January 25, 2012
Thomas Friedman has a great sense of irony. In a column titled “Average Is Over” he shows readers that average is clearly not over.
The column is a tidal wave of confusion about basic economics. The gist of the piece is that technology and globalization will displace all the average workers in the United States. Workers will have to be extraordinary to get decent paying jobs.
Both parts of this story are very poorly argued. Technology does replace many less-skilled jobs. Perhaps we should let Mr. Friedman in on a little secret here. This has always been true. The question is the rate at which technology displaces workers. Productivity growth has certainly be respectable since the pick-up in 1995 (@2.5 percent annually), but it is still below the 3.0 percent rate during the quarter century following World War II, when average was in. (Properly measured, productivity has been growing at closer to a 2.0 percent rate since the 1995 speed-up.)
Friedman apparently doesn’t know that technology doesn’t just eliminate jobs for less educated workers. The NYT had a piece a few months back on how new search technologies have drastically reduced the need for lawyers to do legal research. New screening devices can allow many medical diagnoses that formerly might have required doctors to be made by less highly trained technicians. Of course since doctors are a powerful interest group they may be able to ignore the development of technology and have rules that require that they still do diagnoses that could be performed instead by people earning one-fifth as much.
The real issues with technology are the rate at which it allows productivity to grow (in general, the faster the better, if the economy is not run by buffoons) and the extent to which it replaces low-skilled workers relative to the pace at which it replaces higher skilled workers. The same story applies to globalization.
We can get our manufactured products more cheaply from China. This is because it is a relatively poor country where people are willing to work hard for lower wages than workers in the United States. However China would also provide us with doctors, lawyers, architects and economists, all for much lower pay than their U.S. counterparts receive. This would drastically reduce the cost of health care, legal services, college education and other services provided by highly paid professionals. That would mean more economic growth and a big increase in living standards for the vast majority of people in the United States.
However, we don’t see huge numbers of Chinese taking professional jobs in the United States leaving U.S. born doctors, lawyers, etc. out of work. The reason is that U.S. professionals have much more power than manufacturing workers. They use the government to erect barriers to limit the number of foreign professionals who can work in the United States. This ensures that average can survive and flourish in the highly paid professions.
If anyone doubts this fact, they should take a look at the transcripts from Federal Reserve Board’s Open Market Committee Meetings for 2006. (Some of the highlights can be found here.) The transcripts show the people in top economic policy positions completely clueless as the housing bubble is in the process of deflating and the inevitable recession is coming into view. It is worth noting that none of these people have suffered serious career consequences from this failure showing that average (or below) still flourishes in these circles. But Thomas Friedman does a good enough job of demonstrating this directly twice a week in the NYT.
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