evidence of lack of demand. In this situation there is no shortage of available workers, the problem in the economy is not enough demand. In this story, if Italy had a few more million centenarians, who were spending pensions without working, then it could create the demand needed to employ the young.
Of course the world is more complicated. Because of the failed policies of the European Central Bank, prices in southern Europe got out of line with prices in northern Europe. As a result, much of the demand created by the elderly in Italy goes to Germany rather than Italy. But this is a story of incompetent central bankers, not demographics.
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That minor detail was missing from Wonkblog’s discussion of the proposed E.U.-U.S. trade agreement and the Trans-Pacific Partnership. The piece begins by telling readers in the first sentence:
“Nailing down complicated international trade agreements, with a zillion different interests and moving parts, is no easy feat.”
It then adds that the Obama administration will be trying to do two deals at once and that it will have to contend with opposition in Congress.
Of course there is no reason the deals have to be complicated. If the trade deals focused on removing traditional trade barriers such as tariffs and quotas, there would not be “a zillion different interests and moving parts.” There would be some formulaic wording written into the agreement that specified the rate at which these restrictions would be pared back.
The reason there are a zillion moving parts is because the Obama administration went to the oil and gas industries to ask how they can use the trade agreement to get around environmental restrictions on drilling. It went to the food and agricultural industries to ask how they could get around food safety rules. It went to the pharmaceutical industry to ask it how it can use these deals to increase patent protections and jack up drug prices. It went to the entertainment industry and asked how it can use these deals to strengthen copyright enforcement and require Internet intermediaries to take responsibility (and incur expenses) to help enforce copyrights.
That is why these deals have a zillion moving parts instead of being simple agreements focused on reducing barriers to trade. It would have been helpful if Wonkblog had explained this fact to readers.
That minor detail was missing from Wonkblog’s discussion of the proposed E.U.-U.S. trade agreement and the Trans-Pacific Partnership. The piece begins by telling readers in the first sentence:
“Nailing down complicated international trade agreements, with a zillion different interests and moving parts, is no easy feat.”
It then adds that the Obama administration will be trying to do two deals at once and that it will have to contend with opposition in Congress.
Of course there is no reason the deals have to be complicated. If the trade deals focused on removing traditional trade barriers such as tariffs and quotas, there would not be “a zillion different interests and moving parts.” There would be some formulaic wording written into the agreement that specified the rate at which these restrictions would be pared back.
The reason there are a zillion moving parts is because the Obama administration went to the oil and gas industries to ask how they can use the trade agreement to get around environmental restrictions on drilling. It went to the food and agricultural industries to ask how they could get around food safety rules. It went to the pharmaceutical industry to ask it how it can use these deals to increase patent protections and jack up drug prices. It went to the entertainment industry and asked how it can use these deals to strengthen copyright enforcement and require Internet intermediaries to take responsibility (and incur expenses) to help enforce copyrights.
That is why these deals have a zillion moving parts instead of being simple agreements focused on reducing barriers to trade. It would have been helpful if Wonkblog had explained this fact to readers.
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Wonkblog has an interesting interview with Patrick Chovanec, an economics professor at Tsinghua University’s School of Economics and Management in Beijing on China’s current economic problems. At one point Mr. Chovanec refers to:
“China’s growth model for the last 30 years, which has been a classic export-led growth model.”
Actually China’s growth over the last three decades has not been consistently export led, or at least not to the same degree as was the case in the 10 years leading up to the economic crisis.
As can be seen, until 1997, the year of the East Asian financial crisis, China had relatively balanced trade. It did run substantial surpluses in several years, but its trade surplus averaged just 0.3 percent of GDP from 1980 to 1996. By contrast, in the years from 1997 to 2008 the surplus averaged 4.5 percent of GDP. There clearly was a qualitatively different story of growth in the period from the East Asian financial crisis to the 2008 world economic crisis. It is misleading to imply that the Chinese economy had the same dynamic over this whole period.
Wonkblog has an interesting interview with Patrick Chovanec, an economics professor at Tsinghua University’s School of Economics and Management in Beijing on China’s current economic problems. At one point Mr. Chovanec refers to:
“China’s growth model for the last 30 years, which has been a classic export-led growth model.”
Actually China’s growth over the last three decades has not been consistently export led, or at least not to the same degree as was the case in the 10 years leading up to the economic crisis.
As can be seen, until 1997, the year of the East Asian financial crisis, China had relatively balanced trade. It did run substantial surpluses in several years, but its trade surplus averaged just 0.3 percent of GDP from 1980 to 1996. By contrast, in the years from 1997 to 2008 the surplus averaged 4.5 percent of GDP. There clearly was a qualitatively different story of growth in the period from the East Asian financial crisis to the 2008 world economic crisis. It is misleading to imply that the Chinese economy had the same dynamic over this whole period.
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I guess I’m about to join the Casey Mulligan fan club. Okay, not quite, but he was good enough to make a point that went against his general political view a couple of weeks ago, so I will take a moment to acknowledge a point that goes somewhat against how I generally see the world.
In his column today, Mulligan argues that policies like extending health care subsidies to people through health care exchanges and unemployment insurance must have some negative effect on employment at the margin. Mulligan acknowledges that many people may choose to work because they feel that is a way to contribute to and be a part of society, but still at the margin there must be some people who will opt not to work if we make that option more attractive, as these policies do.
Mulligan is 100 percent right on this point. The question is both the numbers involved and how we view the individuals who make the choice not to work.
I certainly would not dispute that both policies give people more incentive not to work. I am inclined to think that the impact is small both from personal experience and also based on evidence — including some that Mulligan himself has cited.
In terms of personal experience, I am continually impressed by the commitment that many low-paid workers have to working, as opposed to trying to get by on government benefits. As a relatively well-paid professional, I will certainly acknowledge that I don’t have that many personal encounters with people at the lower ends of the income spectrum, but when I have, I rarely find people looking to make a life on food stamps and disability.
More importantly, the evidence shows that people often work in situations where they gain very little over not working. Mulligan himself has written about how the marginal effective tax rate from losing benefits like food stamps and the earned income tax credit can be over 70 percent for relatively moderate income workers. Yet tens of millions of people still opt to work in situations where they would have almost as much money if they chose not to work.
The other key issue is how we view the people who make the decision not to work as a result of government benefits. We know that the availability of unemployment insurance will make unemployed workers more reluctant to take jobs that they consider bad. I see this as largely a positive for workers and society. If a worker has spent years developing skills as an engineer or medical technician, it is desirable that they have the opportunity to use these skills. If unemployment insurance allows them to spend an extra 2-3 months looking for work so that they can find a job that uses these skills, then I consider it a positive outcome from the program.
Similarly, if access to affordable insurance allows older workers in bad health to retire a few years earlier than would otherwise be the case, I also consider this a positive. We have Medicare at age 65 because we know that the private health care market did not provide affordable health care insurance to older people. Workers in poor health may face this situation before age 65. If the exchanges give them the option to get affordable care without working, that’s a good thing in my book.
In any case, we want to know the numbers involved. Most research suggests that they are relatively small. (Okay, we can fight over that adjective.) In the case of unemployment insurance, the main effect seems to be that it keeps people looking for work rather than dropping out of the labor market altogether. (Research shows that when their benefits expire, most workers just drop out of the labor force, they don’t find jobs.)
We’ll see the impact of the subsidies in the health care exchanges soon enough, but Mulligan is absolutely right that it will not be zero. The question is how many people will stop working and also how we feel about people making this decision.
One other point worth noting. In a context where we still have considerable unemployment, the decision of an older worker to drop out of the labor market is likely to open up a job for a younger worker. That is also a good thing in my book.
I guess I’m about to join the Casey Mulligan fan club. Okay, not quite, but he was good enough to make a point that went against his general political view a couple of weeks ago, so I will take a moment to acknowledge a point that goes somewhat against how I generally see the world.
In his column today, Mulligan argues that policies like extending health care subsidies to people through health care exchanges and unemployment insurance must have some negative effect on employment at the margin. Mulligan acknowledges that many people may choose to work because they feel that is a way to contribute to and be a part of society, but still at the margin there must be some people who will opt not to work if we make that option more attractive, as these policies do.
Mulligan is 100 percent right on this point. The question is both the numbers involved and how we view the individuals who make the choice not to work.
I certainly would not dispute that both policies give people more incentive not to work. I am inclined to think that the impact is small both from personal experience and also based on evidence — including some that Mulligan himself has cited.
In terms of personal experience, I am continually impressed by the commitment that many low-paid workers have to working, as opposed to trying to get by on government benefits. As a relatively well-paid professional, I will certainly acknowledge that I don’t have that many personal encounters with people at the lower ends of the income spectrum, but when I have, I rarely find people looking to make a life on food stamps and disability.
More importantly, the evidence shows that people often work in situations where they gain very little over not working. Mulligan himself has written about how the marginal effective tax rate from losing benefits like food stamps and the earned income tax credit can be over 70 percent for relatively moderate income workers. Yet tens of millions of people still opt to work in situations where they would have almost as much money if they chose not to work.
The other key issue is how we view the people who make the decision not to work as a result of government benefits. We know that the availability of unemployment insurance will make unemployed workers more reluctant to take jobs that they consider bad. I see this as largely a positive for workers and society. If a worker has spent years developing skills as an engineer or medical technician, it is desirable that they have the opportunity to use these skills. If unemployment insurance allows them to spend an extra 2-3 months looking for work so that they can find a job that uses these skills, then I consider it a positive outcome from the program.
Similarly, if access to affordable insurance allows older workers in bad health to retire a few years earlier than would otherwise be the case, I also consider this a positive. We have Medicare at age 65 because we know that the private health care market did not provide affordable health care insurance to older people. Workers in poor health may face this situation before age 65. If the exchanges give them the option to get affordable care without working, that’s a good thing in my book.
In any case, we want to know the numbers involved. Most research suggests that they are relatively small. (Okay, we can fight over that adjective.) In the case of unemployment insurance, the main effect seems to be that it keeps people looking for work rather than dropping out of the labor market altogether. (Research shows that when their benefits expire, most workers just drop out of the labor force, they don’t find jobs.)
We’ll see the impact of the subsidies in the health care exchanges soon enough, but Mulligan is absolutely right that it will not be zero. The question is how many people will stop working and also how we feel about people making this decision.
One other point worth noting. In a context where we still have considerable unemployment, the decision of an older worker to drop out of the labor market is likely to open up a job for a younger worker. That is also a good thing in my book.
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Jim Tankersley has a post in Wonkblog asking whether there has been a divergence between pay and productivity over the last three decades. The post notes a study from James Sherk at Heritage which makes several valid points. First, part of the gap between average pay and productivity is explained by a growing share of compensation going to health care benefits. Second part of the gap is the result of the fact that productivity is measured in gross output, whereas only net output is available for consumption. Third, we use different deflators to measure output than consumption. The consumer price index, which is used to measure real wages, shows a higher rate of inflation than the implicit price deflator. If we use the same deflator to measure real wages and output, then this also eliminates much of the seeming gap between productivity and pay.
I had made these points myself a few years back. My conclusion was that we were really looking at a story of upward redistribution from middle and lower income workers to those at the top, doctors, lawyers, and especially Wall Street types and CEOs. Distribution from wages to profits was not a big part of the picture.
But that was back in 2007. The picture looks a bit different today. The graph below shows the labor share of net income in the corporate sector. This is a bit simpler than constructing productivity and pay data, but it should get at the same issue. I have pulled out depreciation and also indirect taxes, so the division is simply between labor income and capital income. I also show the share of labor compensation in after-tax income in the corporate sector.
In the data in the graph it certainly looks like we are seeing a redistribution from labor to capital at least in the years since the crash. For the last three years the labor share of before-tax income was lower than at any point hit in the 1980s and 1990s. The labor share of after-tax income is more than two percentage points lower than at any point in the 1980s and 1990s. That looks like a fairly serious redistribution.
We can throw in the usual qualifications about the data being erratic and cyclical, but it’s pretty hard to find a way to make this redistribution disappear. It may prove to be the case that if the unemployment rate falls back to more normal levels then workers will get increased bargaining power and will be able to recapture more of the gains from productivity growth, but that is not happening now.
Jim Tankersley has a post in Wonkblog asking whether there has been a divergence between pay and productivity over the last three decades. The post notes a study from James Sherk at Heritage which makes several valid points. First, part of the gap between average pay and productivity is explained by a growing share of compensation going to health care benefits. Second part of the gap is the result of the fact that productivity is measured in gross output, whereas only net output is available for consumption. Third, we use different deflators to measure output than consumption. The consumer price index, which is used to measure real wages, shows a higher rate of inflation than the implicit price deflator. If we use the same deflator to measure real wages and output, then this also eliminates much of the seeming gap between productivity and pay.
I had made these points myself a few years back. My conclusion was that we were really looking at a story of upward redistribution from middle and lower income workers to those at the top, doctors, lawyers, and especially Wall Street types and CEOs. Distribution from wages to profits was not a big part of the picture.
But that was back in 2007. The picture looks a bit different today. The graph below shows the labor share of net income in the corporate sector. This is a bit simpler than constructing productivity and pay data, but it should get at the same issue. I have pulled out depreciation and also indirect taxes, so the division is simply between labor income and capital income. I also show the share of labor compensation in after-tax income in the corporate sector.
In the data in the graph it certainly looks like we are seeing a redistribution from labor to capital at least in the years since the crash. For the last three years the labor share of before-tax income was lower than at any point hit in the 1980s and 1990s. The labor share of after-tax income is more than two percentage points lower than at any point in the 1980s and 1990s. That looks like a fairly serious redistribution.
We can throw in the usual qualifications about the data being erratic and cyclical, but it’s pretty hard to find a way to make this redistribution disappear. It may prove to be the case that if the unemployment rate falls back to more normal levels then workers will get increased bargaining power and will be able to recapture more of the gains from productivity growth, but that is not happening now.
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Bruce Bartlett has a good piece on fears of inflation from the Great Depression. It’s worth reading if for no other reason to show that otherwise intelligent people are able to believe completely absurd propositions about the economy and the world. (Sorry, worrying about inflation in the 1930s was loony.)
Anyhow, the piece is useful for another reason; Bartlett has a chart showing the rate of deflation at the start of the depression. Prices fell by 2.3 percent in 1930, 9.0 percent in 1931, 9.9 percent in 1932, and 5.1 percent in 1933. These rates of a price decline are a serious problem. They hugely increase the real value of debt held by individuals and businesses.
They also create an environment in which investment is virtually pointless. Why would anyone borrow to expand a business when they will end up repaying the debt in money that is worth 25 percent more? It would make more sense to park the money under a mattress.
While this may be pretty obvious, it is worth contrasting the rates of deflation at the start of the Great Depression with the rates that we may have plausibly seen in the United States in 2009-2010, if things had gone more poorly. In a worst case scenario, we might have seen Japanese style deflation, which has been less in absolute value than -1.0 percent in all but one year. (In 2009 it was -1.3 percent).
This would have been unfortunate, since it would have implied higher real interest rates and some increase in the real burden of debts held by students and homeowners. However, this sort of deflation is bad in the same way that 0.5 percent inflation is worse than 1.5 percent inflation. In a time when the economy is operating well below full employment, higher inflation will encourage more spending than lower inflation, and lower inflation will encourage more spending than low rates of deflation.
However the deflation that we saw at the start of the Great Depression was a qualitatively different beast than the deflation that we might have plausibly seen at the start of the Great Recession. There was really no basis for fearing the sort of destructive inflation the economy saw at the start of the Great Depression. Wages and prices are too sticky today.
This point is important for both conceptual and political reasons. At the conceptual level, we should realize that there is no magic about the inflation rate turning negative. It is just an inflation rate that is too low. Politically, since moderate deflation is not a depression causing disaster (nor was it likely in the cards in any case), we probably should not be giving too much credit to the Bernanke-Geithner crew for heading it off. The fact that inflation stayed positive through the crisis was good news, but it really was not that big a deal. Bernanke will have to do something else to get the Nobel Prize in economics.
Note: The year 1930 was written “2030” in the original post. Thanks Tracer.
Bruce Bartlett has a good piece on fears of inflation from the Great Depression. It’s worth reading if for no other reason to show that otherwise intelligent people are able to believe completely absurd propositions about the economy and the world. (Sorry, worrying about inflation in the 1930s was loony.)
Anyhow, the piece is useful for another reason; Bartlett has a chart showing the rate of deflation at the start of the depression. Prices fell by 2.3 percent in 1930, 9.0 percent in 1931, 9.9 percent in 1932, and 5.1 percent in 1933. These rates of a price decline are a serious problem. They hugely increase the real value of debt held by individuals and businesses.
They also create an environment in which investment is virtually pointless. Why would anyone borrow to expand a business when they will end up repaying the debt in money that is worth 25 percent more? It would make more sense to park the money under a mattress.
While this may be pretty obvious, it is worth contrasting the rates of deflation at the start of the Great Depression with the rates that we may have plausibly seen in the United States in 2009-2010, if things had gone more poorly. In a worst case scenario, we might have seen Japanese style deflation, which has been less in absolute value than -1.0 percent in all but one year. (In 2009 it was -1.3 percent).
This would have been unfortunate, since it would have implied higher real interest rates and some increase in the real burden of debts held by students and homeowners. However, this sort of deflation is bad in the same way that 0.5 percent inflation is worse than 1.5 percent inflation. In a time when the economy is operating well below full employment, higher inflation will encourage more spending than lower inflation, and lower inflation will encourage more spending than low rates of deflation.
However the deflation that we saw at the start of the Great Depression was a qualitatively different beast than the deflation that we might have plausibly seen at the start of the Great Recession. There was really no basis for fearing the sort of destructive inflation the economy saw at the start of the Great Depression. Wages and prices are too sticky today.
This point is important for both conceptual and political reasons. At the conceptual level, we should realize that there is no magic about the inflation rate turning negative. It is just an inflation rate that is too low. Politically, since moderate deflation is not a depression causing disaster (nor was it likely in the cards in any case), we probably should not be giving too much credit to the Bernanke-Geithner crew for heading it off. The fact that inflation stayed positive through the crisis was good news, but it really was not that big a deal. Bernanke will have to do something else to get the Nobel Prize in economics.
Note: The year 1930 was written “2030” in the original post. Thanks Tracer.
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Readers of the NYT must have been appalled to see that the only opinions presented in an article on a Brazilian plan to promote trade in physicians services were doctors who could expect to see lower pay as a result. This would be like reporting on a plan to reduce tariffs on imported textiles and only presenting the views of textile workers.
It would have been rather surprising if Brazil’s doctors did not oppose a plan that would reduce their wages so it is not clear why the NYT apparently considers this fact big news. Usually when expanded trade is an agenda item the NYT presents the views of economists who explain how liberalized trade benefits the economy as a whole. For some reason that was not the case in this article.
Readers of the NYT must have been appalled to see that the only opinions presented in an article on a Brazilian plan to promote trade in physicians services were doctors who could expect to see lower pay as a result. This would be like reporting on a plan to reduce tariffs on imported textiles and only presenting the views of textile workers.
It would have been rather surprising if Brazil’s doctors did not oppose a plan that would reduce their wages so it is not clear why the NYT apparently considers this fact big news. Usually when expanded trade is an agenda item the NYT presents the views of economists who explain how liberalized trade benefits the economy as a whole. For some reason that was not the case in this article.
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A lot of people are making their living these days telling us that we aren’t going to have any jobs because robots are going to do all the work. In this great country of ours, many are also making a very good living telling us that we are doomed by demographics, because we will not have enough children to support a growing population of retirees. And then we have those like Robert Samuelson who get paid to do both.
Here he is presenting the argument from Erik Brynjolfsson and Andrew McAfee, two M.I.T. professors who are the main promulgators of the robots will make us all unemployed story. He quotes from an M.I.T. journal:
“The MIT academics foresee dismal prospects for many types of jobs as these powerful new technologies are increasingly adopted not only in manufacturing, clerical and retail work but in professions such as law, financial services, education and medicine,”
He then tells us how this is playing itself out now:
“The digital revolution could stymie job growth.
“Unfortunately, the Great Recession abetted this protective psychology. This keeps unemployment up. Companies didn’t just fire workers; they also went on a hiring strike.”
Okay, we have an easy way of testing whether protective psychology is discouraging firms from hiring. Increasing hours and hiring more workers are alternative ways to meet labor demand. If psychology is discouraging firms from hiring workers in contexts where they otherwise would, then they must be increasing hours.
But they aren’t. The average workweek was 34.5 hours in June, a hair less than the pre-recession average. So much for the psychology.
Then we get this great line about how the economy is getting less dynamic with slower productivity growth.
“Haltiwanger [University of Maryland economist, John Haltiwanger] sees the economy becoming less dynamic. Young firms less than five years old create a huge number of new jobs, but the rate of business start-ups has declined — and with it, new jobs. In the late 1980s, start-ups’ share of net job creation was nearly half; now, it’s just below 40 percent. The causes of the slump in start-up firms are unclear. Some candidates: an aging society, government regulations, more risk-aversion.”
So there you have it, digital technologies are going to replace all the workers at the same time that an aging society will make the economy less dynamic. Now that is a serious set of problems.
A lot of people are making their living these days telling us that we aren’t going to have any jobs because robots are going to do all the work. In this great country of ours, many are also making a very good living telling us that we are doomed by demographics, because we will not have enough children to support a growing population of retirees. And then we have those like Robert Samuelson who get paid to do both.
Here he is presenting the argument from Erik Brynjolfsson and Andrew McAfee, two M.I.T. professors who are the main promulgators of the robots will make us all unemployed story. He quotes from an M.I.T. journal:
“The MIT academics foresee dismal prospects for many types of jobs as these powerful new technologies are increasingly adopted not only in manufacturing, clerical and retail work but in professions such as law, financial services, education and medicine,”
He then tells us how this is playing itself out now:
“The digital revolution could stymie job growth.
“Unfortunately, the Great Recession abetted this protective psychology. This keeps unemployment up. Companies didn’t just fire workers; they also went on a hiring strike.”
Okay, we have an easy way of testing whether protective psychology is discouraging firms from hiring. Increasing hours and hiring more workers are alternative ways to meet labor demand. If psychology is discouraging firms from hiring workers in contexts where they otherwise would, then they must be increasing hours.
But they aren’t. The average workweek was 34.5 hours in June, a hair less than the pre-recession average. So much for the psychology.
Then we get this great line about how the economy is getting less dynamic with slower productivity growth.
“Haltiwanger [University of Maryland economist, John Haltiwanger] sees the economy becoming less dynamic. Young firms less than five years old create a huge number of new jobs, but the rate of business start-ups has declined — and with it, new jobs. In the late 1980s, start-ups’ share of net job creation was nearly half; now, it’s just below 40 percent. The causes of the slump in start-up firms are unclear. Some candidates: an aging society, government regulations, more risk-aversion.”
So there you have it, digital technologies are going to replace all the workers at the same time that an aging society will make the economy less dynamic. Now that is a serious set of problems.
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