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Robots and Productivity Growth

Sunday, 22 June 2014 08:05

Steve Rattner has a column in the NYT in which he correctly argues that robots should not provide any reason for concern about future labor market prospects. As Rattner correctly points out, robots are just another form of productivity growth. As a general rule, productivity growth allows for rising living standards and more leisure. Rattner is also right to point out that productivity growth has actually been unusually slow in recent years, the opposite of the concern about robots destroying jobs.

Where Rattner goes wrong is in arguing that the gainers and losers in terms of labor market prospects have been determined by technology and globalization, as opposed to policies that have been designed to make some groups winners and some groups losers. This is very clear from examining the list of winning occupations on his chart. The highest, with median pay of $187,200 in 2012, is physicians. (Most other sources put the median pay of doctors at well over $200,000.) Our doctors are paid close to twice as much as their counterparts in other wealthy countries. This is primarily because we have a government policy of protecting them from both foreign and domestic competition.

Similarly people in finance can get enormous pay because the government grants large banks too-big-to-fail insurance, meaning it bails them out when their incompetence puts them into bankruptcy. (The I.M.F. recently estimated the size of this subsidy at $50 billion a year.) The government also subsidizes the industry by taxing other sectors more so that the financial sector can largely escape taxation.

Anyhow, Rattner is right that we need not fear productivity growth but he is wrong to claim that the winners and losers have been determined by the natural course of economic development as opposed to deliberate government policy.


Comments (10)Add Comment
Rewards of productivity growth going nowhere but up the income curve
written by Dennis, June 22, 2014 10:06
You say: As a general rule, productivity growth allows for rising living standards and more leisure.

We can see, happening all around us, that this isn't true any more, and hasn't been for some time. Even if the average living standard is rising, for most people it really isn't.

Unless we change our policies dramatically--e.g. 30 hour work week, no exemptions from overtime pay, guaranteed min income, higher min wage, among other ideas--there is little incentive for capital to share the gains.

This will only accelerate with 1) the increasing ability of machines to work independently, and 2) the Amazon Effect.

Although I would argue that increasing automation has had a negative effect on income distribution for some time now, at least in the past capital needed labor to work with and support the machinery. When that is no longer true, the trends we are seeing now will only worsen.

The Amazon Effect ensures that ownership of private business profits will become even more concentrated. Amazon is devouring the big box stores in the same way that they destroyed small businesses around the country in the last wave of concentration. It is easy to see why Bezos chose the name Amazon.

Eventually, businesses have to have people with the means to buy the products they want to sell, but how bad does it have to get before policies will turned around in the U.S. ? Global businesses don't care if there customers are here or somewhere else in the world. In fact, most of them are assuming that the bulk of future growth will be in low wage regions of the world. We will reach an equilibrium with the rest of the world at some point, but by then living standards here will be far lower than the rosy projections assumed by general rules about productivity growth resulting in higher living standards.

Sorry, noticed a few typos in my comment after posting it
written by Dennis, June 22, 2014 10:11
"there" --> "their"
"turned" --> "turn"

I can't see a way to edit comments, though
Can't Lose for Winning
written by Last Mover, June 22, 2014 10:52
Where Rattner goes wrong is in arguing that the gainers and losers in terms of labor market prospects have been determined by technology and globalization, as opposed to policies that have been designed to make some groups winners and some groups losers.

Any economist knows the potential problem of losers is always resolved by paying them off so the innovation in question can go forward as everyone wins as well. Why do you think economic predators like the Koch bros are so keen on charitable contributions?

Why just the other day I experienced this firsthand. As a self pay patient in need of high technology treatment, my doctors office informed me the next treatment would increase in price by only 50% instead of 100% due to successful patent extensions of existing technology already part of the treatment.

Why asked why, they explained a decision was made to price gouge those with more money than me who was considered at risk of dropping the treatment altogether.

So I was better off. Because of innovations already there, now protected further out from competition. Because I would pay for it at a 50% increase but not a 100% increase. I was effectively bribed unwillingly by extractions from those to be gouged.

This is good to know. If they hadn't explained it, I would never have realized I was a winner.

Never forget America, technology as the driver of productivity also drives winners and losers, where the means to get there is a market price free of manipulation, driven instead by true economic cost of production from the supply side and true need from the demand side.

But not to worry, this never results in a winner-take-all economy because losers are always paid off for their damages to guarantee no one is worse off and everyone wins from the advance of technology.
written by Fed Up, June 22, 2014 4:18
Any reason Steve Rattner can't have his writing and investment advisor job(s) automated away?
I want to believe him, but I'm less sanguine
written by Nick Batzdorf, June 22, 2014 6:56
"Of course, I can’t prove that the impact of some new wave of technological innovation won’t ever upend thousands of years of history. But it hasn’t happened yet."

No it hasn't happened yet, and I desperately want to believe what Rattner says, but I have yet to hear anything to convince me that it won't happen. How can, say, 3D printing not be totally devastating to manufacturing jobs?

That's why I believe we need policies that expand ownership of the robots. If ten people own them, everyone else will be SOL.

What's going to take the place of 47% of total US employment over the next couple of decades?

Yes Virginia, there is Rent Seeking....
written by pete, June 22, 2014 8:26
Why is this shocking? The fact that Big Government is a tempting morsel for big lobbying should be so obvious! But noooooooo.....the ivory towered think that there are ideologically sound solutions to problems that are so clear that no government would avoid them.....insanity at its best definition..

Please do not forget that Rattner was deeply involved in saving the corrupt GM, which, like B of A, Counntrywide, Fannie and Freddie, and other problematic firms, should have been shredded. In China the principals like James Johnson and Raines, with cohorts Barney Frank and Dodd and Shumer, would have been shot.
written by liberal, June 23, 2014 8:22
pete wrote,
The fact that Big Government is a tempting morsel for big lobbying should be so obvious!


The biggest government subsidy, dwarfing all others by at least an order of magnitude, is private land ownership in the absence of an ad valorem tax that captures land rent for the government. To the tune of 10--20% of GDP/yr.

But does pete support land value taxation? No...
Three factors
written by LSTB, June 23, 2014 9:15
"As a general rule, productivity growth allows for rising living standards and more leisure."

This is only true when capital substitutes for land. When capital substitutes for labor, then the benefits go to landowners via a higher share of net income going to rent.
written by Paul, June 23, 2014 6:06
Even assuming for the sake of argument that robots are not increasing productivity, they are replacing workers and contributing to unemployment.
Would appreciate some more CEPR comments on technology and job loss, now and prospectively.
Beyond Jobs
written by Wolfgang Price, June 24, 2014 2:08
The 20th century transition phase to an urban based, educated, massive wage-labor corps tending to the increasingly machine-oriented means of industrial and commercial production climaxed the best of times for an industrious ‘middle-class’. And it amassed fortunes for an elite ‘upper class’ of corporate officialdom and investors. Combined it was an ‘arrangement’ that for the wage-labor generation following would afford ample employment opportunities, upward economic mobility and ‘American-style’ success.
Going forward the 21st century industrial transition will mark yet a new course in the phase of wage-labor. The brutish machine of former days is becoming increasingly accomplished, ‘independent’ and self-regulating. And one finds no longer random specialized machines that require labor for integrating the component parts in creating the final product. Fabrication processes are integrated, continuous and programmed. Similarly the flow of information for administration will be relieved of multiple labor handling. Decades into the 2100 era will realize vastly expanded output along with drastic declines in wage labor employment. Moving-on the showcase state of middle-class wage-labor with steady increases in real income is phasing-out for successor generations of young adults. Productivity will continue to mount, GDP ex-pand, but requirements for mass wage-labor decline.
Approaching 2050 and beyond the industrial developed nations confront an era-changing transition where the economy faces a constant labor ‘surpluses’ and where in the economy and society the status of the working-age individual assumes a markedly lesser role as ‘instrument’ in productive processes. It is proposed we should look well beyond the immediate distress of unemployment and its popular alleged indictments (public and private debt, bubbles, financial fraud, lax education, etc.) and earnestly realize what threshold events shape industrial development and labor’s stake in its future. The economic reality of the 2000+ era marks a productive age of rapid technology (automation, informatics, robotics, humanoid activity) innovation. The course is hazy. Clear is that the recent past paradigm of en-mass utilization of wage-labor for boosting productivity in the private and public goods producing sectors wanes.

W. Price

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.