Dean Baker wrote an interesting article this morning, Should We Worry About Economic Stagnation Due to Weak Supply? It is primarily a response to work by Northwestern University economist Robert Gordon, who has argued that we are headed for a long period of slow growth. Baker scoffed at the idea, not because it is ridiculous, but just because economists have such a frightfully bad track record for making predictions about economic growth.
Baker also noted that there are two competing theories about growth among economists. First, there is the “robots will take all our jobs” theory. By this theory, soon productivity will go through the roof because McDonald’s won’t even have to employ people to make our McDoubles for us. Second, there is Gordon’s (and many others’) theory that productivity is going to stagnate. Baker, in his usual snarky way noted what this says about the economics profession:
I want to add one thing to this issue, which Dean Baker is well aware of, but usually doesn’t mention. Productivity really doesn’t matter. At least it hasn’t for about four decades. There was a time when increased productivity led to higher wages. There was a partitioning between profits and wages. When productivity went up, profits went up and wages went up. It was a very equitable system where both capital and labor shared the benefits of productivity increases. No more:
What this means is that if productivity doesn’t go up, the real wages of workers will be stagnant. But if productivity does go up, the real wages of workers will be stagnant. Dean Baker talks about this issue a lot in general terms: economic inequality is a policy decision. It isn’t God (or Market) given. So I have a very hard time caring about productivity growth when it means nothing for the average worker.
This too says something about the state of economics today: it is primarily concerned with the interests of the rich. In the late 1970s (and certainly by the 1980s), economists should have stood up and made a very big deal of the fact that productivity had become unmoored from the wages of workers. But as long as productivity led to higher profits, it didn’t matter. Who cares about the plebs? Am I right?!
Baker brought up another interesting point in the article. If productivity is going to be slower, then there is less risk of taking money from the “job creators.” If taxes must be kept low so that they will continue to innovate, and the innovations are going to be slow coming, it doesn’t mean as much to cut down the incentives of them to innovate. But I think the government should look at it differently (and should have been for the last four decades): if productivity increases are going to mean nothing for the vast majority of the population, why are we incentivizing to innovate at all? After all, all we are doing is giving them tax breaks to make more money that they don’t use to help the rest of the economy.