Our Economic Future

Krugman reviews Robert Gordon's pessimistic assessment of growth prospects in Paul Krugman Reviews ‘The Rise and Fall of American Growth’ by Robert J. Gordon.

Steven Rattner, reviewing a couple books on economic prospects, writes:

"The biggest gap in both books is insufficient recognition of the problem of productivity — the output each worker generates. Without increases in efficiency, workers can’t get paid more and the economy can’t expand. And of late, productivity growth has been woefully light. ... No doubt the challenges of the world economy are great, and no doubt our elected officials have fallen woefully short in implementing potential solutions. But achieving reasonable growth is well within our grasp. Not everything that can be invented has been invented. The countless hours that would be saved by a single, now imaginable idea — driverless cars and trucks — could alone reverse disappointing productivity figures."

- Steven Rattner, ‘The Age of Stagnation’ and ‘The Only Game in Town’, NYT, Jan. 27, 2016

But consider what the reality of driverless cars and trucks would look like. Yes, productivity would increase, because the same work would be done by fewer workers. It does not follow that the economy would grow significantly. The increase in productivity would result from ending the employment of truck and taxi drivers while continuing to produce the same amount. There is no effective long-term mechanism to maintain the income of the newly unemployed. They lack the skills for occupations needing more workers. Having lost their income, they would reduce their consumption. On the other hand, to the extent driverless cars and trucks reduced costs, profits of companies with reduced payrolls would increase, allowing their relatively rich owners to increase consumption, offsetting lost demand from the former drivers. Production would shift toward luxury goods without growing significantly, and inequality would increase, arguably making society as a whole worse off.

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