Andrew McAfee, co-author with Erik Brynjolfsson of 2014’s great Second Machine Age, recently argued in a Financial Times blog post that the economy’s behavior is puzzling these days. It’s difficult to find fault with that statement.
Inflation was supposed to be soaring by now, but it’s not. Technology was going to make production grow feverishly, but traditional measures don’t suggest that. Job growth and wages were supposed to return to normal once the financial clouds cleared, though that’s been largely a dream deferred. What gives?
In a sequel of sorts to that earlier post, McAfee returns to try to suss out part of the answer, which he feels might be that the new technologies have created an abundance which has suppressed inflation. That seems to be certain feature of the future as 3D printers move to the fore, but has it already happened? And has this plenty made jobs scarcer and suppressed wages? An excerpt:
In a Tweetstorm late last year, venture capitalist Marc Andreessen argued that technological progress might be another important factor driving prices down. He wrote: “While I am a bull on technological progress, it also seems that much of that progress is price deflationary in nature, so even extremely rapid tech progress may not show up in GDP or productivity stats, even as it = higher real standards of living.”
Prof [Larry] Summers shot back quickly, noting: “It is… not clear how one would distinguish deflationary and inflationary progress. The price level reflects the value of goods in terms of money, so it is hard to analyze without thinking about monetary and financial conditions.” This is surely correct, but is Prof Summers being too dismissive of Mr Andreessen’s larger point? Can tech progress be contributing to price declines?
Moore’s law — that computer processing power doubles roughly every two years — has made computers themselves far cheaper. It has also pretty directly led to the shrinkage of industries as diverse as encyclopedias, recorded music, film photography and standalone GPS devices. An intriguing analysis by writer Chris Goodall found that the “UK began to reduce its consumption of physical resources in the early years of the last decade.” Technological progress, which by its nature allows us to do more with less, is a big part of this move past “peak stuff.”
It’s also probably a big part of the reason that corporate profits remain so high, even while overall economic growth stagnates.•
