David R. Henderson  

From the Vault: My First Debate in Print with Paul Krugman

I'm Telling... Arnold on the Current State of...

In January 1997, Red Herring magazine, now defunct, published a debate between Paul Krugman and me. It was titled "Does Technology Create Jobs?"

Here's one of his key paragraphs:

It's also true that higher profits generated by the new technology will lead to more investment, and this may eventually mean higher wages. But the operative word is eventually. If history is any guide, it may be decades before the fruits of a better technology are fully reflected in higher wages. There are, admittedly, some important differences between the early 19th century and the late 20th, but they are less fundamental than they may seem.

And two of mine:
Paul Krugman and I agree that as long as wages are flexible--and we agree that in the United States they are--technological change cannot destroy jobs on net. The reason: even if the demand for labor falls, wage rates can and will fall, keeping workers employed. The one exception would be very unskilled workers, some of whom would be priced out of work by the minimum wage. Krugman and I also agree that "capital using" technological change can reduce real wages for workers.

But a theoretical possibility is not the same as a fact. The important question is not whether the information revolution can reduce real wages for workers, but whether it does. This Krugman has failed to establish.

COMMENTS (5 to date)
JeffM writes:

On your point that a valid theoretical proposition is not the same as a true empirical fact, I like to say that economic theories are theories of possibility: they say what may happen, not what will happen.

Bob Murphy writes:

David, did you keep your shirt on?

David Friedman writes:

"Krugman and I also agree that "capital using" technological change can reduce real wages for workers."

Krugman, you, and David Ricardo, who made that point in (I think) a later edition of the _Principles_, correcting an error he had recognized in an earlier edition.

David R. Henderson writes:

@David Friedman,
Correct. Krugman cited Ricardo.

Ken B writes:

Mr Peabody, the Way-Back machine does not work for me. I get a jumbled mess with Krugman's words over David's. (I will forego remarks on symbolism...). Quite unreadable.

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