Ask any economist why some countries are poor and some countries are rich, and they will probably answer, “productivity”. Essentially, this means that people in rich countries are rich because they are able to create more wealth with less effort. But how do they do this? One of the primary ways is through better technology.
Unfortunately, instead of being recognized for its contribution to wealth, better technology is all too often demonized as a threat to employment, particularly in low-income countries without social safety nets. Intuitively, people care more about the jobs and income streams that already exist than the potential future savings from automating their jobs–a bird in hand, as they say. But a new paper by Mehmet Ugur and Arup Mitra of the University of Greenwich shows that even in very poor countries, technology is far less threatening than it may appear.
We have argued here before that robots are not taking our jobs: in the long run on a macro level productivity increases have no relationship with either the total number of people employed or with the level of unemployment. This is because when automation or … Read the rest
U.S. productivity growth is stagnating, and if the trend continues it could have a drastic impact on the U.S. economy. Without increasing productivity, the only way for a country to get richer is by working more or borrowing more. Furthermore, productivity is a crucial part of international competitiveness, because it is only by increasing our productivity that we can compete with other countries on cost.
A recent BLS news release does a good job of showing the worrying trends. Productivity growth has been abnormally low since approximately 2006, plummeting through the Great Recession, recovering slightly immediately afterward, and slowing considerably since 2010.
The first graph below (Chart 1) provides historical context back to 2000. There is a clear decline in labor productivity (the dark blue line) and also multifactor productivity (light blue). These are the two most common ways of understanding output growth: labor productivity estimates how much each worker produces and multifactor productivity tells us how much each worker and unit of capital can together invest.
Looking back a bit further in time, the next graph (Chart 2) estimates the amount that different factors contributed to total productivity growth. … Read the rest
In 2004, the Department of Veterans Affairs was forced to scrap a multimillion-dollar computer system that was designed to streamline the agency’s costs. Ironically, the project cost taxpayers $265 million, and is one of many examples of federal IT projects which go massively over budget and under deliver. Part of the reason for these failures is the last time we made significant changes to how our government acquired its own IT was the Clinger-Cohen Act of 1996. This law was enacted the year before Google.com was registered as a domain name, back when Windows 95 was the new big thing. Almost two decades later, while innovation has continued to press forward, our government’s ability to efficiently acquire new IT has lagged miserably behind.
Luckily, a few lawmakers are trying to remedy that. In March 2013, Congressmen Darrell Issa (R-CA) and Gerry Connelly (D-VA) introduced H.R. 1232, the Federal Information Technology Acquisition Reform Act (FITARA), to overhaul the federal government’s approach to acquiring IT. The bill seeks to designate clear responsibility and authority over federal IT investment, enhance the government’s ability to get good IT, strengthen the federal IT … Read the rest
Techno-utopianism seems to be a particularly American phenomena. As I argued in The Past and Future of America’s Economy it seems like about every half century – usually as it turns out right before a big structural slowdown of technological innovation – pundits and scholars start to go overboard on how great the techno-enabled future will be. Case in point was the 1967 book Year 2000 written by Herman Kahn, noted futurist and founder of the Hudson Institute. Kahn relied on the new “science” of forecasting and ended up with a book that had the tone of “you ain’t seen nothing yet.” He wrote:
This seems to be one of those quite common situations in which early in the innovation period many exaggerated claims are made, then there is disillusionment and swing to over conservative prediction and a general pessimism and skepticism, and then when a reasonable degree of development has been obtained and a learning period navigated, many – if not all – of the early ‘ridiculous’ exaggerations are greatly exceeded. It is particularly clear that if computers improve by five, ten or more orders of magnitude over the … Read the rest
In gloomy economic times such as these, we naturally look around for sources of blame. Former saviors make easy targets.
The tech boom of the late 1990s was great for the U.S. economy: GDP rose, unemployment dropped, and median incomes even made their most significant gains since the 1970s. Most people understood this success was due to new technology–and to information technology in particular–and they expected IT to be a main driver of the economy for years to come. Our bold New Economy had arrived, with all the convenience and style of America Online.
But the 2001 recession shook our faith in technology, and in the aftermath of the 2008 financial crisis many have turned on our would-be robotic saviors. Their disillusionment takes on the forms of disappointment, fear, or both.
The disappointed see our IT revolution, chock full of smartphones and big data, and ask, what good has it made in the real world? Recent technologies have changed our lives, certainly, but not with the productive power of previous advances. Instead: we order takeout via the internet instead of the phone; we watch YouTube at work in … Read the rest
Evidence of technological change is all around us—smartphones, self-driving cars, amazing drug discoveries, and even drone warfare. With all of this novelty many futurists and other pundits breathlessly proclaim that technological change is speeding up. In fact, some go so far as to claim that the pace of innovation is not only accelerating, it is accelerating exponentially (which, anyone with a rudimentary understanding of exponents can see, is utter nonsense). Peter Diamandis, author of Abundance: The Future Is Better Than You Think, argues that “Within a generation, we will be able to provide goods and services, once reserved for the wealthy few, to any and all who need them. Or desire them.”
But is the rate of technological change really getting faster? Other commentators, including some notable academic economists, actually think the opposite—that we have run out of the “easy” technological advances and new breakthroughs will take much more work.
Questions about the rate of technological change may seem trivial—will I get one hoverboard or two?—but getting a handle on an answer is critical because in economic terms, technological change equals economic growth. And growth has powerful implications for … Read the rest
After already slashing R&D funding, the Sequester is about to deliver another kick in the teeth to American competitiveness: it’s going to sharply reduce our ability to measure it. This one comes courtesy of the Bureau of Labor Statistics, which announced last month that the sequestration has forced it to eliminate its International Labor Comparisons (ILC) program, a neat little database that adjusts foreign data to a common framework, allowing you to compare the traded sector health and competiveness of the United States against that of other countries.
This may not sound like much, but in the nerdy world of competitive analysis economics, it’s huge. No one else provides this data to the same extent as ILC. The OECD does a bit,[i] but their data are rife with warnings about the perils of cross-country comparison among their indicators. Moreover, the OECD has little-to-no data on the big boys such as China and India, which renders its data useless for any “big picture” comparisons of our competitive health. Other organizations, such as the UN Industrial Development Organization, provide limited competitiveness data that is vastly incomplete.
In contrast, the ILC … Read the rest
The single most important question regarding the future of the U.S. economy is whether productivity growth will be robust going forward. Recently there has been vigorous debate over this question, with some like MIT’s Erik Brynjolfsson arguing for robust, and others like George Mason’s Tyler Cowen arguing for stagnation. The newest foray into this debate comes from Northwestern’s noted economist Robert J. Gordon, through a non-peer-reviewed working paper published by the National Bureau of Economic Research (NBER) entitled “Is U.S. Economic Growth Over? Faltering Innovation Confronts the Six Headwinds.” Gordon’s paper has received widespread attention for his provocative thesis that U.S. productivity growth is essentially over and that the average American will be no better off, and likely worse off in the future. No wonder neo-classical economics is called the dismal science. Luckily, innovation economics can be called “hopeful” science, for as I will explain; I believe Gordon’s thesis is fundamentally wrong.
Gordon’s paper is framed in two parts. First he argues that productivity growth (output per hour) in the recent past has been weak and will cascade towards zero and remain there for the foreseeable future. Second, he asserts … Read the rest
am flying to SFO this morning really early out of Dulles and as usual even at 6:00 AM there are long lines at the TSA checkpoint. Dulles has at least 15 security lanes but I have never seen them all open. When I asked a TSA staffer why, he said they didn’t have the budget to staff them all. And its likely to get worse as the TSA budget is cut this fiscal year.
The problem is so similar to our roads. We have massive traffic congestion because congress won’t raise the gas tax to build more roads-lanes. And it doesn’t seem that congress will increase highway funding or TSA funding anytime soon. So the answer should be clear; let users who want faster service pay more. On a lot of trips, I’d be happy to pay a small fee when I buy my plane ticket if that could allow me to wait in a shorter line. Others might not want to pay a toll but for the times they are late, they might be happy to pay a few bucks at check-in so they make their flight on time. Similarly, I’d be happy to pay a toll to drive on roads without congestion on the days I am running late. Some will say the new TSA-pre program will help but it will not be enough. It doesn’t add screeners, it only speeds things up a little bit for some people. The TSA toll program may not work at airports like Reagan National where all the screening gates are almost always manned. But at airports like Dulles and others, it will enable the TSA to fully utilize all screening gates and better provide their services. … Read the rest
I should just get a macro for my computer so that when I type “Control T” it writes “Tom Friedman is wrong because” since he so often is, as I pointed out here. But in Today’s New York Times Op-Ed he does it again, only maybe even worse; blaming technology for joblessness. When will he and others realize this is not the case. He writes that information technology “is more rapidly replacing labor with machines.” Well, if this were true, how does he explain the fact that productivity growth rates were much higher in the last five years of the 1990s than the last five years of the 2000s? And yet, unemployment was much lower in the 1990s period.
He then goes on to quote Davidson’s equally incorrect article in The Atlantic which rightly points to the devastating loss of U.S. manufacturing jobs in the last decade and blames technology. No. As we point out, it was the loss output due to decline in U.S. competitiveness, not automation, that was responsible for the big loss of manufacturing jobs. Manufacturing experienced about the same rate of productivity growth in … Read the rest