And this means that in a sense we are moving toward something like my intelligent-robots world; many, many tasks are becoming machine-friendly. This in turn means that Gordon is probably wrong about diminishing returns to technology.
Perhaps at some stage there will be a deeper discussion of these issues. He says in a related column he will talk more about long-term growth in due course. But, he concedes, economists know very little about long-run prospects.
Ah, you ask, but what about the people? Very good question. Smart machines may make higher GDP possible, but also reduce the demand for people — including smart people. So we could be looking at a society that grows ever richer, but in which all the gains in wealth accrue to whoever owns the robots.
The great bulk of the economic commentary you read in the papers is focused on the short run: the effects of the “fiscal cliff” on U.S. recovery, the stresses on the euro, Japan’s latest attempt to break out of deflation. This focus is understandable, since one global depression can ruin your whole day. But our current travails will eventually end. What do we know about the prospects for long-run prosperity?
The answer is: less than we think.
The long-term projections produced by official agencies, like the Congressional Budget Office, generally make two big assumptions. One is that economic growth over the next few decades will resemble growth over the past few decades. In particular, productivity — the key driver of growth — is projected to rise at a rate not too different from its average growth since the 1970s. On the other side, however, these projections generally assume that income inequality, which soared over the past three decades, will increase only modestly looking forward.
It’s not hard to understand why agencies make these assumptions. Given how little we know about long-run growth, simply assuming that the future will resemble the past is a natural guess. On the other hand, if income inequality continues to soar, we’re looking at a dystopian, class-warfare future — not the kind of thing government agencies want to contemplate.
An additional problem is economics has very little understanding of the drivers of productivity. I don't know how many times senior officials have told me that it is a "residual of a residual" in quantitative terms.
Yet this conventional wisdom is very likely to be wrong on one or both dimensions.
RedistributionWe've looked at these issues before, such as here and here.
In particular, we looked at an excellent survey of technological developments here. Diamandis and Kotler conclude their book Abundance: The Future Is Better Than You Think with this:
However, simply transferring money from "the rich" to the middle class or the poor is ultimately self-defeating. It undermines self-reliance and self-respect and the fact that living is more than just having stuff.
Our problem is not that we don’t have enough stuff—it’s that we don’t have enough ways for people to work and prove that they deserve this stuff.
Redistribution is going to be the core issue in coming years - but even the word itself is tainted with leftist welfarism.
Instead, we need a better conception of how people earn a living, especially if the labor market is in trouble. And that means a better idea of value. And that entails some idea of the good life for people, instead of liberal neutrality whose whole point is to avoid any discussion of value.
Economics has deep difficulty with this, because value is primarily an ethical issue which is not reducible to models. Indeed, we saw recently economics as a discipline sidestepped the problem of value in the marginalist revolution by replacing it with a poorly conceived mathematical treatment of utility.
The whole apparatus of pareto-equality and welfare economics is flawed. Liberal ethics is flawed. Both lack any conception of human flourishing. Automatic equality of respect destroys any prospect of a better life, because it corrodes value. If everything is equal, there is no value.