09 July 2012

INNOVATION: WHAT'S YOUR FUNCTION?

Here's an interesting piece from the New York Times' Opinion Pages called "The Hollowing Out" (07/08/12) by Thomas Edsall.

In it, Mr. Edsall presents some interesting views on how innovation and other advances in technology may or may not be contributing to the sustained middle class job losses of the past decade:
"The issue of the disappearing middle is not new, but credible economists have added a more threatening twist to the argument: the possibility that a well-functioning, efficient modern market economy, driven by exponential growth in the rate of technological innovation, can simultaneously produce economic growth and eliminate millions of middle-class jobs."
The case being made is that innovation is not-so-slowly chipping away at the American middle class. Years of technological advancement, they theorize, is replacing the need for humans in mid-level jobs.

In the piece, Edsall includes a disturbing infographic by MIT scientist Andrew McAfee, that confirms that something strange is going on in our time:
"Since the Great Recession officially ended in June of 2009 G.D.P., equipment investment, and total corporate profits have rebounded, and are now at their all-time highs. The employment ratio, meanwhile, has only shrunk and is now at its lowest level since the early 1980s when women had not yet entered the workforce in significant numbers. So current labor force woes are not because the economy isn’t growing, and they’re not because companies aren’t making money or spending money on equipment. They’re because these trends have become increasingly decoupled from hiring — from needing more human workers. As computers race ahead, acquiring more and more skills in pattern matching, communication, perception, and so on, I expect that this decoupling will continue, and maybe even accelerate." ("The Rebound that Stayed Flat," Race Against the Machine by Andrew McAfee and Erik Brynjolfsson.)
Technology is rendering some jobs obsolete. Fine. Anyone who has used a washing machine knows this kind of thing happens. But, is this obsolescence coming too quickly and in such a large scale that our job market is no longer able to recover? 

McAfee projects this trend "will continue, and maybe even accelerate." That's a sobering thought considering the still anemic job numbers. McAfee's Race Against the Machine partner and MIT professor Erik Brynjolfsson cautions:

"So it’s possible we are facing a regime change, a fundamental change in the way technology and employment interact with each other."

In the piece, Edsall rightly includes some valid counterarguments to the McAfee and Brynjolfsson theory. He quotes James Hamilton of the University of California, who insists on looking simply at human history. He states:
"I am very skeptical of the claim that technology itself is the problem. In 2005, the average U.S. worker could produce what would have required 2 people to do in 1970, what would have required 4 people in 1940, and would have required 6 people in 1910. The result of this technological progress was not higher unemployment, but instead rising real wages. The evidence from the last two centuries is unambiguous — productivity gains lead to more wealth, not poverty. The unemployment since 2007 was not caused by gains in productivity or increased automation, but instead by loss of demand for the product that the workers had been producing, for example, a plunge in the demand for new home construction."
Enough time may simply not have passed to determine what really is going on. But, whether you ascribe to the idea that the middle class is disappearing under its own technological innovations; or instead believe it's the natural progression of the industrial age; there remains no question that there is a middle class emergency in America and no one seems to be answering the 911 call.

And in his closing, Mr. Edsall is once again right to turn his focus to Washington, DC:
"Any effort to ameliorate the damaging consequences to the employment marketplace stemming from technological innovation, according to Brynjolfsson, requires substantial government action at a time when 'the political system is the most dysfunctional part of our society.'"
How long voters will continue to tolerate the dysfunction is the question that will remain open, at least until November.