Technology and innovation are getting a lot of attention on the world economic stage these days, but people are divided as to whether that’s a good thing or a bad thing.
For the past year, economists and government officials—starting with former U.S. Treasury Secretary Larry Summers—have been warning us about “secular stagnation.” And no, it doesn’t have anything to do with church.
“Believers in secular stagnation argue the rich world is entering a spell of feeble growth thanks to a toxic mix of weak demand and stalling technological innovation. Low interest rates are a symptom of this decline, indicating a dearth of profitable opportunities for savers and investors,” explains the Wall Street Journal. (If you really, really want to learn more about secular stagnation, here’s an ebook.)
Part of the problem has to do with demographics: After not having had very many kids, people are getting older, leaving the workforce, and saving their money rather than investing it. This has had a negative effect on economic growth. “Economic growth consists of having more workers and making them work more efficiently (productivity),” writes the Economist. “One can see that productivity will have to work very hard indeed to offset demography.”
Consequently, economists and government officials around the world are frantically looking for things to goose their respective economies. Using the various Industrial Revolutions as a guide, where technology and innovation became the major drivers of growth, some economists are looking at them to rescue us once again. But others aren’t so sure and are, in fact, blaming technology and innovation for contributing to the problem in the first place.
At the risk of offending President Harry S Truman, who famously said, “Give me a one-handed economist! All my economists say, On the one hand, on the other…” here are the two sides of the debate:
On the one hand, technology and innovation are good for the world economy because new products encourage people to buy more things. And unfortunately, even with all the new smartphones and bigger TVs out there, people aren’t buying enough things. Despite the ad industry’s best efforts, people who bought an iPhone last year aren’t leaping to buy a new iPhone this year, and people who bought a 54-inch television last year aren’t eager to replace it with a 60-inch this year, even if it does have 4K. (This may be why, in fact, there’s been such an emphasis on the Internet of Things: an attempt to create new products that people want.)
But declining levels of research among companies, falling public investment and growing inequality could end up hurting the prospect of further technological innovation, warns the Bank of England’s chief economist, Andy Haldane. “They could jeopardize the promise of the fourth industrial revolution.”
On the other hand, technology and innovation are bad for the world economy because they are developing ways to eliminate jobs, particularly low-skilled positions. When Amazon and other companies move to robots in their warehouses and production lines, and when McDonald’s finds ways to have people order their own hamburgers, they’re not hiring people to do those jobs, and the workforce stalls. Yet, growth of the workforce is a major factor in economic growth, writes John Cassidy in the New Yorker. In addition, technology and innovation are also helping make products less expensive, and that means less revenue.
Moreover, the innovations that have been developed are not necessarily the kind that help productivity, warns Robert J. Gordon, an economics professor at Northwestern University. “Many of the inventions that replaced tedious and repetitive clerical labor with computers happened a long time ago, in the 1970s and 1980s,” he writes. “Invention since 2000 has centered on entertainment and communication devices that are smaller, smarter, and more capable, but do not fundamentally change labor productivity or the standard of living in the way that electric light, motor cars, or indoor plumbing changed it.”
But technology executives such as Google’s Eric Schmidt, Facebook’s Sheryl Sandberg, and venture capitalist Marc Andreesen pooh-pooh these concerns, saying technology gives more people access to world markets. Others note that robots increase productivity and free people from drudge jobs—which is great only if there’s actually something else for those people to do to earn a living.
Finally, we need to remember the other great economic aphorism, George Bernard Shaw’s, “If all the economists were laid end-to-end, they would not reach a conclusion.” Keep in mind, for example, that the last time people talked about secular stagnation in a big way was in the late 1930s, just before a period of major economic expansion.
“Critics of secular stagnation say future innovation can’t be foreseen, and that the theory will ultimately prove just as unfounded as it did to an earlier generation of economists when it was first proposed right before the long boom that followed World War II,” writes the Journal.
Here’s hoping history will repeat itself, and just invoking the issue means we will embark on another long boom.
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