Quote of the Day

The always interesting Steve Randy Waldman, in response to Tyler Cowen’s argument for a technologically-determined “Great Stagnation”:

Rather than a paucity of new technologies, we might be experiencing a breakdown of an older gizmo that economists refer to as “markets”. As our economy tilts away from sectors in which value (however defined) and financial revenue are reliably cojoined, our primary means of orienting our behavior towards valuable activity, individually and collectively, become less and less effective.

The whole piece is very smart. But the specific point that the link between productive activity and claims on the collective product is much more tenuous, and institutionally-determined, than mainstream theory assumes is a very good one that I’ve been struggling to articulate for a while.

Not, of course, that it’s a new one. What’s that old line? “The productive forces at the disposal of society no longer tend to further the development of the conditions of bourgeois property; on the contrary, they have become too powerful for these conditions, by which they are fettered… The conditions of bourgeois society are too narrow to comprise the wealth created by them.”

EDIT: A couple addenda:

The scenario that Waldman has in mind is a systematic bias in innovations toward labor-saving technologies. In the absence of political-institutional changes that raise labor demand in the public sector, and wages across the board, this will lead to a secular rise in unemployment and decline in wages, which is both politically untenable (in a democracy, anyway) and leads to chronic shortfalls in demand.

But one can imagine this going the other way. If one thinks of the wage share as exogenous, then the same technological bias produces a falling profit rate — this is the famous Law of the Tendency of the Rate of Profit to Fall. Or from a more Schumpeterian angle [1] there’s the idea that the fixed costs associated with capital investments can only be recouped if producers have some monopoly power, which tends to diminish as innovations get diffused. So without major new innovations it’s hard for industries with large fixed-capital requirements to remain profitable. In this scenario (can we call it Smithian?), the danger is a secular redistribution of income away from profits, not toward them. (Of course this is quite compatible with increasing technological unemployment, with the winners being a labor aristocracy and the owners of scarce natural resources.) But the point about the very loose articulation between the social division of labor and the incomes produced by the market is the same.

Also, Waldman assumes that causality runs only one way, from the innovations drawn from a set of technological possibilities given by nature, to the demand for and status of labor. This is often a reasonable way to look at things. But not always. Schumpeter, again, for example — despite the misconception that he believed in cycles driven by the exogenous incidence of major innovations — thought that there was almost always a backlog of unexploited technologies,a nd that their realization as economic innovations depended on the sociological factors — the rise of “new men” and “new firms”. Within Marxist economics, there’s an important tradition that sees labor-saving and deskilling not as accidental consequences of technological progress, but as an active goal in a system based on antagonistic relations of production. A system that did not regard skilled labor as a cost — and even more importantly, that did not need to ensure that a disproportionate share of the surplus went to the owners of the means of production — might find itself drawing a very different mix of innovations.

[1] Schumpeter’s student Minsky picked up on this point, in a way I hope to return to in a future post.