In Player Piano, Kurt Vonnegut’s 1952 vision of a dystopian U.S., technology created a vast underclass of unemployed, and not even the technical elite were immune, as the engineer Bud Calhoun invents himself out of a job. Today, what is being described as the ‘Second Machine Age’ is upon us. Recently disappointing payrolls reports partly reflected the global trend of technology displacing jobs, and in turn reinforced fears of structural unemployment.
You don’t have to look far these days to find reasons: Self-driving cars on our streets, self-sufficient solar-powered homes moving off the electrical grid, robotic-assisted surgeries taking place in our hospitals and, of course, possible home deliveries by drones are examples that show where we’re headed. In fact, recent technological advances are reshaping virtually every aspect of our lives and it’s not just routine repetitive tasks that are being automated. The theme even made it onto the agenda last month in Davos as economists, including Larry Summers, lined up to warn how technological disruption will result in unforeseen political, economic and social risks.
In the context of today’s globalized economy and hyper-accelerated technological advances, it is true that emerging technologies can be extremely disruptive to entire industries, and clearly there are time lags when workers struggle to be retrained. More concerning is the fact that the 10-year rolling correlation between labor productivity and payrolls turned negative in the late-2000s, at least raising the possibility of a paradigm shift in the long-held relationship between productivity and employment, or at least a time when disruptions may be acute.
It doesn’t take a great leap of faith to foresee increasing upheaval resulting from widespread joblessness – as we can already see in parts of the world – and as history has taught us. Even Vonnegut’s Calhoun undergoes a Luddite transformation akin to that seen in the Industrial Revolution, but he ends up rebuilding the machines he smashes – symbolizing the futility of rejecting progress outright.
This dilemma isn’t new and as Britain discovered in the 19th century, the way to address rising inequality is to invest in education that provides relevant critical skills. It has long been understood that productivity advances actually correlate positively with added employment, as economic growth from increased productivity creates more job opportunities over time.
Source: Rob Carlson. “Diffusion of New Technologies,” 11/27/2011: http://www.synthesis.cc/2011/11/diffusion-of-new-technologies.html
So what do we do? First, it’s important to note that Fed Policy hasn’t meaningfully helped with current joblessness. Instead, QE was effective at dulling volatility and raising asset prices. For investors, the QE taper will now mean rising volatility in both equities and rates markets. In addition, technological advances may help keep inflation muted in the years ahead, which could be a positive if accompanied by stronger economic growth.
As a nation, we need to find ways to create opportunities for Americans being displaced in today’s economy. This includes addressing our entitlements issue, to relieve pressure on the budget to make more productive investments; lending initiatives aimed at small businesses that create new and entry-level jobs; expanding and making permanent R&D tax credits; and making smart investments in infrastructure with private sector support.
It requires additional emphasis on education and retraining, as workers will need to increasingly be flexible and adaptable in the new economic environment. Ultimately, it means gaining the skills and frame-of-mind required to effectively live alongside the machines we’ve already invited into our lives.
Rick Rieder, Managing Director, is BlackRock’s Chief Investment Officer of Fundamental Fixed Income, is Co-head of Americas Fixed Income, and is a regular contributor to The Blog. You can find more of his posts here.