Morning Must-Watch: Larry Summers and Friends: The Future of Work

Larry Summers:

On the diagnosis, I want to make a confession of ignorance, make an observation, and express a worry.

First, my confession of ignorance is this, and I think it should apply to everybody who speaks confidently in this area: On the one hand we have enormous antidotal evidence and visual evidence of the kind that Erik marshals, and it points to technology having huge and pervasive effects. Whether it is in complementing workers and making them much more productive in a happy way–that’s one possibility–or whether it is substituting for them and leaving them unemployed–that is another possibility–it can be debated which. But in either of those scenarios you would expect it to be producing a Renaissance of higher productivity. On the one hand we are convinced of the far-greater pervasiveness of technology in the last few years. On the other hand, the productivity statistics over the last dozen years are dismal. Any fully-satisfactory synthetic view has to reconcile those two observations. I have not heard them satisfactorily reconciled This is something we have to figure out.

If you believe technology happens with a big lag and it’s only going to happen in the future, that’s fine. But then you can’t believe it’s already caused a large amount of inequality and disruption of employment today. That is a major puzzle, It hangs over this subject. I just want to put out there for discussion.

Second, my observation. I think it is a mistake to think of the economy as homogeneous–as producing something called “output”. As we approach these issues, an aspect that doesn’t get enough attention is that sectors through progress work themselves into economic irrelevance. Let me give an example: the illumination sector, the provision of light. It has had about a ten-fold increase in its productivity every decade for a century. We now think of it as a trivial sector in the economy. No doubt we could continue to produce ten-fold increases in productivity every decade. But actually most of us want it to be dark at night. There are more Little League night games than there used to be. There are more parking lots lit more brightly than they used to be. Basically, what has happened is that illumination has become quasi-free. Whereas candle-making was a major industry in the 1800s, illumination is a trivial industry today.

We need to recognize that a sector that has rapid technological progress but of which the world can absorb only so much becomes ultimately unimportant in the economy. Is that kind of thing relevant in thinking about the world? Here’s a fact that continues to astonish me. I concede there are a million measurement problems. But it is a fact. The way they compute the consumer price indices all prices were set to be an index of 100 in 1983. Consider two goods today: a television set, and a year at a university (or I could use a day in a hospital). The consumer price index for the latter two categories is in the neighborhood of 600. the consumer price index for the former category is 6. There has been a hundredfold change in the relative price of TV sets and the provision of basic education and health care services.

If anybody is wondering why governments can’t afford to do the things they used to do, I just gave you a big hint.

If anybody’s wondering where most people are growing to be working in the future, i just gave you a big hint.

If anybody’s completely confident we will have rapid productivity growth in the future, they should be giving pause–because no matter how much productivity we have in agriculture or illumination, it doesn’t really matter for the aggregate economy. Increasingly, that’s becoming true of a larger and larger fraction of what it is that we produce.

Third, my worry: When I was an undergraduate at MIT, and in the 1960s, there was a whole round of concern about will automation displace all the employment. What i was taught as an undergraduate was that basically the people who thought it would were a bunch of idiot Luddites. Obviously there would be enough demand. It would work itself out. If people got more productive at making more, they would spend more Maybe we needed some transition assistance, but it would all be okay.

That is what I thought and what Bob Solow thought. And Bob Solow was a hero. And the other people were all a bunch of goofballs–that was kind of what I learned. I believed that for many years. I actually repeated it often. But it has occurred to me that when I was being taught that about 6% of the men in the United States between the age of 25 and 54 were not working. Today, 16% of the men in the United States between the age of 25 and 54 are not working. It won’t be very different even when the economy is at full employment.

Something very serious has happened with respect to the general availability of quality jobs in our society. We can debate whether it is due to technology or whether it is not due to technology. We can debate whether it is the cause of dependence or whether it is caused by policies that promote dependence. But it is very hard to believe that a society in which the fraction of people–choose whatever your most prime demographic group is–who should be working in that group in which the fraction of them who are not working is doubling in a generation. Is that going to be a society that is going to function well, or function well without major social innovations?

I want to leave you with that concern. Whether you think it is due to technology or to globalization or to the maldistribution of political power, something very serious is happening in our society.

February 20, 2015

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