tag:blogger.com,1999:blog-17232051.post1437406704531442411..comments2024-03-28T03:16:14.104-04:00Comments on Noahpinion: Technology in the gapsNoah Smithhttp://www.blogger.com/profile/09093917601641588575noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-17232051.post-24406775017078809892011-11-20T10:40:47.393-05:002011-11-20T10:40:47.393-05:00It is difficult to comment on this post without re...It is difficult to comment on this post without responding to Tyler Cowen's hypothesis at length; the world is highly complex and inter-causal, but here it goes.<br /><br />Creative destruction occurs all the time. In the past, or in fast growing economies, new opportunities generally compensate for destruction causing displacement.<br /><br />Notice that technology does not always cause displacement. The car arguably did, but what about the refrigerator? Upon closer inspection, the car arguably was a net creator of jobs.<br /><br />Technological progress today is mostly process; it is hollowing out middle America; flattening organizations and making operations and marketing positions more efficient.<br /><br />ASIDE: Technology may force a re-thinking of hierarchy and executive management, along with remuneration, altogether.<br /><br />But the key thing technology is doing right now is speeding up the rate of change. That destruction occurs so fast that new opportunities are not keeping up.<br /><br />Sure, it is exacerbated by other factors; firms and individuals are reluctant to invest capital during a recession, globalization and off-shoring, rising health care and education costs which crowd out gross wage increases and profits, etc.<br /><br />But two other psychological factors may also help explain today's high unemployment; our tendency to over-build, and the inertia of the status quo. Let me explain.<br /><br />Investment drives new jobs. Firms must hire people to research and plan that investment. They also tend to generally over-build; they get too fat, and the longer the economy stays healthy, the fatter they get. They simplify only when competition or bankruptcy forces them to.<br /><br />In recessions, all firms lay off all those people at the same time. Some are never going to be hired back. In a way, delaying recessions ensures that when that simplification does come, it will be more cataclysmic.<br /><br />There is also an inertia to the status quo; barring significant events it remains. Example: I can off-shore half my product management staff to great benefit even if it does not lower my salary cost; I avoid huge American administrative, management, liability, and regulatory costs even while I convert labor to a true variable cost of sales instead of a fairly sticky variable cost.<br /><br />But I don't do it until a recession; I've already hired and trained people, paid for office space and other productive assets. Plus, I like those people. The recession wipes all that away. Now I will never hire them back.<br /><br />ASIDE: I struggle to see how Keynesian stimulus can have any net positive influence on these trends.<br /><br />CONCLUSION: You are correct in this post: the issue with the technologist arguments in economics is the way in which the term is being used. It is used both as a variable and a constant in the equation of economic growth; it is a 'Zeus' explanation.<br /><br />Technology is an enabler. It is more like the Protestant work ethic than it is like labor or capital. And since it is used to describe both process and product innovation, its meaning is diffused even further. That it can both increase the size of economies (iPods) and destroy jobs (automation) makes it even more meaningless.<br /><br />In the end, 'technology' as a term is arguably more confusing than helpful. I believe the same can be argued for the idea of macroeconomics, but that is a whole other discussion.Jimhttps://www.blogger.com/profile/15550269527485574418noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-71041570970865238372011-05-05T15:37:55.503-04:002011-05-05T15:37:55.503-04:00I agree with you. Economists are frequently drawn ...I agree with you. Economists are frequently drawn to simple explanations obtained from some basic theoretical model, instead of actually seeing the world. I mean, it is what they are supposed to do, but some people really overdo it... I recently heard someone say that the relative low health of Americans vis-a-vis other developed countries was due to people rationally choosing to care less for themselves since they expected medical advances to solve their problems down the road. I am not saying this is not true, but I would say if there is really any relevance to this "mechanism" it probably is second or third order in importance.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-90843012662882934042011-03-12T23:42:18.283-05:002011-03-12T23:42:18.283-05:00So, Noah, you're a PhD student. I have a PhD ...So, Noah, you're a PhD student. I have a PhD - in Computer Science. I've been watching this issue probably for longer than you've been alive.<br /><br />Yeah, economists should just give up, because as a group, they're clueless on this issue, and it's a fundamental issue.<br /><br />Take off the blinders, Noah.<br /><br />Technology devalues human labor. Period. If you need anything other than simple arithmetic to understand that, then you're in denial.<br /><br />In a manner of speaking, people have been made smarter and very much faster by technology. But in an economic sense, people don't get the credit for it - and don't deserve it on an individual level. The technology that fills in those gaps gets the credit, and takes away jobs in the aggregate.<br /><br />When a production process requires X% fewer people by virtue of the use of productivity-improving technology, then X% of the jobs required to do that process have become entirely obsolete, if the technology is more economical than the people so displaced. And guess what, it is more economical, by factors, not fractions - in some cases by orders of magnitude.<br /><br />How much faster is a computer than a person, at work both can do? Nowadays, the answer is billions of times faster.<br /><br />How much smarter is a computer than a person who would otherwise not know how to do a task that a computer can do, even if that task is simple for a programmer to implement? How simple can such tasks be, and still be able to do things that a lesser skilled person could not do for lack of knowledge? E.g., as simple as it is to compute, how many people can't compute compound interest without a machine to do it for them? And as a result, how many jobs are there now for people who can do such tasks without a computer, given how cheap and easy it has become for computers to do them without people even knowing how? In effect, such skills are now obsolete in all but the software developers who now implement them. And, surprise, even those developers become obsolete after implementing them _once_. Goodbye, former job-producing human skill.<br /><br />Now imagine two companies. One uses productivity-improving technology, and thus lowers its costs commensurately - which includes using fewer people. Another doesn't use such technology. The latter puts itself at a competitive disadvantage. It must thus either adopt equivalent or better technology - in terms of productivity improvement - or go out of business. Think about that in macroeconomic terms.<br /><br />So you (and other economists) set the bar way too high when you imagine that there is no economic impact of technology unless artificial intelligence and robotics and automation are involved to the extent that people are directly and entirely displaced. The bar is actually very, very, VERY low. If a PC on every desk reduces staff requirements by any degree at all - and they have always done as much - then there can be people entirely displaced by the use of those PCs by other people who were fortunate enough to keep a job that uses them.<br /><br />This is really very basic, Noah. You shouldn't need a PhD to understand it. Not that I would know, I suppose, since I do have one... I really am wondering these days what intellectual rigor there is to economic curricula and research - I can't see any evidence of any at all, with all due respect to you folks. I can only wish the world would pay a fraction of the attention to computer scientists who understand this issue that it pays to economists who clearly don't know how to begin to think about it.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-91099737098967269372011-03-09T10:01:20.781-05:002011-03-09T10:01:20.781-05:00"Our patron saint would be not Paul Samuelson..."Our patron saint would be not Paul Samuelson, but Alvin Toffler." -- Or Thorstein Veblen?Unknownhttps://www.blogger.com/profile/04590783800372201295noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-57914419103166422172011-03-08T11:41:20.763-05:002011-03-08T11:41:20.763-05:00is globalization somehow different from the techno...is globalization somehow different from the technology that lowers transaction costs (shipping/communications/ISO) that makes globalization work?<br />micromemeAnonymousnoreply@blogger.com