Bryan Caplan  

Creative Destruction: Sumner Edition

Great Stagnation or Lousy Data... Me on Twitter, My New Book on ...
In mid-2009, I asked, "Creative destruction: what's next?":
Everywhere I look, firms are going out of business...

What's going to happen now?  Most people probably accept the economically illiterate view that the empty store fronts will stay empty forever.  They don't understand creative destruction, the free market's phoenix-like ability to re-invent itself.  Something's going to be done with all these idle resources once we get out of this recession.  The question is: What?
In his review of "The Great Stagnation," Sumner offers a plausible answer:

Tyler also argued that we faced a great recalculation problem, with lots of jobs opening up that need high tech skills, but way too many poorly educated workers.  Yet the facts he presents seemed to point in the opposite direction.  He mentions that the new high tech firms like Facebook can get the job done with an extremely low number of workers.  This webtopia that Tyler foresees won't require many workers at all.  In that case, what should all our surplus workers do?  How will they find jobs?  Not in agriculture, 2 million farmers can feed the whole country.  Not in manufacturing, we are falling below 10% in that sector.  And most people don't want three washing machines and four cars.  Where would they put them all?  Here's what I think most people still want:

1.  A bigger and nicer house, with granite counter-tops.

2.  More restaurant meals.

3.  More fun vacations.

That means we need more construction workers, and granite miners (quarriers?)  We need more cooks and waiters.  We need more hotel receptionists and maids.  More people to work on Carnival cruise ships.  I think our workforce is skilled enough to fill those jobs. 

My main doubt: All this suggests that the private return to education will take a big dive in coming decades.  Would Sumner bet on that?

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COMMENTS (13 to date)
quadrupole writes:

Something else I think that the highly skilled want:

More time.

There's going to come a breaking point where the highly skilled are going to start bargaining for more weeks of vacation time instead of more income.

The only reason this hasn't happened yet was because of

1) The housing bubble forcing the highly skilled to overspend on housing.
2) The residual promise of making your mint and retiring left over from the dot com bubble.

I suspect both of those are declining. If you aren't going to make a sudden killing that will allow you to retire, and your housing costs aren't being driven off a cliff by a housing bubble... what exactly are you working for? Your waiter has the same iPhone you do. Nicer cars *really* aren't that much fun for most of us. Seriously, why bother?

Julien Couvreur writes:

Are we that close to fulfilling all human wants?

Just from my day to day life, I can tell you that I want a more immersive entertainment system (really 3d games, movies and video chat, as in holographic displays), human-quality text-to-speech translation, a car that drives itself, news aggregator that summarizes today's news, a way to shorten videos by picking the important segments, a better way to browse web content on my TV, better and cheaper food, less house cleaning chores, etc.

On top of that, there are many broad problems: we need to feed people, education needs to be fixed (here and in poorer countries), we need to internalize pollution costs, we need improve science (biology, medicine, economics), and so on.
As people become better off, they not only take vacations, but they also work on personal projects (charities, community support, etc.), which will spawn additional wants.

Many of those will require educated people to solve. And I'm sure other people have different wish lists as well.

Regarding your question, it is not an economist's task to predict people's preferences, but that of an entrepreneur. I don't know if the most profitable wants to be solved in the next decade require more education or not. Either way, I don't see a problem with that.

Scott Miller writes:

One of the problems with this great recalculation is the unemployment insurance system. Most people who are unemployed are waiting for a similar job or one that pays the same and not adapting at all. And if they can handle the marginal decrease that their unemployment pays out, they are content to wait forever and gripe every minute of the way. And they don't have much incentive to do otherwise, nor have they been trained to think their way out of it.

Vladimir writes:

That three-bulletpoints theory basically means that time has come when machines can produce all the stuff anyone wants with only a small expert human input, so except for a tiny minority of super-skilled experts, the only options are: (1) live idly as a beneficiary of rent or interest, or (2) try to eke a living as a servant for people in category one.

If we've reached that stage already, may God have mercy on us all.

John Fast writes:

@Bryan: I strongly agree with Scott Sumner. I won't bet on returns for education dropping as a percentage simply because I believe the higher education bubble will burst fairly soon, but I'm happy to bet that the return per year of education will drop.

I will also point out that even if Tyler is right, there is a big difference between highly-skilled workers and highly-educated ones. A degree in English (undergrad or graduate) is of zero value to a fry cook or waiter -- or to a computer programmer. (A degree in sociology or ethnic studies is, of course, of negative value.)

On the other hand, we need lots more computer programmers and technicians, and health care specialists: physicians, nurses, medical technicians, physicians' assistants, etc.

Of course there's already a long-established joke that having a degree in English merely qualifies someone to be a taxi-driver or to ask "Do you want fries with that?" But it's going to get worse.

I, for one, welcome the day when experts in postmodernism and postcolonialism have to empty bedpans and give sponge baths for a living. Because (in my opinion) that day is long overdue.

Scott Sumner writes:

Bryan, Shouldn't you be betting with Tyler? He's the one that claims high tech companies create very few jobs. I was just showing the implication of that observation---we'll have lots of labor to produce non-high tech stuff. I have no idea if Tyler is right in claiming that there is relatively little demand for high tech workers. The key phrase in the quotation you provide is "in that case".

Interestingly, the return to education in China has recently been plunging. Blue collar wages are soaring, and college grad wages have been relatively flat for the last decade.

I turned down a chance to bet Bob Murphy on whether inflation will be over 10%, even though I was 99.9% sure I would win. For some reason I don't like to bet with people, I prefer anonymous markets.

Our economy is already mostly low-skilled labor (jobs that a high school grad can do), so I'm not sure why you say the implication of my theory is that the return to education will "dive."

Lord writes:

He might not differ that much from you. Overall, it sounds like a low level of profit and specialization. The economy would develop greater profits and specialization over time that collapse to lower levels and have to be rebuilt according to new lines. Meanwhile, people find it cheaper to learn and do it themselves than hire it. The waiter probably ends up cooking his own meal rather than dining out.

John Fast writes:

@Vladimir: See Robin Hanson's writings about life in a society in which most of the members are uploaded emulations of regular humans.

Coupon_Clipper writes:

Here are two human wants that didn't seem to make the list:

1. Actual improvements in transportation. If I want to go on vacation, I usually have to fly. While computers keep getting better and cheaper, flying seems to just get worse. Why can't we have a revolution in transportation? Along the same lines, a revolution in energy would be nice too. Oil is $90/barrel, and that doesn't make for cheap transportation.

2. Radical medical advances! Seriously, if I break my leg, the doctor puts it into a cast for six weeks? That's not a cure! And we don't have a real treatment for obesity? I'll say that I have much more hope for radical medical advances than radical transportation advances though.

But I guess my point is that both of these are high-tech tasks, and I fear that we've kind of given up and decided to settle for granite counter-tops instead.

Jeff writes:

Taking care of people with Alzheimer's and other afflictions of the elderly is very labor intensive, and does not require much skill on the part of most of the caretakers. It does require a huge amount of patience and kindness, which I suppose you could call a skill, but it's not one they teach you in college.

Elvin writes:

It's more than restaurants and transportation, but our economy will rely on specialized personal and professional services more and more.

I gladly pay a team of yard workers to mow my yard, trim the edges, and sweep up the clippings each week. (Another group will contract to snowblow my driveway, but I do that myself.) I haven't ironed a shirt in 25 years. I pay for a pest control service, dog walkers, and a cleaning lady. I pay for someone to check my air conditioner and furnace twice a year. My wife has a personal trainer and pays for someone to come out put up Christmas trimmings around our house. My wife pays a professional gardener/landscaper to come out each spring and plan our yard and fertilize it during the summer (and into the fall). For my kids, I pay for tutors--math tutors, biology tutors, and ACT tutors. I've even paid for baseball and soccer tutors in the past. I pay a handyman to come out a couple of times a year to fix all the little things that I don't have the skill or inclination to do.

My kids do earn some money baby sitting. My daughter when she turned 16 was able to get three summer job offers within a week of looking for work. She chose to be a lifeguard.

Don't worry. There will be plenty of jobs in the future. Yes, a lot of them don't rely on college, but I respect the professionalism of the people I meet.

Elvin writes:

As an example of expansion of professional services, just consider this.

In 1952 the Green Bay Packers had one head coach and four assistant coaches. By 1972, the team had eight coaches. By 2010, they had 21 coaches (three of which are strength and conditioning coaches). My guess is that this doesn't include a couple of people who do nothing but put scouting film together and it certainly doesn't include physicians, nutritionists, physical therapists, psychologists, and other consultants that many teams have.

Again, there are lots of jobs in the future. Isn't blogging a new profession? How about all those people involved in the hundreds of TV stations I see on cable?

Noah Yetter writes:

He mentions that the new high tech firms like Facebook can get the job done with an extremely low number of workers.

It shouldn't surprise me that economists don't understand technology.

Software firms have a nearly insatiable appetite for talent at the margin. Look at how many are employed by Microsoft or Google. The new breed of web startup may be leaner, but inevitably reaches a point where its slate of initiatives can't be accomplished by its existing staff.

The firm I work for is hiring as fast as we possibly can. Any mid-level Java or mobile app developers want to work in Golden, CO? Not kidding at all.

People who lost their jobs in construction or real estate or banking aren't likely to be able to Recalculate themselves into software engineers, but it's silly to suggest that the market demand isn't there.

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