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OpEdNews Op Eds    H3'ed 12/28/16

Trump and Growth

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Neil Irwin used an Upshot column to address the issue of whether Donald Trump can acheive the 4.0 percent annual growth rate he has promised over the next decade. He argues that insofar as it is possible it is likely to involve two items that Trump voters may not like: job displacing innovations and increased immigration. While Irwin is right in identifying these two factors in promoting growth, there are few additional points to add to his discussion.

In the case of job displacing innovation, Irwin points to the prospect of self-driving trucks destroying up to 1.7 million long-haul trucking jobs over the next decade. Irwin notes that these jobs pay an average of $42,500 a year to workers who generally do not have a college education. (Many truck drivers do earn considerably more than this amount, especially if they are in a union.)

While the spread of self-driving trucks is likely to cost a substantial number of jobs, the savings should in principle allow other workers to be paid more. For example, the remaining workers involved in loading and offloading trucks (who might be supervising robots), should be a position to get higher pay. This was the pattern among longshoreman, as pay increased as fewer workers were needed for the job. If there are strong unions and/or a tight labor market, this can be the outcome.

The tight labor market issue brings up a second point. The Federal Reserve Board has been actively working to limit the number of jobs. This was the purpose of its rate hike earlier this month. The point was to slow demand growth in the economy and thereby reduce the rate of job creation. The rationale for this move was the fear of inflation.

Whether or not the Fed is right to fear inflation, there is a simple point here that everyone should understand. The Fed is deliberately acting to limit the number of jobs in the economy. It is more than a bit bizarre that we have people worried that automation will destroy large numbers of jobs who are fine with the Fed raising interest rates to destroy jobs. If we think there are too few jobs in the economy, then we should be very upset that the Fed, an arm of the government, is trying to keep people from getting jobs.

There is of course the problem of the mix of jobs, the jobs the economy is creating may not be as high paying as the jobs lost in trucking and other sectors. This will always be an issue. There can be no guarantee that a worker who loses a relatively high-paying job in trucking or manufacturing will be able to find a comparably paying job, even if jobs are available.

However, here too the Fed plays a large role. Suppose the Fed doesn't raise rates and keeps its foot on the accelerator. We would see labor markets tighten further. This would give workers in low-paying areas like retail and restaurant work the opportunity to find higher paying jobs. If businesses in these sectors wanted to retain their workers they would have to offer them higher wages. In this context we might see wages in even low-paying sectors rise sharply. (Yes, this means fewer workers in these sectors, but the problem the Fed is fighting with higher interest rates is too few workers.)

The result could be that the remaining jobs in even low-paying sectors could still offer decent wages. If this sounds far-fetched then think of a country long ago and far away. The minimum wage in the United States kept pace with economy-wide productivity growth from 1938 to 1968. If it had continued to keep pace with productivity growth over the next 48 years it would be close to $19 an hour today. In that world there may still be workers who stand to lose from innovation, but their employment prospects would not be nearly as bleak as they are today.

Finally, to expand on a point Irwin notes in passing, innovation can displace high-paying jobs. It is already the case that X-rays and other scans can be read over the Internet by doctors in India who get a fraction of the pay of our doctors. Developments in diagnostics are likely to make a trained technician every bit as qualified as the best doctors in determining the cause of a patient's illness. And, robots are likely to be as good as the best surgeons in delicate operations.

In the case of medicine and other very highly paid professions there are enormous opportunities for innovation to improve quality and lower the price. However, doctors are much more powerful than truck drivers. They are much more likely to have friends and relatives who write newspaper columns and hold political office. As a result doctors may be able to maintain and increase protectionist barriers that ensure their high pay. (As it stands they prohibit anyone who has not completed a U.S. residency program from practicing in the United States.)

The point is that whether or not innovation puts downward pressure on the wages of workers or leads to broadly shared prosperity, as it did in the period from 1947 to 1973, depends on the institutional structure in place. In the last four decades the structure has been designed to redistribute upward, as I explain in my new book Rigged. (It's free.)


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Dr. Dean Baker is a macroeconomist and Co-Director of the Center for Economic and Policy Research in Washington, D.C. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University. (more...)
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