What Impact Will Technology Have On The Economy?
Technology is a tough animal to wrap our minds around. What impact will it have on the economy.
On one hand, we can see it making companies more productive. This is going to natural lead to greater output. However, technology, by its nature, is deflationary. Thus we see many industries having the cost of the product pushed to zero or near-zero. Long distance communications is a prime example of this.
So which is it?
In this article we will try to get to the bottom of this.
Technology = Human Advancement
This is not too great a statement. All of our advancement over the centuries was due to technology. From the invention of tools during the Stone Age to the super computer, we can see how society benefitted. While there are some mishaps along the way, this is the overall trend.
Therefore, we have no reason to expect that our further progress will not result in advancement for humanity. Of course, we need to keep in mind that not all benefit equally. Technology is an extremely disruptive force which means that we are likely to see "losers" in the equation.
We only need to look at the US manufacturing sector to realize how this works. Output has exploded in the last 30 years. However, we are doing that while being down about 1.5 million manufacturing jobs. In other words, we are able to do more with less.
Now we have a focus on the "Tesla Bot" which is going to be developed with the idea of replacing even more labor. How all of this will unfold is going to be something to watch.
Historically, technological advancement freed people up from the dreary jobs that were hard to do while also yielding little to them from a personal financial perspective. Therefore, in the long run, it was probably a good thing. Of course, it was painful in the moment, especially for those affected.
One problem with technology is that we know it destroys jobs. This is something that everyone will acknowledge. The key, in the past, was that it also enabled us to create more jobs. Sadly, that is not the case in the last 20 years. Our economy keeps growing yet the Workforce Participation Rate keeps dropping. This is a long-term trend few can argue with if they look.
This means the impact upon personal incomes is taking its tool. How can we get around this?
Will The Economy Grow?
You would think that technology would equate to economic explosion. While that might have been the case in the past, the impact of late is not noticeable. We see growth rates in decline for a variety of reasons, meaning the financial impact at a societal level is just not there. Without growth, the expansion is mostly fueled by debt. This is a recipe for disaster.
That said, how is the economy doing? From the main metric standpoint, GDP, not very well. Japan, EU, and US all have slowing growth rates, something in place for the last couple decades. It does not look like this will change anytime soon.
What if, however, it was actually technology that was causing it? Could it be that our metrics are out of date?
GDP measures the total output of a geographic region. This becomes known as "the economy". What happens if something advances society yet is actually a drain on GDP?
In the past, each time a long-distance phone call was made, that added to GDP. It is not hard to figure out that companies like AT&T saw their LD billing collapse. Yet it is safe to say that communication is busier than ever. The difference is it is basically free.
The same happened with video rental. People purchased machines to view videos on in addition to renting them. This required stores to sell the hardware and rent the cassettes/DVDs. All this went away with the introduction of streaming. No longer are these expenditures made.
What happens when transportation is upended? Or construction? Or the medical field?
All of these are facing advancements due to technology that could have a positive impact for society. However, from a GDP perspective, this could be a step backwards. This is the dilemma that we face.
Perhaps the bottom line is GDP simply is an outdated metric. We are not going to develop new metrics overnight. However, it is evident that we need to create them.
The bottom line is technology will expand the economy even if our present metrics do not reflect it. Think about all that we once paid for yet are free (or near free) today.
That is why human keeps progressing forward.
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