If only tech solved things like it used to
June 15, 2011 — Who could doubt the long-term correlation between technological advancement and higher living standards? The production line, antibiotics, mass transit — all were developments that eventually improved the lives of most Americans significantly. So, regardless of what is happening to workers now, their welfare will ultimately be assured so long as technological advances continue to be made, right?
Here’s what prompted the story
We were reading an interesting story last week in The New York Times about companies spending money on equipment, not workers, and came across this attempt by the reporter to put short-term worker dislocation into context: “[I]n the long run, better technology lowers prices, raises living standards and helps workers move into higher-paying jobs. This was the case with the mechanization of farming, which a century ago employed 41 percent of the American work force.”
Well, the farming example seemed correct, but did it really automatically follow that technological improvements always and necessarily bring about higher wages for workers? We thought the assumption that things would automatically work out in the end — regardless of policy decisions — was worth exploring.
Actually, no. According to many economists and social scientists, there is no more common or dangerous mistake than taking a past pattern and projecting it into the future regardless of changing external factors. In the context of the benefits of technological improvements, the impact on workers and their families is very much dependent on policy choices regarding how those benefits are distributed and what adaptations are made to remedy technology-driven dislocations.
Past performance is no guarantee of future results
“The habit of assuming that what happened in the past will continue to happen, or, conversely, that what hasn’t happened can’t or won’t happen in the future, can quickly get you into a lot of trouble,” said Neil H. Buchanan, a law professor at George Washington University who also holds a degree in economics, “but it’s done so often that, on a lot of issues, we’ve stopped having a serious debate in this country. Instead, we have a few platitudes that get repeated a lot, and that may or may not be based on fact.”
Buchanan explained that when a certain relationship or pattern is taken for granted, it has the effect of limiting the policy options that are at the disposal of elected officials. “Why do politicians think that having a big budget deficit right now is bad?” he asked. “Because that’s never happened [since World War II]. But is it really bad? What if we figured out that it isn’t? We might be doing a lot of things differently.”
And the phenomenon isn’t limited to the United States. “There’s a real danger in making those assumptions,” said James Plunkett, a senior analyst at the Resolution Foundation, a British non-profit that focuses on issues affecting the middle-class. “It leads to a lot of lazy rhetoric. It also prompts people to understate the importance of politics and policy and what we can do to change things. It’s quite disempowering, in a sense, because it minimizes the effects of your choices.”
A leap of faith, not a matter of natural law
The linkage between technology and better living standards is an easy one to assume, Buchanan said.
“By definition it’s true that if you have an innovation that increases productivity, then you’ll have more stuff produced,” he said. “The more stuff you produce, the greater your economic growth.”
The next link in the chain, he said, is that economic growth leads to greater wages and a better quality of life. But making that assumption requires a leap of faith.
“We know that greater productivity means we get more stuff. But why should we necessarily assume that that’s the way to raise people’s incomes?” he said. “Isn’t it possible to have more stuff without having the vast majority of people being better off?”
The weakest link
While few economists question that technology has led to better living standards over the course of history, a growing body of research has demonstrated that the linkage may no longer hold.
“Over the broad sweep of history, the generalization that technology increases living standards is right on target,” said Lane Kenworthy, a professor of sociology at the University of Arizona who has studied the effect of technology on wages over the last four decades. “The thing is, it seems as though in the U.S. especially in the last generation that link may have broken down.”
Kenworthy refers to this as “the great decoupling” — the separation of economic growth from increases in wages and quality of life. During the post- World War II period, the United States experienced a boom in economic growth that correlated strongly to an increase in median family income. But starting around 1973, those two lines began to diverge sharply. Economic growth continued at only a slightly slower pace, while families incomes increased slowly, if at all. Kenworthy has calculated that, if median family income had continued to increase at the same rate as GDP, as it did in the 1950s and ’60s, it would have reached almost $90,000 a year by 2007, just before the financial crisis. In contrast, median family income in 2007 was substantially less: $64,000 a year (see chart).