Recommendable! Economics and the AI technology revolution.
Caveat: I did not read the entire, long article!
"Edmund Phelps, who died last week at 92, won the Nobel Prize in Economics back in 2006 for his work on the deep structure of unemployment, inflation, and expectations. But one of his most provocative ideas—the productivity business cycle—has still not received the attention it deserves. ...
The U.S. economy has come to an unusual crossroads. Productivity is accelerating, the labor market remains historically tight, and workforce growth has stalled.
Conventional wisdom treats the tight labor market and stalled workforce growth as warning signs that growth could be hampered. This has become one of the leading arguments for easing back on immigration restrictions and expanding foreign worker visa programs. We need more workers, the business lobby is constantly telling President Trump.
Phelps’s theory suggests something different: if productivity is arriving without a prior hiring boom, this may be the rare cycle that delivers gains in output without first producing an employment boom that has to be painfully unwound.
The heart of Phelps’s innovation theory, developed in the 1980s and 1990s, was deceptively simple and deeply counterintuitive. Productivity booms don’t necessarily begin when productivity gains show up in the data. They begin earlier, when entrepreneurs and investors come to expect future productivity gains.
When businesses see new technological opportunities, the shadow value they place on business assets rises—especially trained employees, installed capital, customer relationships, and organizational capacity. Companies rush to hire, train, invest, and expand in anticipation of future productivity improvements. This boom is real. Employment expands, wages rise, asset prices climb, and the economy accelerates.
But when the productivity gains finally arrive, they don’t necessarily produce a second boom. The hiring and investment that the gains would justify may already have taken place. The future has been capitalized in advance. The realized productivity gain then marks the end of the boom rather than the beginning of a new one.
The Great Depression as a Productivity Hangover ..."
Breitbart Business Digest
Edmund Phelps
