Is Ned Ludd Writing for the Associated Press?

by John Hinderaker in Economy, Unemployment

The Associated Press has undertaken an ambitious series of reports on the rotten U.S. and global economies. To its credit, the AP recognizes that our current recovery is, by any historical standard, awful:

In the U.S., the economic recovery that started in June 2009 has been called the third straight “jobless recovery.”
But that’s a misnomer. The jobs came back after the first two.
Most recessions since World War II were followed by a surge in new jobs as consumers started spending again and companies hired to meet the new demand. In the months after recessions ended in 1991 and 2001, there was no familiar snap-back, but all the jobs had returned in less than three years.
But 42 months after the Great Recession ended, the U.S. has gained only 3.5 million, or 47 percent, of the 7.5 million jobs that were lost. The 17 countries that use the euro had 3.5 million fewer jobs last June than in December 2007.

What is the cause of this apparently permanent joblessness? The AP blames technology:

Most of the jobs will never return, and millions more are likely to vanish as well, say experts who study the labor market. What’s more, these jobs aren’t just being lost to China and other developing countries, and they aren’t just factory work. Increasingly, jobs are disappearing in the service sector, home to two-thirds of all workers.
They’re being obliterated by technology.
Year after year, the software that runs computers and an array of other machines and devices becomes more sophisticated and powerful and capable of doing more efficiently tasks that humans have always done. For decades, science fiction warned of a future when we would be architects of our own obsolescence, replaced by our machines; an Associated Press analysis finds that the future has arrived.

The baleful effect of technological advancement has spread throughout the economy:

For more than three decades, technology has reduced the number of jobs in manufacturing. Robots and other machines controlled by computer programs work faster and make fewer mistakes than humans. Now, that same efficiency is being unleashed in the service economy, which employs more than two-thirds of the workforce in developed countries. Technology is eliminating jobs in office buildings, retail establishments and other businesses consumers deal with every day.

The AP is aware, of course, that blaming unemployment on technology has a long and disreputable history. But this time, they tell us, it is different:

Technological innovations have been throwing people out of jobs for centuries. But they eventually created more work, and greater wealth, than they destroyed. Ford, the author and software engineer, thinks there is reason to believe that this time will be different. He sees virtually no end to the inroads of computers into the workplace. Eventually, he says, software will threaten the livelihoods of doctors, lawyers and other highly skilled professionals.
Many economists are encouraged by history and think the gains eventually will outweigh the losses. But even they have doubts.
“What’s different this time is that digital technologies show up in every corner of the economy,” says McAfee, a self-described “digital optimist.” “Your tablet (computer) is just two or three years old, and it’s already taken over our lives.”
Peter Lindert, an economist at the University of California, Davis, says the computer is more destructive than innovations in the Industrial Revolution because the pace at which it is upending industries makes it hard for people to adapt.

But if the cycle of destruction and creation is speeding up, shouldn’t that mean that new jobs are coming along faster than ever? Or is the problem that the cycle of destruction and creation has been interrupted, so that jobs (and wealth) are being destroyed, but not many jobs, and not much wealth, are being created?

The first installment of the AP series addresses job destruction, but never mentions economic growth. If the story were merely one of increased efficiency attributable to technology, wouldn’t we be seeing GDP growth in line with prior recoveries? One would think so, but we aren’t. GDP growth is lagging, just like job growth. That tells us there is more going on than mere increases in efficiency.

The AP stresses that the job loss phenomenon is global, pointing to unprecedented levels of unemployment in the European Union. But some would say the EU is poorly governed, just as the United States is. Moreover, if we look at unemployment data by country, there are obvious differences. Countries calculate unemployment differently, but the Bureau of Labor Statistics took the trouble to normalize selected countries’ unemployment data to U.S. definitions; this chart is the result:

This comparison shows that the United States is doing quite poorly, even compared with countries that historically have had higher unemployment rates than ours. Why might that be, and what could account for GDP growth being so anemic in the U.S.? Poor government policies are the obvious explanation. The AP, with unintentional humor, notes that no country has done anything to stem technological innovation:

Technology is replacing workers in developed countries regardless of their politics, policies and laws. Union rules and labor laws may slow the dismissal of employees, but no country is attempting to prohibit organizations from using technology that allows them to operate more efficiently – and with fewer employees.

I should hope not, although the AP’s attitude toward this consensus is unclear. But short of banning technological improvements, there are many important differences in governmental policies that affect the economy. Thus, Singapore–number two in the Heritage Foundation’s 2013 Index of Economic Freedom–currently has an unemployment rate of 1.9%, just slightly lower than North Dakota’s. Is Singapore technologically backward? I don’t think so. A businessman friend of mine who travels there frequently told me recently that one-third of all Singapore residents over the age of 30 have a net worth in excess of $1 million. Wealth can be created rapidly, but not in an environment dominated by excessive regulation, bloated, wasteful government spending, and high taxes.

Technological innovation has always eliminated jobs, a fact for which we should be thankful: our ancestors were brick-makers, arrow fletchers and animal skinners. It has also created wealth, and that wealth has been invested in new ventures, using new technologies, that have created new jobs. This has been true for thousands of years. So what has seemingly changed so suddenly? It seems obvious that in the U.S., the game-changer is metastasizing government spending, much of it wasteful, combined with trillions of dollars in government borrowing and oppressive regulation, which together have suppressed the wealth creation and investment that normally would have created millions of new jobs, along with trillions in new economic output.

In other words, the current recovery is uniquely awful because we have never before had such a left-wing federal government. It will be interesting to see whether the Associated Press gets around to this explanation in its three-part series.

Image courtesy of Shutterstock.

 

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