Grasping at Luddite Straws

The current issue of the New York Review of Books features an article by Harvard economist Benjamin Friedman, “Brave New Capitalists’ Paradise’: The Jobs?” which is yet another reminder why we should not let economists make economic policy.

Freidman starts off by rightly pointing to the period from after WWII to the early 1970s as a golden era of low unemployment and high median income growth. He then rightly points to slower income growth over the last 20 years. His solution: less technology and lower productivity.

For Freidman has joined the ever growing neo-Luddite movement in America that mistakenly attributes our economic problems to too much technology and automation. He writes, “New technology that enhances the productivity of labor… means less labor input is needed to produce what was made before.” So far so good. But he goes on to write that “increasingly over the last quarter century, the balance [of less labor for existing goods plus more labor for new goods] indeed appears to have shifted [toward less labor].”

Why? Because “the pace of labor saving technological change has accelerated.”  Okay, let’s stop here. First, of all productivity growth rates were much higher in the post-war period to the early 1970s than they have been in the last two decades.  So clearly the pace of labor saving technological change has decelerated, not accelerated.  Second, if it had accelerated then incomes would have gone up more.   You can’t blame technology for taking away jobs and at the same time complain that productivity growth rates are too low.

Friedman then goes on to argue that even if consumer demand returns we won’t create jobs, not just because of technology, but because of globalization. But there is nothing inherent about more trade  meaning fewer jobs.  We may offshore call centers, but we export jet airplanes and software. All that trade does, especially if the US economy is competitive (more on this in a minute) is to change the types of jobs and industries – for the better.

Next up, blame immigrants. Friedman says that even for the jobs that are not offshored, low wage immigrants do them, driving down wages of Americans. But he forgets  that low wage immigrants actually spend the money the make as “janitors, gardeners and hospital orderlies” employing non-immigrant Americans in the industries the immigrants spend their money on.

At this point Friedman is simply grasping at straws trying to explain why unemployment rates are higher and income growth low.

So what is his answer? The one he clearly prefers, he acknowledges is hard to do. “Appealing as the Luddite’s motivation may be to at least some among the myriad ‘losers’ in this process, no one is going to halt the advance of technology.” Let’s pause here a second. Since when do we not take every opportunity to acknowledge that Luddites are the antithesis of progress and improvement in mankind’s condition?  Clearly not now, when neo-Ludditism is seen as being compassionate and progressive. Moreover, yes while you can’t halt the advance of technology, you can and are severely slowing it down. Every day in America pundits, so-called “pubic interest” advocates, affected industries, unions and policy makers take steps to stop innovation: whether it’s fighting against biotechnology, nanotechnology, Internet innovations, or simply automation. Technological progress has never before faced such an uphill slog in America. And one reason is economists like Friedman who give comfort to the Luddite cause.

After rejecting other solutions (restricting immigration, more education, just waiting it out, more income sharing from the wealthy to the poor and the working to the non-working) as unworkable politically, Friedman throws up his hands in desperation.

Nowhere in the article did he talk about the two most important things U.S. economic policy can do to restore widely shared, rapid growth: restoring U.S. economic competiveness and boosting  innovation and productivity. This is because conventional economists either deny that competitiveness is real and that there is anything government can do to spur innovation or simply don’t know anything about these matters. They don’t teach innovation and competitiveness in Harvard’s Ph.D economics program. Fixing America’s problems requires a national competitiveness strategy and a national productivity and innovation strategy. These are not hard to conceive of. Indeed, ITIF has written extensively on this. They are, rather, hard to get support for, first and foremost because economics knows little about either subject.