November 02, 2022
Thomas Edsall’s latest column tells readers how people in power, including many Democratic type people, have made decisions that have seriously worsened the situation of the 60 percent of the workforce without college degrees. While the basic point in the column is completely true, the column gets one important fact badly wrong, and hugely understates the extent to which the screwing of noncollege educated workers was the result of deliberate government policies.
The fact the column gets badly wrong is the claim that “automation” has somehow sped up in recent years and is rapidly displacing less-educated workers. Automation is not a well-defined concept, economists would more generally talk about productivity growth. This is well-defined and we have good measurements of productivity growth going back to the end of World War II.
From the standpoint of an individual worker, or the economy, it doesn’t matter if their labor is no longer needed due to an assembly line speed-up, greater efficiency in organizing the workplace, or robots. In all three cases, fewer workers are needed. The obsession with automation as something new and different is completely misplaced.
If we look at productivity growth, we get the opposite of the story that Edsall and his sources are telling. In the last decade productivity growth has averaged just 0.9 percent annually. Productivity growth has been slow in the pandemic, but even if we take the decade from the fourth quarter of 2009 to the fourth quarter of 2019, productivity growth averaged just 1.2 percent.
By contrast in the years from 1947 to 1973 productivity growth averaged 2.8 percent. This was a period of rapidly rising wage growth, with pay for workers at the middle and bottom keeping pace with the overall rate of productivity growth.
The picture does not change if we just look at manufacturing. Productivity in manufacturing has actually been flat over the last decade. In the decade from the fourth quarter of 2009 to the fourth quarter of 2019 it rose at a 0.2 percent annual rate.
In short, the story of workers being rapidly displaced by automation, robots, or anything else does not fit the data. Furthermore, rapid displacement is not necessarily bad news for workers, as shown by the strong wage growth that accompanied the strong productivity growth in the decades following the end of World War II.
If we had a story where we were seeing rapid productivity growth, accompanied by rising inequality, then we could say that we face an unfortunate trade-off, with the cost of more rapid growth being higher inequality. But in fact, the opposite is the case. We see very slow productivity growth accompanied by rising inequality. It is not clear what gain we are supposed to be getting for this increase in inequality.
Not Free Trade
The other part of Edsall’s story is 100 percent accurate. We designed trade policies to put our manufacturing workers in direct competition with low-paid workers in developing countries. This cost us millions of manufacturing jobs and put huge downward pressure on the wages of workers who still held their jobs. As a result of the massive job loss due to trade, the wage premium for working in manufacturing has largely disappeared.
But this policy was not “free trade,” as Edsall says. We made a conscious decision to put manufacturing workers in direct competition with much lower paid workers in developing countries, while continuing to protect more highly paid workers. We could have designed trade policies that would have made it much easier for doctors, dentists, and other highly educated professionals in developing countries (and rich countries) to come to the United States and compete with our professionals.
This would have offered large gains to the economy, as we could have saved hundreds of billions of dollars annually paying less money for these professionals. Our trade negotiators never pursued this type of free trade because doctors and lawyers have far more political power than steel workers and textile workers. As a result, we structured trade in a way that redistributed a huge amount of income upward and pretended that it was just the natural course of globalization. But wait, it gets worse.
Government-Granted Patent and Copyright Monopolies
The fact that some people (those with college and advanced degrees) are better positioned than others to benefit from advances in technology is not an accident. It is by design. The reason that these people are able to be winners from technology is because the government grants patent and copyright monopolies for innovations and creative work. Over the last four decades it has made these monopolies longer and stronger, which increases the amount of income going to those in a position to benefit from them. (See my discussion in chapter 5 of Rigged [it’s free] or here.)
As a result, a massive amount of income has been redistributed upward. This has made a small number of people tremendously rich, such as Bill Gates, whose fortune depends on the government’s protection of Microsoft’s patent and copyright monopolies. It has also allowed millions of others to earn far higher paychecks than if these monopolies were weaker, or if we relied on different mechanisms for supporting innovation and creative work.
The recent experience with Moderna and its COVID-19 vaccine illustrates this point perfectly. The government paid Moderna $450 million to develop a vaccine. It then paid another $450 million for its final phase 3 clinical trials that provided the basis for the FDA’s approval. It then allowed Moderna to have control over the vaccine. The result was that we got at least five Moderna billionaires as its stock price rose by tens of billions of dollars. Undoubtedly, many other Moderna employees became millionaires, although probably not the people who serve lunch in its cafeteria or clean its toilets.
Of course, this money comes from somewhere. We pay about $400 billion a year (around $3,000 per family, each year) more for prescription drugs because the government provides patent monopolies and related protections. We pay around $100 billion a year more for medical equipment and several hundred billion more for computer software.
This is all money out of the pockets of noncollege educated workers. And when the big winners in this story decide to spend their money on houses and other items, we get the inflation we are seeing today, which apparently has everyone so upset.
The key point is that this is all by design. We could have told Moderna that we are going to pay them to develop its vaccine, but then everything is in the public domain. Anyone, anywhere in the world can manufacture it. Furthermore, its nondisclosure agreements with its engineers are unenforceable. This means that they could all sell their services to anyone who wants to pay them to set up manufacturing facilities.
In this alternate universe, the key people behind developing the vaccine would almost certainly be well-compensated, but we would be talking millions, not billions. The decision to structure our rules on technology, so that a relatively small segment of the population could benefit hugely at the expense of everyone else, was a political choice. It was not something that technology did.
This is what I refer to as “the Really Big Lie.” The idea that somehow globalization and technology developed in a way to screw workers without college degrees and it just so happened that more educated workers were big winners. And, many of the more educated workers are good liberals, so they would even be willing to pay higher taxes to help out the losers with various social programs.
Given this reality, is it surprising that the people who were screwed would be angry at the “winners?” To be clear, I am sure that almost no one among the angry non-college educated has given any thought to government-granted patent and copyright monopolies or the protection from competition that their doctors enjoy.
Why would they? These points are almost never made in major news outlets and politicians like Trump push racist stories about lazy Black people and immigrants ruining their world.
But these people are absolutely right that they have been screwed by policies pushed by an educated elite. It is tragic that they see an outlet for their anger in going after the most disadvantaged segments of society, but they do have a real basis for their anger and perhaps some day this fact can be discussed in outlets like the New York Times.