A recent article in Fortune argues that our economy faces structural problems that technology-based productivity simply cannot solve. This view is based largely on the work of Robert Gordon of Northwestern University. In short, we as a nation have gone economically from riding the back of a rabbit to riding the back of a turtle.
This is an opinion shared by Gar Alperovitz, the noted historian of Atomic Diplomacy. He suggests in a recent LA Times article that stagnation may be the new normal, but not just because of technology.
These are not new debates. Two well-known individuals have recently wrangled over the issue of technology and economic productivity. I have already mentioned one, Robert Gordon. On the other side we have Erik Brynjolfsson of MIT. A good introduction to their respective positions was given at the TED (Technology, Entertainment, Design) forum. Gordon talked about the four headwinds that were keeping us from further innovation and productivity while Brynjolfsson said that the true problem lies in our attitudes toward technology.
Gordon argues that technology has provided us with all the gains we are going to get for now. He says that there is no technological advance on the horizon that can possibly yield the kind of economic gains we had during the post-World War II era. Technology-based productivity gains are at an end until we come up with some kind of sweeping and fundamental technological development like electricity.
Brynjolfsson disagrees, obviously. He points to the potential benefits of big data and social media. He believes that MOOCs (Massive Open Online Courseware) will revolutionize education. He also suggests that rather than whining about how machines are taking our jobs we should simply learn to compete with them, the idea being that machines are not yet creative enough to compete with us in many fields. Of course, this ignores the fact that most of the jobs being eliminated by technology never required much in the way of computing power to begin with, and that high-paying STEM-based jobs are limited to about 5 or 10% of the economy. (STEM is the acronym now in vogue to signify jobs in Science, Technology, Engineering, and Medicine.)
I commented on Brynjolfsson’s recent book several months ago, and can summarize his view in one word: Pollyannish.
IS TECHNOLOGY-BASED PRODUCTIVITY THE PANACEA?
When I took economics in college we were taught about the standard approach to economic modeling, a method called ceteris paribus. This is a Latin phrase meaning “all other things remaining the same.” So, what economists do is collect a bunch of economic data and create a model that represents how their data points interact. This is when they ask the important question: “If I change this one thing, how will it affect everything else?” The problem, as my economics professors pointed out over twenty years ago, is that this type of modeling is limited because the real world has so many feedback loops that you have to take those things into account as well. (Big Data may change this within our lifetimes, but then the question becomes “Who will control it and who will benefit from this near perfect and real-time knowledge of the economy?”)
Why this short lesson in economics 101? Because, those who discuss technology and the economy tend to discuss it as though it is occurring in a vacuum. This is surely an attempt on the part of economists to create a scientific approach to economic behavior. Of course, the new “behavioral economists” are giving these “rational economists” a run for their money. Behavioral economists and neuroscientists are making the dismal science a little less dismal these days, and more informative.
This is what makes Robert Gordon a little more convincing to me. His predictions–although more depressing–seem more honest, more human. His argument is more nuanced because he does not see economic growth as the result of any one factor. In short, productivity, and the technologies associated with it, is only one factor in economic growth. Although technology-based productivity may have been a major contributor to twentieth-century economic growth there is no reason for us to believe it will continue into the present century, and Gordon makes a compelling case for why it will not continue.
ARE WE NOW LIVING IN A SLOW- OR NO-GROWTH ECONOMY?
Let’s assume for a moment that Gordon is right. Let’s assume that we are all now riding on the back of a turtle when it comes to our economic life. If this is a fact, then what should we do as a society?
The classic liberal refrain that “a rising tide lifts all boats” seems like whistling past the graveyard at this point, especially when tens of millions of people in the United States have been for decades grounded by the low tide of stagnant wages and rising prices, a situation that has grown even more stark because of growing welfare spending, excessive debt, the deregulation of the economy, and the wholesale destruction of labor union membership. So, arguing for more of the “invisible hand” rather than a little more planning might not be the answer.
Is it possible that Jeremy Rifkin and others are right about the “no growth economy“? If so, then the only way we can possibly meet head on the problem of slow- or no-growth economics is by coming together as a society and solving our shared problems through political action. However, the present political climate does not allow for this, because you have one side arguing for government intervention while a vocal and organized minority on the other side argues that the government should do even less than it already does.
The argument of Brynjolfsson and classic economic liberals only works if you assume that strong economic growth can be sustained indefinitely through the free market and technology-based productivity, an idea that grows more dubious when we consider the last one hundred years of U.S. economic history. As Gar Alperovitz points out in the article mentioned above, Keynesian policies and the post-World War II dominance of world GDP explains U.S. economic growth better than free market capitalism. In fact, to argue for non-Keynesian growth one would have to go back to the first half of the nineteenth century. However, even then you have the problem of explaining U.S. economic growth without African slavery and the expropriation of the continental United States from Native Americans and Mexico.
DO WE HAVE TOO MUCH FAITH IN ‘THE MARKET’?
One of the major intellectual stumbling blocks for those who have a near religious faith in the market is that they are unwilling to admit how much of the economy of the United States has always been planned. It started with Alexander Hamilton’s vision of a U.S. banking system and manufacturing; it accelerated during and after the Civil War with railroads and all the sister industries needed to support it; it continued with electrification, city planning, Progressivism, and twentieth-century Keynesianism–both military and domestic spending. Subtract, if you could, all these things from American economic history and you would have a very different nation indeed, one that would likely be far less influential in the world and possibly more on par with modern Brazil.
This whole discussion raises a disturbing question in my mind. What if the capitalist system is fundamentally unsound without the intervention of government–what the Right would call Socialism? What if our inability to solve the race problem in the United States has more to do with our unwillingness to admit that Capitalism simply does not allocate national income well enough to ensure domestic peace and tranquility?
CAN EDUCATION ALONE RESCUE US FROM THIS PRESENT ECONOMIC MALAISE?
It is high time we seriously considered the possibility that we are living on the euphoria-inducing fumes of economic myth, one of the most insidious of which is that education leads to prosperity. This does not mean that education is unimportant. It is very important to a nation, especially one that purports to be a democracy (or as the Right might say, a republic). However, it does not follow that education will lead to economic prosperity. The myth that education equals economic opportunity is an idea that is so enticing on its face that it seems heresy to question it, but it is clearly being questioned today, especially when the cost of a higher education leaves individuals so indebted that entry-level wages deny them the basic American Dream for a decade or more.
This economic fetishizing of formal education is a problem not because we are failing to train scientists and engineers for tomorrow’s economy–we’re not–but because it means a less literate and less critically thinking populace, skills that are even more socially and politically important today than they were a hundred years ago. Wouldn’t it be better to sit down and think this all through rather than looking for magic bullets like STEM education or Big Data? Maybe, just maybe, a better organized and more just society would make our economic challenges seems less daunting? Maybe instead of talking about STEM training we should talk about training people in the sciences because there is intrinsic value in it, not just to further a career but to enhance the way we live?
IT’S TIME TO QUESTION ALL OUR ASSUMPTIONS
Let us ask questions, the more the better. Let us ask, how might life be different in the United States if everyone had a top-notch education? Would we be economically better off? Should we only measure education in economic terms? Why should we be so afraid of nuclear power or GMOs? Is climate change real and should we do anything about it? Would having a more egalitarian society solve to a large extent our racial, gender, and ethnic problems?
The bottom line is that there is no economic silver bullet, which is why we must look to our political institutions for answers. Of course, we must first wrench these institutions from the monied interests that have silenced a majority of Americans. A feckless democracy puts us at risk of eventually being left with an economic system resembling a modern form of feudalism, a system where a few private interests crowd out the interests of everyone else.
I know it looks dire. I know that it seems like your voice is not being heard at the ballot box. However, remember this, no matter how many billions of dollars are spent on politics the power you have as a voter will not change. You can effect change. You can still change things through the political process. You can change things by demanding more choice in candidates. You can change things through organizing interest groups of your own, and partnering with others. You can change your small corner of the world by acting locally, and with an eye toward how your local interests might differ from your state and nation. You can make a difference by partnering with your local, state, and federal government. You can demand that everyone in public life, including the business community, is held to a high-standard of behavior, and that we are all playing by the same rules. Most importantly, remember this, economics and politics is ultimately about the long-game. So, if we must all ride on the back of this economic turtle let’s make a commitment to ensure that we all enjoy that ride as much as is humanly possible.