The Machines are Not our Friends (On Technological Change and Economic Growth)

Contrary to the title of this post, I am no luddite. Though I selectively adopt new technologies, I recognize the value of such things as MP3 players, ereaders, and smartphones. Even so, a growing chorus of economists and business experts are appraising recent technological changes as a very mixed bag for the (American) economy.

On the positive side of the ledger, recent technological innovations are improving our quality of life through ebooks, digital audio recordings, and the wonders of social networking. True, not everyone likes these innovations, but large numbers of people do. Human creativity and communications have benefited enormously from these relatively recent innovations.

A recent column by Rana Foroohar, however, points out the clear downsides of recent advances in computing, software development, and technology more broadly. Here is the bottom line, as it relates to job growth: machines are steadily replacing human workers, in both white collar and blue collar settings, and in various industries. Here is how Foroohar puts it:

Corporate profits are at record highs – the private sector is, in fact, doing just fine – and companies are buying plenty of cool new technology. The problem is that they are using it to replace human workers everywhere, with software eliminating white collar administrative jobs and robots getting Chinese factory gigs.

The Time magazine columnist goes on to quote the influential MIT scholar Andrew McAfee, co-author of the book Race Against the Machine.

For most of the post-World War II period, Americans enjoyed a low unemployment rate (approximately 5-6%) during expansionary economic cycles. Many economists – from across the ideological spectrum – are now arguing that the United States is likely to see historically elevated unemployment for the foreseeable future. Their argument, in large part, rests on the reality of jobs-destroying technological innovation.

But, wait, isn’t economic innovation supposed to be good for the economy? Yes and no. This is why Obama’s statement that the “private sector is doing fine,” is both true and not true, depending on how you assess the state of the economy. As Foroohar correctly notes, private firms are reporting excellent profits by historical standards, even as they are creating relatively few jobs. The main purpose of private companies, though, is not to create jobs. If firms can utilize machines to produce goods and services more efficiently and reliably, they will do so in most cases. And given the very high costs of health care in the U.S., they are especially inclined to choose machines.

In later posts, I will explore the potential geopolitical and social implications of technology-induced jobless growth in the United States. Though the looming 2012 elections in the U.S. are critically important, these economic mega-trends will outlive the next American administration and the next Congress.

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