Ben Bernanke is an academic historian. Academic because his personal observations and experiences are seemingly of limited value (see Kate Mackenzie’s reminiscences of her 1980s childhood) and a historian because his economics fail to make the positive case for technology.
In a commencement speech to graduating students at Bard College Ben Bernanke attempted to outline Economic Prospects for the Long Run and make the case for a brighter future. Instead, he made a poor case for technology and seemed to support the concept of a Great Stagnation:
… technology fundamentally changed how and where goods were produced and, in the process, greatly increased the productivity of workers and reduced the cost of basic consumer goods…
This is not a line that fills the modern, post-industrial economic citizen with hope, even in the context of a prior industrial revolution. Increased productivity and lower consumer goods prices lead many to the simple, but wrong, conclusion that there will be less jobs and lower profits. This TED debate on the future of work discusses the issues and concerns.
While he attempts to refute the Great Stagnation, his comments about the rate of change falling seem instead to support the thesis. He argues:
The purpose of these comparisons is to make concrete the argument made by some economists, that the economic and technological transformation of the past 50 years, while significant, does not match the changes of the 50 years–or, for that matter, the 100 years–before that.
This perceived change in the rate of transformation seems little more than a support of the Great Stagnation. According to Bernanke, Gordon and Cowen are correct: growth in the developed has stalled or is stalling.
Both are points Kate raised.
The real problem
But my real problem with this speech is summed up in these comments from Kate:
Furthermore, if technology is becoming resource-like in its “curse” potential, not all of us are necessarily better off for its advancement.
Without wanting to dampen the kids’ enthusiasm for their bright futures, the exciting future of innovation might depend on just where they end up in it.
This is not an exciting prospect: one’s productivity will determine one’s inclusion or exclusion in the new economy. But Bernanke offers no rebuttal to this. Instead, it remains the elephant in the room.
Well, this blog is not called an abundant world without reason. This world is abundant and it offers opportunity for all. Technology is essential to achieving this and does not have to be exclusionary, indeed, is not exclusionary. This is the case Bernanke should have made and by not making it, he has only incrementally added to the negativity around technology.
The case for technology
I would like to make the case for technology as an enabler of higher employment: the primary goal of economic policy. To do this I need to illustrate a couple of things. Primarily, it comes down to taking a new approach to the way we apply theory to the real world. As the focus of economists changes, so can our understanding of the benefits of technology.
Most problematically, economics is trapped in a materialist framework. How many train loads? How much steel production? How many new homes built? These are just some of the most obvious ways we look at and understand economic activity. Alan Greenspan and Li Keqiang are good examples of the trend. But so much economic activity, and importantly, value is created in services industries. As such it is often difficult to measure and certainly not covered by the scrap steel price.
Similarly, economists are tempted to be technologists. The TED debate referenced above talks too much about specific technologies, and the resulting impacts, rather than simply asking how technology, and future unknown advances, changes lives and the economy.
Most importantly, technology creates time, which is pretty important in a world where economic activity is entirely oriented towards the creation of time.
In the scope of things, not the cycle of things, this creation of time has created jobs. A lot of jobs. These are jobs in the services sector. These are the jobs in which most people work in the developed world. They are jobs for which there is no obvious technological replacement. Only yesterday equity markets have been questioning the truth of labour market statistics that didn’t match commentary from listed firms. But as I discussed here, most jobs created in Australia have been created in sectors not covered by equity markets.
Just how many jobs? According to the Bureau of Labor Statistics the services sector has created 79 million jobs since 1965 in the US. Goods, the industry with pretty much all the assistance provided in most downturns, most especially the current one, has actually lost 867,000 jobs in this period (that’s despite 970,000 being created since 2010).
This is astounding. And they’re not bad jobs, having coincided with a dramatic increase in living standards.
How has this occurred?
Technology has been a primary driver through a simple income and substitution effect. Technology either lowers prices or saves time, or both. As such, this creates the time or ability for households to do other things to which they assign a higher value or utility (largely not measured in $, by the way). Most technology, indeed, the most successful technology, is relatively democratic in how it changes lives. It creates time for everyone. Technology has meaningfully changed the lives of near everyone on the planet and created enormous opportunities for work.
We’ve found that as we pay less for manufactured goods we’ve spent the surplus on services. I’ve made the case for services on a regular basis in this blog. So I will re-iterate just two points. First, the rise of services employment is a function of demand not supply with demand a function of technology and productivity. Second, services jobs are good jobs. Indeed, Keynes was right we will work less, but mainly because work is becoming leisure. Services expand an economy.
The challenge is understanding these changes. It’s difficult: capital has been destroyed, a re-distribution of income has occurred and we just don’t measure things properly.
I’ve recently written about technological change and the consequent destruction of capital. The income re-distribution is related to the destruction of capital. The value shifts from the capital to the labour: skills are of more value than inert pieces of capital. Firms in the service sector derive their value from people, not capital. Apple is a great example, Steve Jobs dies and $150billion is removed from the market cap. The rewarded labour are the designers and marketers, not those working in factories.
Problematically, for the evolution of economies from goods to services is the way in which capital clings on to its advantages and how we understand services. Again, but this time in a bad way, Apple is a useful example. Apple has become a patent troll. Protecting its position in a way that leads to sub-optimal welfare outcomes for consumers: mainly diminished choice and higher prices. Apple’s actions, and those of other corporations who lobby hard to maintain privileged positions, slow the rise of the services economy and the employment that comes with it.
I also don’t think we measure the benefit of technology well at all because we don’t measure services well.
Consider the quality change that has occurred in so many parts of our lives in the last twenty years. For an Australian this includes better restaurants, better coffee, better football, much better football, better health, because we have more time, better beer, (and I’ll stop here before I expose more of my life). None of these quality changes are, however, picked up by GDP. GDP does not measure as I understand, the difference between a meal at the Thai restaurant around the corner and a three hat restaurant in town.
These changes exist across so many areas of our lives. They allow people to follow career paths that might never have been possible just a decade or two previously. They are fundamentally good.
With measurement and recognition difficult, without the harsh glare of capital markets, services have existed and thrived in the shadows of economics. Policy does not help them and policy-makers, highlighted by Bernanke in this address, ignore them. Technology, however, has been a friend.
Conclusion: So what should Bernanke have said?
This is the message I wish Bernanke had made to these young adults. Technology is wonderful, it will create jobs for you and here are the skills you need. Yes, technical skills have merit, but they’re not what’s truly valuable for most people. Learn to get on with others, learn to communicate, and as Daniel Pink argues very effectively, learn to sell. Ultimately, that’s what so many of us do and technology, which most often is democratic not exclusive, asks us to do. It’s a great world.