Technology Shifts and Economic Depression
Joseph Stiglitz (the Nobel prize winning economist) has a great new article: “The Book of Jobs“(behind Vanity Fair’s paywall, sorry). In it, he makes a convincing case that the first global depression was caused by a process similar to what we are seeing today (I’m very happy somebody in the social sciences is actually attempting to show how technological change was a driver of the first depression, it’s about time). Here it is in a nutshell:first depression, it’s about time).
- Technological change in the form of the internal combustion engine (cars, tractors, trucks) improved transportation and farm productivity. This led to an agricultural revolution that impacted a huge percentage of the US population.
- Farm productivity soared and prices dropped. This forced many farmers into bankruptcy and led to a steady migration of people from rural to urban locations driving down incomes/demand.
- The downward pressure on incomes this caused resulted in a protraced economic depression that only ended when the US and Europe mobilized/nationalized every segment of the economy during WW2 (put everyone to work, trained them, etc.).
At this point in the article Stiglitz stumbles.
He mistakenly assumes that in our current depression/dislocation, technological improvement caused a loss of manufacturing jobs (productivity and portability overseas) that has forced a migration of workers to service industries. This has led to a decline in incomes across the board and stubornly high unemployment.
Unfortunately, the reality is more dire. This technology shift also made it possible to shift service jobs around the world too. As a result, this is a recipe for an inevitable collapse in US and EU incomes (the effects of which are already being seen huge government deficits due to low tax receipts), a knock on global depression, and political chaos.
What are the solutions? Stiglitz would have you believe it is more government spending. An effort to build infrastructure and do more training. I don’t believe that will work. Most governments are already near bankruptcy and this crisis is global and not national. No, it is going to take something entirely new to get out of the depression/chaos/dislocation of this economic shift (particularly if a predatory plutocracy is nipping at our heels).
My suggestion is to think small and local. As Richard Feynman famously said: There is plenty of room at the bottom.
Phi Beta Iota: The missing link in all this is the deep connection between technology and information asymmetries. The private sector has always been better than governments at leveraging technology and at leveraging information relevant to profits. When government becomes corrupt, as the two-party monopoly has become corrupt, it makes the situation worse, by adding legalized crime to the already stressful impact of information asymmetries. There is nothing wrong with America the Beautiful–or the rest of the world–that cannot be fixed by restoring the integrity of the electoral and governance systems. That is something only the people as a whole can conceive, demand, and implement.