In a June interview with Fox News, President Obama appeared to argue that the country is suffering from high unemployment because productivity enhancing technologies such at ATMs have reduced the need for work. It wasn’t clear to me at the time if the president really meant that or if it was just a bad moment in an interview, but Brad DeLong flags an important passage in Ron Suskind’s new book that gives it context:
My conversations with administration officials have persuaded me that Christina Romer and Lawrence Summers succeeded in talking the president out of this view. But Team Obama has, I think, landed on a more sophisticated version of this theory, and that explains some of the reason why Romer & Summers aren’t in the administration anymore and haven’t been replaced by like-minded people. The president’s view is, I think, closest to the views of people like Michael Spence or Michael Mandel, though a wide variety of people who probably think of themselves as vigorously disagreeing with each other seem to hold it. If you enjoy right-wing economics blogs, you’ll be familiar with it from Arnold Kling. If you’re more on the left, then you’ll be familiar with it from Jeffrey Sachs.
The way this story goes is that we had steady productivity gains going back 10-15 years, related both to Asian manufacturing and to technological change. This freed up workers to go do other things. But instead of putting the workers to productive uses, they went off to toil in an unsustainable boom in housebuilding. When this boom collapsed, what we were left with was not 1-2 years of productivity growth but an entire decade’s worth of displaced labor. The entire growth experience of the aughts wasn’t so much wiped out in the recession as revealed to have been an illusion in the first place. Now we need to essentially start over, and restructure the American economy to find useful ways to employ people.
Now for my part, I don’t believe this story. I agree with Summers & Romer that the problem is overwhelmingly demand. To me the “tell” is the huge decline in leisure and hospitality employment as well as the decline in goods transportation employment. I don’t even really think there was a house construction boom in the first place. But I think more people believe a version of this story than is generally recognized. What’s ironic about this is that the various proponents of the theory don’t always seem to be able to recognize each other. Sachs, for example, complains that “Obama and his advisors have believed, in effect, that they can reignite the housing boom” when what’s really needed is to address “the underlying problem — the loss of manufacturing competitiveness,” while I think this is exactly what Obama thinks he’s doing. Kling thinks we need disruptive change in the education sector, while, again, I think this is exactly what Obama thinks he’s doing.