How Technology Costs Jobs

A blog about business and economics.
March 21 2013 10:37 AM

Central Bank Incompetence Makes Luddites Correct

Miles Kimball found that central banks often operate under the false assumption that productivity-enhancing technology, like these airport check-in kiosks, hurts the economy.

Photo by Alex Wong/Getty Images

There's often a folk belief that more productivity-enhancing technology—airline check-in kiosks, taxi dispatch apps, etc.—will lead to job loss and economic decline by reducing the need for human labor. Economists generally view this as a fallacy. Over time, better technology leads to higher productivity and more social wealth. But Miles Kimball reports that central banks blunder when technology improves, thus bringing luddite fears to life:

Let me illustrate the importance of what the Fed does by pointing to the short-run effects of technology shocks. All economists agree that, in the long run, technological progress raises GDP—more than anything else. Yet, in our paper “Are Technology Improvements Contractionary?” which appeared in the scholarly journal American Economic Review, Susanto Basu, John Fernald and I showed that, historically, technology improvements have led to short-run reductions in investment and employment that were enough to prevent any short-run boost to GDP, despite improved productivity. (Independently, using very different methods, many other economists, starting with Jordi Gali, had found the negative short-run effect of technology improvements on how much people work.)
How can something that stimulates the economy in the long run lead people to work and invest less? It is all about the monetary policy reaction. Historically, in the wake of technology improvements, the Fed has cut interest rates somewhat, but has failed to do enough to keep the price level on track and accommodate in the short run the higher level of GDP that eventually follows from a technological improvement in the long run.

Kimball moves on to discuss other things, but this strikes me as a very important finding and a very harmful practice. It's harmful in the first instance simply because output gaps and recessions are very bad. But in a larger sense, this risks a dangerous political feedback loop. As people become habituated to thinking of productivity improvements as leading to short-term economic decline, it becomes that much harder to build support for policy improvements in the future. If central banks do their jobs right, innovation should lead to investment booms and new opportunities for people. But in practice, it doesn't.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.



The Democrats’ War at Home

How can the president’s party defend itself from the president’s foreign policy blunders?

An Iranian Woman Was Sentenced to Death for Killing Her Alleged Rapist. Can Activists Save Her?

Piper Kerman on Why She Dressed Like a Hitchcock Heroine for Her Prison Sentencing

Windows 8 Was So Bad That Microsoft Will Skip Straight to Windows 10

We Need to Talk: A Terrible Name for a Good Women’s Sports Show


Cringing. Ducking. Mumbling.

How GOP candidates react whenever someone brings up reproductive rights or gay marriage.


How Even an Old Hipster Can Age Gracefully

On their new albums, Leonard Cohen, Robert Plant, and Loudon Wainwright III show three ways.

The U.S. Has a New Problem in Syria: The Moderate Rebels Feel Like We’ve Betrayed Them

Homeland Is Good Again! For Now, at Least.

  News & Politics
The World
Oct. 1 2014 12:20 PM Don’t Expect Hong Kong’s Protests to Spread to the Mainland
Oct. 1 2014 2:16 PM Wall Street Tackles Chat Services, Shies Away From Diversity Issues 
The Eye
Oct. 1 2014 1:04 PM An Architectural Crusade Against the Tyranny of Straight Lines
  Double X
The XX Factor
Oct. 1 2014 2:08 PM We Need to Talk: Terrible Name, Good Show
  Slate Plus
Political Gabfest
Oct. 1 2014 1:53 PM Slate Superfest East How to get your tickets before anyone else.
Brow Beat
Oct. 1 2014 2:24 PM The New Interstellar Trailer Is the Most Exciting Yet
Future Tense
Oct. 1 2014 2:26 PM The Apple Graveyard Leave a flower for a dead Apple product.
  Health & Science
Oct. 1 2014 2:36 PM Climate Science Is Settled Enough The Wall Street Journal’s fresh face of climate inaction.
Sports Nut
Sept. 30 2014 5:54 PM Goodbye, Tough Guy It’s time for Michigan to fire its toughness-obsessed coach, Brady Hoke.