A few years back, President Barack Obama claimed that America was experiencing “structural issues with our economy.” It wasn’t simply that inflexible Republicans were standing in the way of prosperity but that “a lot of businesses” had become more efficient. “You see it when you go to a bank and you use an ATM,” he went on, “you don’t go to a bank teller, or you go to the airport and you’re using a kiosk instead of checking in at the gate.”
That didn’t seem right. Innovation creates jobs, drives output and growth and improves the quality of goods, services and our lives. Or, at least, that’s the theory economists have been peddling.
As it turns out, these days there have been an increasing number of stories backing up Obama’s contention. “It’s the great paradox of our era,” says Erik Brynjolfsson, a professor at the MIT Sloan School of Management. “Productivity is at record levels, innovation has never been faster, and yet at the same time, we have a falling median income and we have fewer jobs. People are falling behind because technology is advancing so fast and our skills and organizations aren’t keeping up.”
The Associated Press offered a three-part series contending technology was killing jobs. Computer science pioneer Jaron Lanier was widely quoted arguing that the Internet had killed the middle class. Millions Of Middle-Class Jobs Killed By Machines, a Huffington Post story explained. In Atlantic, we learn “How to Protect Workers From the Rise of Robots.” Last month, two economics professors David Autor and David Dorn laid out a similar case in a New York Times titled How Technology Wrecks the Middle Class:
This job drought has spurred pundits to wonder whether a profound employment sickness has overtaken us. And from there, it’s only a short leap to ask whether that illness isn’t productivity itself. Have we mechanized and computerized ourselves into obsolescence?
The economy grows, innovation ratchets up — but jobs do not. Even during the 2000s, when productivity grew at a faster pace than it had in decades, median income declined slightly. Is creative destruction breaking the middle class? Has technology outpaced our ability to adapt? Are robots destroying the prospects of a vibrant future?
Maybe. But the theory has a few holes.
For starters, technology always kills jobs. American industry did not stumble upon innovation in 2007. The first ATM machine was installed in 1969, after all, and some of you may never have spoken to a live bank teller. Are today’s modernizations really more disruptive than those hatched during the first half of the 20th century or the Industrial Revolution? It seems unlikely that Facebook is a bigger game-changer than the mass production of the automobile.
Donald Boudreaux, professor of economics at George Mason University and blogger at the free-market Café Hayek blog, points out that he has “no reason to suppose that 3D printing poses a greater threat to overall jobs and economic opportunity than did power looms of centuries ago.” We’re richer, better educated, have better access to information, and travel much more easily, at lower costs than our early-industrial ancestors. “Also,” he goes on, “capital markets are more advanced. So I can’t think of a good reason why people today are less able than were people in the past to deal with creative destruction.”
Most labor economists are equally skeptical of the too-much-productivity-is-a-job-killer theory. As Harvard economist Richard Freeman told the MIT Technological Review, it’s very difficult to “extricate” the effects of technology from other macroeconomic effects.
Better than the alternative
So why is this idea so popular on the left?
Playing on these kinds of fears during a transforming economy is a political no-brainer. And no one can deny that there is genuine turmoil in communities and industries that are decimated by capitalistic innovation. Some of this is due to greed and stupidity, and some of it the unavoidable byproduct of prosperity. (Progressives rarely make a differentiation between them, as we saw in the last presidential election.)
But isn’t it more plausible that in this instance the systemic coddling of government-favored corporations has finally taken a toll on job growth? Isn’t it more probable that government’s habit of rescuing rotting corporations from their well-deserved fates — companies like AIG or General Motors — has placed barriers in front of newer innovative outfits? Isn’t it more likely that an administration that fosters a “fairer” economy over an innovative one is hampering job creation?
Question: Which one of these things is more likely to undermine economic activity:
b) over 12,000 new pages of regulations added by this administration
“The temptation is to blame markets if, for ordinarily workers, creative destruction is more destructive than creative,” Boudreaux says, “But perhaps the accumulation over the years of capital-market regulations, labor-market and occupational-licensing regulations, consumer-products-market regulations, and the hidden taxes (e.g., Obamacare) that attend many of these regulations are, unlike in the past, finally indeed preventing markets from doing what markets would otherwise naturally do: create new opportunities for workers displaced by technology.”
Then there is this uncomfortable truth: innovation doesn’t occur where and when pundits, computer scientists and technocratic presidents expect– no matter how hard they push the issue.
We can lament that Kodak employed 140,000 people yesterday and Instagram employs only 13 today. But hydraulic fracturing — the process of injecting water, sand and chemicals to free gas trapped in rock –- is an innovation estimated to create millions of new. Washington has little appetite to foster that innovation, though it will displace billions yearly in massive collective pursuits, like keeping unproductive farmers and clean-energy start-ups in business.
Americans tend to romanticize bygone days when a union-card lunch-pail carrying laborer could head to a factory job and create something tangible for consumers. (Well, more precisely, elites romanticize such a life for the proletariat, not their college-bound children.) But perhaps the measurements of economics activity that we have used for decades is misleading anyway. It is something Boudreaux wonders: “Might it be that the products and productive activities that statisticians, economists, and policymakers look for when looking for the job growth that is offsetting job losses are things difficult to detect because our empirical categories are incognizant of them?”
Something is off. And these are all theories, of course. But if you think about the history of prosperity — or better yet, read Matt Ridley’s compelling book on productivity, The Rational Optimist: How Prosperity Develops – you will notice that innovation and efficiency have never hurt an economy overall. This would be the first instance. And, really, how likely is that?