Creative Destruction

By Charles Webb

Economic issues have been a major concern for upwards of six years now. And while the economy and job market have improved over the last couple of years, our growth and employment rates seem to be stuck in second gear. Of these issues, the reasons for the long-term unemployed and what to do about it has become a hotly debated subject.

One of the questions raised is if a 6% or higher unemployment rate is going to become the new normal in the United States. This fear of us having a chronically high unemployment rate is based on several evolving factors, but a reoccurring topic is what role technology will play in the job market going forward.

Last month, Harvard University economist Lawrence Summers published an essay in which he envisioned a world in which computers and machines displace a vast new array of human work, creating an economy that produces few opportunities and sources of income for actual people.

Driverless trucks and taxis or drone package delivery don't seem that farfetched in this day and age. Shopping is more frequently done online and automated warehouses retrieve and ship packages efficiently with only limited human assistance. Even consumer habits seem to eliminate jobs. When was the last time you had someone pump your gas? Did you even pay the cashier or just swipe your card at the pump? Taken at face value, we seem destined for a world run by machines that maybe don't even need humans.

But the truth is there is nothing new in these changes. There's a long history of technologies displacing human labor. The green revolution displaced labor from farming. The industrial revolution replaced skilled artisanal labor with unskilled factory labor. The mass-produced automobile drastically reduced demand for blacksmiths, stable hands, and many other equestrian occupations. Successive waves of earth moving equipment and powered tools displaced manual labor from construction. In each case, groups of workers lost employment and earnings as specific jobs and accompanying skill sets were rendered obsolete.

However, along with these changes came opportunities in new industries that never existed before. In today's Internet age, those industries have names like Search Engine Optimization and Big Data Analysis. How big are these new players? The answer is really big. The industry that collects, analyzes and sells consumer data from our online activities is a multibillion dollar enterprise. Then there are the thousands of software developers and coders that will be needed to support the smartphone industry alone.

You'll often hear these dislocated workers referred to as "victims of the capitalist system" and see rules and regulations set up to prevent these kinds of changes.   In reality, this is a sign of progress and ultimately leads to higher productivity as a nation and a higher standard of living for everyone.

From the beginning of the industrial revolution, politicians and labor unions have attempted to keep the status quo. In 18th century England, riots would break out as workers destroyed the newly invented steam powered textile equipment that threatened their jobs. Labor unions arose to fight against the profit-hungry factory owners. Two centuries later, union negotiators would have the auto manufacturers limit the number of robots installed on the assembly line as part of their contract. In hindsight, these efforts now seem futile and counterproductive.

Policies using the government as the employer of last resort have also been attempted. The famous economist Milton Friedman once visited an Asian construction site where a dam was being built. He couldn't help but notice that instead of heavy machinery, thousands of workers used shovels and wheelbarrows. When he asked why, the government official explained that it was to insure more work. Mr. Friedman in turn asked, "why not use spoons then?"

In the future, machines will likely have a larger effect on a specific type of work done. Repetitive jobs that pay above average wages are the most likely candidates to be lost to automation. Low wage work isn't worth the investment and high end work tends to require abstract thinking not easily mimicked by computers.

Either way, in the long-run, the economy and workforce finds a way to adjust. There is no better proof than the fact that through all the years of innovation, the economy has continued to employ more people than in the past.