Reprinted from Hankyoreh
A standard fear raised in Washington policy debates is that the development of robots and other forms of technology will displace tens of millions of workers, leaving much of the workforce without jobs. This is a remarkable story both because it is not supported by any evidence, but also because it goes in the opposite direction of virtually all the main concerns raised in debates over economic policy.
The story of the rising robots should mean that we are seeing a rapid increase in the amount of output per hour of work. The logic is that the robots are doing work that humans used to do, so we have more output for every hour of human labor.
In fact, we are seeing the exact opposite. The rate of productivity growth, which measures output per hour of work, has slowed sharply in recent years. In the last five years productivity growth in the United States has averaged just 0.4 percent annually, the slowest five-year stretch on record. This compares to a rate of close to 3.0 percent annually from 1995 to 2005, which was also the rate of productivity growth during the long post World War II Golden Age, from 1947?73.
There also is no evidence of any uptick of investment in the sectors that would be fueling a robot driven productivity boom. Real investment in information processing equipment has increased by less than 5.0 percent over the last year. That's hardly the basis for a productivity boom.
While the robots taking over story lacks any evidence in the data, it is also 180 degrees at odds with the country's current policy agenda. This is perhaps clearest with Federal Reserve Board policy. The Fed opted not to raise interest rates at its most recent meeting, but it did hike rates in December and has indicated that further rate hikes remain in its plans for 2016.
The logic of raising interest rates is a concern that we have too few workers. The concern is that too much demand for labor relative to the supply will push up wages, which will in turn lead to higher prices, leading to a scenario of spiraling inflation. The purpose of raising interest rates is to reduce consumption and investment demand and housing construction, thereby reducing employment so that the country does not run out of workers.
This is the same argument for cutting government spending and bringing down the budget deficit. The case for this policy is that too much demand in the economy is pushing the economy against its limits, most importantly the limited supply of labor. In this context we again would see a story of either rising interest rates and/or higher inflation due to an excessive budget deficit.
And the often told demographic catastrophe story of too few workers and too many retirees is quite explicitly a story where we have too few workers. The problem is that a large population of retirees will be making huge demands on the economy at a time when there are not enough workers to meet this demand. It's rare that a week passes without some prominent politician urging the country to reduce its retirement benefits to cope with the looming demographic crisis.
The fact that concerns about robots taking all the jobs can persist side-by-side with concerns that we are running out of workers says a great deal about the state of debates on economic policy at present. Apparently, few of the participants in these debates even recognize the fundamental contradiction involved. This is like worrying that we will simultaneously be afflicted with record rains and a severe drought. Either is in principle possible, but they cannot occur at the same time. That shows a great deal about the quality of modern policy debates.
In terms of the underlying issue, whether we face a problem of robots taking all the jobs or too few workers, I come down firmly in the middle. There is little reason to think that rapid productivity growth should pose a problem for workers. We had rapid productivity growth in the Golden Age and it was associated with low rates of unemployment and rapid wage increases, as workers shared in the benefits of productivity growth. Given the slow current pace of productivity growth it is difficult to believe that it will quickly accelerate to a point that is so much faster than in the Golden Age, so that it is actually difficult to combat the job displacement with new jobs in other sectors.
On the other hand, those concerned about labor shortages also seem wrong in every respect. The U.S. labor market is still far from recovered from the full impact of the Great Recession. Employment of prime age workers (ages 25-54) is still almost 3 full percentage points from its pre-recession level. Given the realities of today's labor market, there is no reason for the Fed to tighten up with higher interest rates or Congress to reduce already modest budget deficits.
On the larger demographic story, we have been seeing the same picture for the last 70 years. The population is getting older as has been the case for decades. The impact of population ageing will be swamped by the impact of even very low rates of productivity growth.
In short, there are not unsolvable real world economic problems out there. The big problem is a policy elite that doesn't seem to understand economics.
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