According to Obama, our economic woes are structural problems that have resulted from large increases in productivity – like installing ATM machines and getting rid of bank tellers. Yes, that’s probably it: machines cause unemployment. Instead of using Caterpillar dozers to build roads, we should put 5,000 workers out there with shovels.
Let’s discuss one of the most basic economic fallacies that, apparently, even an Ivy League education can’t overcome: that of the scourge of machines. This one has been haunting public discussion since the dawn of civilization. This fallacy claims that machines, or productivity increases in general, are undesirable because they displace workers.
While it’s true that the immediate situation for the workers who lose their jobs will be negative, it’s not at all true for society as a whole.
Let’s carry this fallacy to its logical conclusion. If all machines and time savers are harmful to the economy, then clearly the ideal situation is one in which individuals spends their entire day rooting around for food, hopeful that they will find enough to survive, and repeat the process again the next day. No problems with employment here. But would happen to the standard of living?
If you haven’t read Henry Hazlitt’s Economics in One Lesson, then please do so (download pdf copy). As Mr. Hazlitt points out, the classic mistake of economists is to only consider effects on a small group in the short term, while ignoring the long term effects on society as a whole.
So what happens to our wanderer-gatherer society when someone discovers how to produce enough food for ten people each day? Ninety percent of the population is now out of work. But the cost of food (in terms of time and effort) has plummeted. So much so that the labor of the other ninety percent has been freed up to produce other desirable items such as wheels or houses or big screen TVs. Society as a whole is richer because of the increases in productivity.
The fact is economic growth, or a rising standard of living, is due to increased productivity. The more goods and services each individual is able to produce, the more that is available to society as a whole. Clearly machines and technology are great enablers of economic growth and not the other way around, as, sadly, our president believes.