March 07, 2017
It is amazing that there is not an effort to have a mass deportation of economists. After all, almost the whole profession completely missed the housing bubble and the economic crisis that resulted from its collapse. They failed to see the weakness of the recovery and now they can’t decide whether we will have too few workers or too few jobs. (This is known as the “which way is up?” problem in economics.)
Claire Cain Miller gave us a “too few jobs” story in her NYT column that asked how we can offset the impact of job killing robots. She discusses various ideas that will create jobs or generate incomes for the people displaced by robots.
It is worth noting that if we think the problem really is too few jobs, in effect, that productivity is soaring, then many other commonly discussed economic problems do not really exist. If we have too few jobs then we have no reason to worry about government budget deficits. The problem of government budget deficits (if there is one) is that excessive spending by the government is creating too much demand in an economy that is unable to supply enough goods and services.
Similarly, in the too few jobs story there is no reason to worry about the demographics of retiring baby boomers. That is a story of too few workers to care for a growing population of retirees.
There is also no reason to worry about the burden of excessive regulations stifling growth. The too few jobs story is telling us that the robots are leading to mass displacement of workers in spite of whatever burden is created by regulations. The implication is that we would have even if fewer jobs if not for the burden of regulations (assuming that regulations actually do slow growth).
And of course, if the problem is the robots taking all the jobs there is no reason for the Federal Reserve Board to raise interest rates. The point of higher interest rates is slow the rate of job creation so that the labor market doesn’t get too tight and cause inflation. If we are worried that robots are getting rid of all the jobs it doesn’t make any sense for the Fed to deliberately make the problem worse by slowing the rate of job creation.
It would be nice if economists could either agree than we face a world of soaring productivity so that scarcity is not a problem or (as the data show) we face a world of weak productivity growth, so that we could face some problems of scarcity. Given the high average pay in the profession, it would be reasonable to think there could be some consensus or at least some clear thinking on the implications of each position.
One item in the piece that is worth noting is the dismissal by Tyler Cowen of the possibility of shorter workweeks as a way to deal with a jobs shortage:
“That’s the realm of science fiction … It’s not an America we would recognize.”
It’s not clear who “we” is in the sentence, but people familiar with the data know that voluntary part-time employment rose by almost two million in the years since Obamacare was implemented. There have been important institutional factors in the United States that discouraged employers from reducing work hours.
Most importantly, health care and defined benefit pensions have large per worker overhead costs. These overhead costs gave employers a strong incentive to limit the number of workers and to have these workers put in long hours. As the institutional structure changes, it is likely that more workers would opt to put in fewer hours, as we have seen in the three years since Obamacare has been in place. If Obamacare is allowed more time and we make other institutional changes (e.g. a national optional pension system), that we would see a further movement toward shorter work hours and work years, as we have seen in every other wealthy country over the last four decades.
Comments