Hope, Gloom, Ec 10

Last week The New York Times ran a voluminous, seven-day series of articles exploring the national trend of corporate downsizing. The Times spent pages and pages of print detailing the effect of corporate layoffs on America's standard of living, collective pride and economic morale. These articles left me considerably depressed. The American dream, it seemed, was breathing its last. Real wages have stagnated since the '70s, and high-paying white-collar jobs continue to disappear in times of recovery as well as recession. What it all seemed to boil down to is that children can no longer expect to enjoy a higher standard of living than their parents and instead must contend with a much higher level of job insecurity.

Indeed, the evidence seemed over-whelming that the world I will graduate into will be one characterized by ever-increasing income inequality and a drop in standards of living. And yet, while studying just a few days ago, a ray of hope shone forth to me from an unlikely source: the otherwise tinder-dry pages of my Ec 10 textbook.

According to my well-worn copy of Baumol and Blinder, the key to long-term prosperity in any economy is labor productivity growth. Labor productivity is simply the amount and quality of goods and services an economy can produce per unit of labor. The most important determinant of labor productivity is technology. Over the past 200 years, an explosion of technological innovations has allowed the average standard of living in the industrialized world to shift from subsistence farming to the modern luxuriance we all enjoy today.

As I read avidly, B&B explained that real wages--whose decline we all lament--are linked to productivity growth because market forces push down labor costs to compensate for high-priced, inefficient manufacturing methods.

This seemed to contradict what I had read in the Times, which actually implicated increased productivity as one of the main reasons for massive downsizing and economic instability. In the first of the seven articles, the paper reports, "The steady and pronounced progress of technology has kept taking tasks from human beings and giving them to machines, undermining the bedrock notion of mass employment." It cites such examples as General Motors, which can make as many cars today with 185,000 fewer employees than in the 1970s. "Behind every A.T.M. flutter the ghost of three human tellers," the Times wrote ominously.

"Are Baumol and Blinder clueless?" I thought to myself frantically. "How can increased productivity of labor help the economy when it leads to layoffs?"

Yet the textbook had the answer: While increased productivity may produce short-term joblessness, there is no evidence that rising productivity leads to increased long-term unemployment. As an economy progresses technologically, it creates new industries, new consumer goods and new services which absorb the jobs lost to more efficient, older industries. America's productivity has grown twelve-fold in the past century, but our employment rate is certainly not one-twelfth of what it used to be.

It occurred to me then that the massive downsizing and unemployment we are experiencing looks very much like what the textbook described as the short-term effects of a healthy long-term growth in productivity, real wages and standard of living. I rushed to the library to reread The New York Times, in the hope of finding some indication that my line of thought had been considered by some optimistic pundit. Alas, I found nothing but gloom and doom in the articles themselves. But in a sidebar that featured the opinions of various experts in business and economics, I found a rumination that cheered me greatly. The particular expert being quoted was Bill Gates. "Men and women are worried that their own jobs will become obsolete...that economic upheaval will create wholesale unemployment... These are legitimate concerns. Entire professions and industries will fade. But new ones will flourish...The net result is that more gets done, raising the overall standard of living in the long run." Maybe, just maybe, the future is rosier than we think.

David H. Goldbrenner's column appears on alternate Fridays.