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Monday, December 10, 2012

'The Distributional Issue ... is Extremely Important'

Dean Baker responds to inconsistent worries about robots displacing labor and the ability of a smaller number of workers per retiree to support Social Security:

... we seem to be seeing rapid improvements in productivity growth ... that are drastically reducing the demand for labor. Yet all the gains from these improvements seem to be going to owners of capital as the labor share of output has been falling sharply.

The distributional issue ... is extremely important, both for workers who are not seeing gains in living standards, and also for the economy as a whole, since a continual upward redistribution of income will lead to stagnation as a result of inadequate demand. However, it is worth noting that the concern that rapid productivity growth will lead to less demand for labor is 180 degrees at odds with the often repeated concern that productivity growth will be inadequate to sustain rising living standards in the future.

... If you are concerned that a falling ratio of workers to retirees is going to make us poor then you are not concerned that excessive productivity growth will leave tens of millions without jobs.
It is possible for too much productivity growth to be a problem, if the gains are not broadly shared. It is also possible for too little productivity growth to be a problem as a growing population of retirees impose increasing demands on the economy. But, it is not possible for both to simultaneously be problems. ...

I'm not worried about low productivity growth and stagnation. Since we are in the midst of it, it's hard to see the full impact of the digital revolution, but I believe it's a bigger force for productivity growth than we realize. There are big changes in our future as robots/machines become better and better at displacing people. However, that growth will be more unequal than ever, and it's the distribution of the gains from growth that I worry about.

In the future, we'll have the ability to produce enough stuff, and that ability won't stop growing. The problem will be distribution, and our inherently selfish nature makes it an extremely difficult problem to solve.

    Posted by on Monday, December 10, 2012 at 09:21 AM in Economics, Income Distribution, Productivity | Permalink  Comments (67)


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