BUT...productivity is not the same thing as technology. This is a fact that often gets ignored, since economists tend to treat the two as being equivalent. But they are not. In particular, trade can boost productivity without any new technology being invented. This is what Mandel claims has been responsible for the large productivity gains in the U.S. over the past 10 years. I tend to believe him.
So why should we care whether our productivity comes from robots (technology) or from cheap Chinese labor (trade)? One answer - and I feel like this is what Cowen and Mandel may have been getting at - is that one may crowd out the other. And this brings me to the theory of endogenous growth.
Paul Romer (a physics B.A. like me!) invented the theory of endogenous growth back in the 80s. The idea is that technological progress does not simply arrive out of nowhere, but is a byproduct of economic activity. Since ideas are a nonrival production input (a.k.a. a "public good"), there is no guarantee that the market will produce enough of them. Some growth models may be a lot better at innovation than others, and policy can make a big difference. If we're not channeling enough of our economic output into the production of new technology, we'll all be poorer down the line.
And here's the interesting part. Romer's first crack at a theory of endogenous growth was this 1987 paper. His model uses this very interesting assumption:
I also assumed that an increase in the total supply of labor causes negative spillover effects because it reduces the incentives for firms to discover and implement labor-saving innovations that also have positive spillover effects on production throughout the economy.In other words, if we suddenly get access to a bunch of cheap Chinese labor, we don't bother to invent robots. Then tomorrow, when the cheap Chinese labor runs out, we find ourselves without any robots.
This is just an assumption, of course. Even if the model works well, the assumption may be wrong. But it's an interesting idea, isn't it? What's even more interesting is that this exact same idea is one of the leading explanations for the "Great Divergence" between Europe and China that began around the 1600s. The idea is that European countries, flush with capital but short of labor, invented modern industrial technologies to compensate for their labor scarcity, while China, with a huge labor surplus, felt no need to invest in fancy machines. For more technical formulations of this notion, see Basu & Weil (1998), and this recent survey by Allen. But the basic idea is pretty clear: cheap humans crowd out robots.
So here's the question: what if our slow rate of innovation is due not to an inexplicable slowdown in the arrival of new ideas, but from the fact that China has made the discovery of those ideas less urgent? If that were true (and I'm only raising the possibility), what would be our best response? Would shutting ourselves off from cheap Chinese labor force us to become like 1600s Netherlands and invent a bunch of cool robots? Or would it just cause companies to pack up and leave the U.S. entirely, rendering us a protectionist backwater?
Wednesday, August 24, 2011
Publicada por Miguel Madeira em 10:42