The great decoupling: another phrase for an end to 20th century capital economics
by David Atkins
Some of us have been pointing out for a while now that this economic downturn isn't just a blip as we prepare for a return to prosperity, and that while much of the problem is attributable to economic decisions made to benefit the plutocratic class, the world really has changed such that neither liberal nor conservative 20th century answers will solve 21st century problems.
That's a fairly radical concept, but it's one that's gaining steam among an increasing number of thinkers who see the obvious: a productive, technologically advanced society that simply doesn't need enough workers to sustain healthy employment levels. While conservative "solutions" only exacerbate the problem, it's also true that simply taxing the wealthy more won't lead to more jobs if there simply aren't enough jobs to do (unless you cut the work week in half, which itself is a fairly radical answer as well.)
It's not just lefty bloggers screaming into the ether anymore. Yesterday saw two MIT Technology professors saying much the same thing in a New York Times op ed:
A WONDERFUL ride has come to an end. For several decades after World War II the economic statistics we care most about all rose together here in America as if they were tightly coupled. G.D.P. grew, and so did productivity — our ability to get more output from each worker. At the same time, we created millions of jobs, and many of these were the kinds of jobs that allowed the average American worker, who didn’t (and still doesn’t) have a college degree, to enjoy a high and rising standard of living.
Productivity growth slowed in the 1970s but revved up again in the 1990s and has stayed strong most years since. But as shown by the accompanying graph, which was first drawn by the economist Jared Bernstein, productivity growth and employment growth started to become decoupled from each other at the end of that decade. Bernstein calls the gap that’s opened up “the jaws of the snake.” They show no signs of closing.
We are creating jobs, but not enough of them. The employment-to-population ratio, or percentage of working-age people that have work, dropped over 5 points during the Great Recession, and has improved only half a point in the three and a half years since it ended.
As the jaws of the snake opened, wages suffered even more than job growth. Adjusted for inflation, the average U.S. household now has lower income than it did in 1997. Wages as a share of G.D.P. are now at an all-time low, even as corporate profits are at an all-time high. The implicit bargain that gave workers a steady share of the productivity gains has unraveled.
What’s going on? Why have job volumes and wages become decoupled from the rest of the train of economic progress? There are several explanations, including tax and policy changes and the effects of globalization and off-shoring. We agree that these matter but want to stress another driver of the “Great Decoupling” — the changing nature of technological progress.
They go on to point out what keen observers already know: the modern technological revolution is unlike other disruptive technological changes that have come before. When the horse-and-carriage industry was destroyed by the automobile industry, the new automotive industry and its ancillary fields were there to pick up the employment slack. But when Amazon kills the bookseller business, or when self-driving cars eliminate cab and truck drivers, or when self-order tablets replace restaurant servers, there is a drop in costs, loss of jobs and increase in productivity without producing a significant number of other jobs to replace those that are lost. As technology continues to improve via artificial intelligence and 3D printing, more and more industries will fall by the wayside without jobs to replace them.
What then?
The Great Decoupling is not going to reverse course, for the simple reason that advances in digital technologies are not about to stop. In fact, we’re convinced that they are accelerating. And this should be great news for society. Digital progress lowers prices, improves quality, and brings us into a world where abundance becomes the norm.
But there is no economic law that says digital progress will benefit everyone evenly. As technology races ahead it can leave a lot of workers behind. In the short run we can improve their prospects greatly by investing in infrastructure, reforming education at all levels and encouraging entrepreneurs to invent the new products, services and industries that will create jobs.
While we’re doing this, however, we also need to start preparing for a technology-fueled economy that’s ever-more productive, but that just might not need a great deal of human labor. Designing a healthy society to go along with such an economy will be the great challenge, and the great opportunity, of the next generation.
We have to acknowledge that the old ride of tightly coupled statistics has ended, and start thinking about what we want the new ride to look like.
What they're talking about is no less than an end to 20th century capitalist economics. And they're not crazy people or socialist bloggers.
In theory, assuming we can tackle the climate crisis and move to sustainable energy sources, this challenge is an opportunity to see the promise of technology bear fruit. In a world where people can live well cheaply and where human drudgery is no longer so greatly required to create the goods upon which modern life depends, we should see an increase in luxury and free time. The only reason for technology to increase human misery is if those who control all the wealth and the means of technological production choose to artificially restrict the labor and financial markets to benefit only those who own corporate stock or have among the few remaining employable skills. That's not a recipe for economic or political stability in societies where the natural unemployment rate will begin to hover around 20%.
We're going to need to rethink the economic system entirely. And it's about time. It's not as if the next generation is going to be able to count on another tripling of housing and stock valuations, nor will Generation Z be able to afford another doubling of tuition prices and student loan debt, nor can households throw third and fourth workers into the grinder to make ends meet. The current road is unsustainable for many reasons. We might as well start thinking about what an alternative future looks like today, before we need to make those decisions convulsing under duress.
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