February 14, 2015
It speaks to the state of economic debate in the United States that we have prominent voices arguing both that we face a future in which productivity growth will be near zero (Robert Gordon) and that productivity is about to soar through the roof so that most of us will not have any work to do (Erik Brynjolfsson and Andrew McAfee). If we envisioned the same debate in climate science, a substantial group of climatologists would be warning of an impending ice age even as others raise concerns about global warming. Needless to say, this sort of split would encourage most people to disregard the pronouncements of climatologists about anything, which is perhaps what the public should do in the case of economists.
When confronted with two sharply divided views about the world, the NYT doesn’t help matters by adding a large dose of confusion, as it did in printing a column by Daniel Cohen, a French economist. Cohen’s ostensible contribution is to tell us:
“both sides in this debate are right: We’re living an industrial revolution without economic growth. Powerful software is doing the work of humans, but the humans thus replaced are unable to find productive jobs.” He then goes on to say that we will have to adjust to a world without growth because living standards will not be rising.
Apparently Cohen does not realize that he has taken Brynjolfsson and McAfee’s side in this debate. The problem he has described is one of too much productivity growth. Workers find themselves without jobs because there is not enough demand for goods and services.
To see this point, imagine in the world Cohen describes that we ran the printing presses overtime and handed out $1 million in cash to every man, women, and child in the country. (Yep, we’ll give a $1 million to deadbeat welfare cheats, hardworking middle income people, and even Bill Gates.) Now all you right-thinking people out there will want to scream that this will lead to massive inflation. After all, we’re just printing money.
But the problem that we supposedly see is that the robots are doing all the work and there is no demand for most of our labor. If we there is more demand for goods and services now that we have been given our handouts, then we will ask the robots to work harder and a few of the formerly unemployed will get jobs doing robot maintenance or other such tasks. What in this story would cause prices to rise? Would the robots demand a pay hike?
If Brynjolfsson and McAfee are right, and we are not seeing growth, it’s because boneheaded policymakers (I didn’t say the European Union) are pointlessly restraining demand. In this context it is foolish to talk about “when the growth model fails.” What we should be talking about is teaching economics 101 to the people determining economic policy.
Since no one asked, I think Brynjolfsson and McAfee are probably closer to the mark than Robert Gordon in that I see no reason to believe that our ability to achieve large gains in productivity is hitting any sort of limit. Nonetheless, I also don’t expect a quantum leap in productivity growth. If we could get anywhere near the 3.0 percent annual productivity growth of the golden age (1947-1973) I would be very impressed.
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