Technological Advancements and Their Role in a Growing Economy

Often you will hear the claim from many on the left that certain advancements in technology should be avoided because they put actual Americans out of work. Labor Unions have for years been fighting against technological advancements in the name of saving jobs. Technocrats of the past based their entire economic platforms on stopping the growth of technology. Popular page "Being Liberal" recently posted a picture of a check-out scanner at a store and posted that they are a "job creator" because they avoid these scanners and only use real people to check-out. They then encouraged all of their followers to do the same to "create more jobs." The question is, do these machines reduce jobs? Do they reduce productivity? Should we as a society prevent ourselves from advancing solely in the name of preserving jobs that would no longer be needed? To start off it is vital for everyone to realize that each individual has value and can generally produce. Back when the Soviet Union was at the height of it's power, it was required that 5 pilots fly a plane. Over time, certain technological advancements were created that made it necessary for only 2 pilots to fly a plane. The United States complied with these new advancements and essentially let go 3 pilots for every team of 5, therefore maximizing their efficiency and saving money, whereas the Russians made it mandatory 5 pilots remain to fly each plane. On the surface one would claim that because of this advancement, the United States was causing job loss and the Russians were preserving jobs. However, the result was quite the opposite. When those 3 American pilots were let go, what did they do? Did they disappear, never to work again? No, they went out and found new employment where they were needed, thus expanding the overall economy. The Russians however, due to their laws to keep a mandatory 5 pilots where only 2 were needed, were essentially holding up artificial unneeded jobs and holding those employees hostage when they could have went out and found other employment and expanded their economy. Basic things such as this are why the American economy expanded and the Russian economy collapsed. If the main goal of an economy is to provide jobs, then sure, refuse to expand by not allowing efficient technological advancements to be put into place. However, as stated time and time again, jobs in the name of having jobs should not be our goal, an increasing productivity which in the end will result in higher wages and more/better paying jobs should. We could have unemployment under 4% in no time if we got rid of many of the technological advancements used today, however time of production would increase, cost would increase, quality would decrease, standard of living would decrease, and overall national production would decrease dramatically so wages would, over the long run, fall. We've mentioned it before, but it illustrates the point too well not to mention again. Economist Milton Friedman once visited a work "project" in Asia. The goal of the project was to build a new canal. When Mr. Friedman arrived at the project, he realized that every employee was using shovels. He promptly asked the project manager why no excavators or heavy earth moving machinery was being used. The project manager replied that their goal was to create as many jobs as possible. Friedman, realizing the goal was in fact not to build a canal which would increase productivity of the economy, but to create jobs, replied, "Then why not use spoons instead of shovels?" During the 2012 election we saw President Obama blame unemployment on technology when he equated ATM's, kiosks, and so forth to less jobs. To the president, and most keynesian economists, technological advancements such as this are structural issues, when in reality they are progress. They signify a growing economy. Throughout history technology has been advancing, allowing employers to replace employee's with faster and better machines all while dramatically reducing cost thus allowing the business to expand. As mentioned in the earlier example of Mr. Friedman, we should go from spoons, to shovels, to excavators, not the other way around. As an example of how technology increases productivity, consider the example of the textile industry over the years. Per the Washington post, "The textile industry has been particularly aggressive in replacing people with machines. A half-century ago, a typical North Carolina textile worker operated five machines at once, each capable of running a thread through a loom at 100 times a minute. Now machines run six times as fast, and one worker oversees 100 of them." That's equates to a 120-fold increase in output per worker. When a 120 fold increase in output occurs, less workers will be needed. Or consider the example provided by the Wall-street journal regarding the production of eggs. Per the journal, "Today, a couple of workers can manage an egg-laying operation of almost a million chickens laying 240,000,000 eggs a year. How can two people pick up those eggs or feed those chickens or keep them healthy with medication? They can't. The hen house does the work—it's really smart. The two workers keep an eye on a highly mechanized, computerized process that would have been unimaginable 50 years ago." Now, a common claim by critics of technology is that the past was different, and today we are at a "breaking point" where we cannot afford to advance any further without sacrificing jobs. Elanor Roosevelt , in a syndicated newspaper article in 1945 said, "We have reached a point today where labor-saving devices are good only when they do not throw the worker out of his job." The issue with that is if that standard had been applied many of the advancements we have today would not exist. Such a standard would have led to a smaller economy with a lower standard of living and lower wages. To wrap up this discussion, consider the following. 1. Technological advancements reduce cost in a business which in the long run reduce the cost of the product which they are producing due to an increase in competition and a more efficient production process. The consumer benefits from this greatly. 2.Technological advancements lead to a higher standard of living for consumers. Workers work less to afford to buy eggs, cars, TVs, etc, than they would if the technological advancements were not there to reduce cost of production. 3.New jobs are created, expanding the overall economy instead of keeping workers in artificial jobs (Revert back to the Soviet Union example). Technological advancements force an economy to expand. Workers let go due to technology must go out and either themselves create new employment or work for others who have started businesses, etc. The pie as a whole gets bigger and everyone benefits. Historically as technology has expanded, employment has also expanded and productivity has grown (higher wages, standard of living, etc). It is not as if when an ATM replaces a bank teller, every bank teller no longer needed just spends the rest of their life jobless and in poverty. 4.When it becomes cheaper to make food, clothing, and so forth, there are more resources and people available to create new products that didn't exist before. Innovation grows in an advancing economy. That's why the majority of all great technological advancements that improve society have occurred in capitalistic societies when new advancements are not frowned upon. 5.Statistically, technology has never destroyed jobs on a net net basis and it won’t in the future. 6.The common claim that technology kills jobs while increasing productivity is simply false. There is very little connection between the number of jobs in an economy and the productivity of that economy. 7.According to the OECD in a definitive review of the studies on productivity and employment: "Historically, the income-generating effects of new technologies have proved more powerful than the labor-displacing effects: technological progress has been accompanied not only by higher output and productivity, but also by higher overall employment." To summarize, the most important thing when examining anything from an economic viewpoint is to avoid getting caught up in only looking at the immediate consequences of an action. When looking at a new self-checkout placed in a store and replacing a worker, most individuals will only recognize the fact that the worker has been let go. However, we must always look beyond the first consequence. Those self-checkout machines had to be produced by others, thus creating jobs. The store using the self-checkout saves money in the long run which flows back into the economy either through lower prices, higher wages for the remaining workers, or higher profits. If it is through lower prices for example, than the consumer will have more money to spend than they would have before. If the average trip to the grocery store previously cost $200, but it now cost $175, the consumer now has $25 extra that could go towards buying new clothes, or going to the movies, and so forth. That $25 will go out and help other businesses grow and expand. If higher wages are given to the remaining workers, they now have more capital to spend on things they desire such as a new coat, or maybe a new car, both of which result in increased revenue for other businesses. If more profit is taken by the "greedy" business owner, he/she will statistically either 1) re-invest in their business to expand, thus creating, on a net net basis, more jobs than before, 2) invest the profits in some other industry thus allowing other businesses to grow, or 3) spend the extra profits on increasing his own consumption. No matter the course he chooses, he will increase employment, all due to the fact that he replaced some workers with technology to increase efficiency and decrease cost. In all cases the money gets spent and stimulates demand that other companies respond to by hiring more workers, hence an expansion of employment. To conclude, consider the example given by Henry Hazlitt in "Economics in One Lesson." We are constantly reminded by many in labor unions and in the media to not forget "Joe Smith" who lost his job because of a new coat producing machine used in the factory he previously worked. Time and time again we are brought back to Joe Smith in hopes that it makes us feel an injustice was done due to these new machines. However, what the labor unions and media would like you or I to ignore is Tom Jones, who received a new job making the machines used in the factory, or Ted Brown, who has received a new job operating one, or Daisy Miller, who can now buy a new coat for half what it was before and use her remaining capital in other areas in the economy. But, because people like to focus solely on Joe Smith, often times nonsensical and reactionary policies are advocated. The claim that technology causes unemployment has been pushed for hundreds of years, and it has been proven wrong time and time again. Hopefully this will stimulate some good/debate discussion on this issues. This was just a brief overview and I expect to have more in-depth discussions as we move forward. Attributions http://online.wsj.com/news/articles/SB10001424052702304070104576399704275939640 http://www.technologyreview.com/view/519016/stop-saying-robots-are-destroying-jobs-they-arent/ "Economics in One Lesson" By: Henry Hazlitt