Bryan Caplan  

Consumption-Biased Technological Change

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On last night's PBS, Paul Solman interviewed Tyler about The Great Stagnation in Tyler's antiquated kitchen.  MIT's Erik Brynjolfsson provided counterpoint.  Highlight: Solman versus Brynjolfsson:

Sure, high-tech gadgetry abounds, says Cowen, but it hasn't transformed our economy and created new high-paying jobs, as past so-called industrial revolutions have.

Take the ubiquitous iPod. It's created less than 14,000 jobs in the U.S., Internet giant Google, 20,000 employees, Twitter, a mere 300.


What's happened with the most recent wave of technology is what economists call skill-biased technical change, technology that benefits relatively more skilled workers and hurts the livelihoods of people who maybe who have high school educations. As a result, the median income has stagnated, even though overall wealth in the economy has grown quite substantially.

Notice the contrast?  Sure, high-skilled workers' incomes have risen a lot faster than other people's over the last forty years.  But iPods, Google, Twitter, and much of the Internet demand virtually zero workers of any skill level.  From this perspective, "skill-biased technological change" is a major misnomer.  A much more accurate description is consumption-biased technological change.  Firms are figuring out ways for small numbers of workers to create tons of value - then give it away to consumers for pennies or less.  And as far as I can tell, the CPI totally ignores these benefits. 

CPI bias: Now worse than ever.  Quality of life: Now better than ever.

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The author at The Liberal Order in a related article titled The Great Stagnation - Debated writes:
    A very good video discussing the different interpretations of U.S. economic growth and innovation by Tyler Cowen, author of "The Great Stagnation," and Erik Brynjolfsson of MIT. Watch the full episode. See more PBS NewsHour. The arguments are very impo... [Tracked on May 19, 2011 4:01 PM]
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Ned Baker writes:

If Google has 20,000 US employees, does that mean that only those 20,000 Americans benefit from Google's success? Of course not. Besides the money that these employees spend, there are more direct effects that aren't acknowledged here. One example is the $600 million data center Google recently built in The Dalles, OR. Do you suppose anyone had to build the servers, processors, cooling, etc, not to mention the building itself? Furthermore a data center requires constant maintenance and upgrades that have to come from somewhere.

The bottom line is that the US is a tech leader, and this is a good thing for the country. It seems really strange to identify this as a concern.

Evan writes:

I agree completely. You could say that our modern innovations, rather than creating new jobs, instead increase the value you can get out of existing, low-paying jobs. It might be the case that many current low-skilled jobs pay very little. But it is also true that our new technology makes it so much cheaper to obtain things than it had been in the past that you no longer need a high-paying job to enjoy the good things in life.

I never could have afforded the movie collection I have on my current pay, if I had had to buy it all on video back in the 80s and 90s instead of obtaining it online like I do now. And I would have had to subscribe to a gazillion different magazines to get the same sort of thought-provoking articles I read for free on places like Econlog.

Daublin writes:

Solman's premise is bad. While any one tech company doesn't hire more than a few tens of thousands, there's a long tail. On the whole, engineering graduates nowadays are both numerous and well-paid. They're working somewhere.

To give an idea where that might be, here are three examples of jobs that were marginal in the 70s but very popular now: software engineering, database administration, and network administration. There are many other examples besides.

It's also not the case that only the super-skilled are finding work. One of the ways that technology advances is that it gets packaged up in forms more convenient to use. A simple example is that amateur film has much better effort-quality ratios than it did a few decades ago. Likewise for amateur board games. Lots of things that used to require specialists can now be done by a semi-skilled amateur.

Overall, I find Cowen's line of argument just bewildering. Tech is improving, high-skill tech workers make a bundle, and semi-skilled tech workers are more in demand than ever.

Noah writes:

I agree with this post.

dave hedengren writes:

I agree.

The point of technological change, and economic growth for that matter, is not to create jobs but to raise standards of living.

Sol writes:

Wait, is this the reason that Tyler's technology stagnation theory makes no sense to me? Because he's measuring success in terms of GNP, and so many of the my benefits from technology have been close to (if not outright) free?

So, for instance, the (free) Kindle app on my phone has only contributed about $8 to the GDP, because I've mostly loaded it with classic books that are in the public domain and modern books being given away free. But I'd argue my consumer surplus from it has been more on the order of $100, maybe more... It's enabled me to read books that would have been hard to find in print. It lets me read in the dark (absolutely essential when you have a small child that doesn't sleep well). And it represents an entire library I can easily carry in my pocket.

Another bob writes:

Millions 'work' for free creating content for YouTube. Substitutes for paid tv content creation? $0! higher standard of living for tens of millions?

Jaap writes:

iPod keeps hunders of thousands of people employed in China through Foxconn. I'd say that counts. right?

Noah Yetter writes:

Google has created far more jobs than the ~20k it employs directly. There are thousands of firms that survive almost solely on consumer traffic from Google ads.

Ari T writes:

You know when talking about things like FRB, Austrians always seem to sound quite a bit feeble in their reasoning if not downright irrational, but on things like this they're right on the money.

If someone invents CheapCar - a way to make cars with 1/10th of its current cost, it would probably put a million people (or whatever the number is) unemployed, thus CheapCar has not created any "jobs". CheapCar would employ only a thousand people, what a useless company!

The whole CPI thing is a fiasco. Processor power has risen thousand(s) of percent since 1960s and the resources (workers, capital) needed for that has decreased dramatically thus prices have fallen dramatically.

Like how can someone calculate the "standard of living" ? If CPU power becomes 100% cheaper in 2 years (according to Moores's law), some economists seem to claim that there was no growth, just increase in "standard of living". What if its just 110%, is that growth, how about 90%, is that a recession? Why 100%, why not 200%? Not to mention calculating the processing power is not that simple because of multi-threading etc.

And that was just in computer power, you could take that logic and apply it to everything else aswell. And it just isn't that consumers get cheaper PC's, cheap computers and digital circuits are the necessary for production of all other current goods.

It seems that people who are interested in mathematical calculation of GDP have some weird understanding of growth. The Austrian explanation is that increases in productivity makes more goods and services available, decreasing the resources needed to produce stuff, leaving people unemployed to use their labour somewhere else than producing old stuff with more workers. Everyone wins.

And then there are positive externalities and all kinds of network effects (I can tell you that as a programmer that invention of Internet has brought a considerable increase in programmer productivity).

This reminds me of Lost Decade of Japan. Austrians claim the lost decade just wasn't so lost as economists believe. Indeed the nominal GDP growth has been minimal, but the increase in productivity has brought more goods available for everyone, thus there has been a massive rise in the PPP-adjusted GDP per Capita.

Finch writes:

Ari T, BLS does try to compensate for changes in computer quality associated with higher speeds, bigger memories, and new features.

They aren't very good at it, but they put a lot of effort into it. The problem isn't being ignored.

Chris T writes:

The problem with measuring information technology's contribution to GDP is that it is the first major part of the economy to become 'post-scarcity'. Markets can only operate when something is limited by supply, if it effectively becomes unlimited there is no price and no market.

Economists are trying to study something that can no longer be studied with the tools of their field.

Cyberike writes:

@Ari T: "decreasing the resources needed to produce stuff, leaving people unemployed to use their labour somewhere else than producing old stuff with more workers. Everyone wins."

Check the US labor participation rate. It has decreased pretty drastically for the last 10 years or so. People are not going to work somewhere else after loosing a job. One reason for this has been mentioned, that new jobs require higher technical skills. However, I do not see thousands of jobs going un-filled because of a poor labor pool.

A better answer is that the new technology has been making people more and more lazy over the last generation or so, and potential workers are not willing to go throught the effort to retrain themselves, or even to learn valuable skills in the first place.

My point is that technology is improving the quality of life, so much so that people do not believe they actually have to work for a living.

John Wondersmith writes:

Tyler's kitchen example has always struck me as odd. What does the modern kitchen look like? I really don't know, I have outsourced mine. I regularly consume from twenty or thirty different kitchens: various ethnic restaurants, drive-through, sandwich shops, and even pre-prepared meals from the grocery store. The actual kitchen in my home is quaint, and only occasionally used in the manner that my parents used theirs.

Lemmy Caution writes:

US technological Innovation used to produce a lot of middle class and working class jobs in the US. It doesn't any more. This is a problem.

Vipul Naik writes:

An economist called Bryan Caplan talked of a phenomenon called "make work bias" -- I think that bias runs rife through the entire video, with all the complaints about how technology is not creating jobs. See this Cato Unbound discussion.

Joe Ellebracht writes:

The guy banging a sledgehammer against a railcar to make sure all of the coal comes out and falls through the grate so it can be loaded into the ship to China probably does not qualify as a technologically elite sort of guy. His job, though, could quite likely have been created by Google or Apple. Both of those companies are employing the Chinese and others, making them richer and more resource - consuming.

We are still a country that produces raw materials like coal and animal feedgrains for the rest of the world. Making the rest of the world richer enriches us too, although the links are hard to see.

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