University of California professor Brad DeLong's "Economics and the Age of Abundance" highlighted the new economic study of global production growth – a new-ish school of thought that attributes much of the economic malaise in the developed world to a technology-driven "too much of everything."
Close to home, the negative effects of technological advances on the economy are clear. At first, the domestic oil patch benefitted tremendously from the development of Steam Assisted Gravity Drainage (SAGD) and other extraction processes. But the rapid progress in U.S. shale oil extraction techniques created an oversupply of oil that threatens a significant segment of the Alberta energy industry with bankruptcy. Elsewhere in the commodity space, Chinese over-investment in steel and aluminum caused a collapse in global prices.
The economic challenges of abundance, however, go far beyond commodities. There's too many mutual funds, television channels, cereal brands, auto companies (China hasn't even started exporting cars and trucks yet), land-line telephones, clothing brands, taxis, department stores and, if we're being honest, journalism. Technology and its ability to increase productivity are to blame for virtually any major market sector beset with poor profit margins and layoffs.
Professor DeLong's column emphasized the risk that mass fraud of the Bernie Madoff variety will become increasingly prevalent. The larger problem, and I suspect Mr. DeLong would agree, is that technology increases efficiencies and reduces the need for labour. A dystopian future in which anything can be produced quickly and cheaply, except everyone's unemployed with no money to spend, is easy to envisage without considerable structural change in the economy.
Unemployment is the most severe outgrowth of abundance and low profitability but maverick anthropology professor (and devout anarchist, it should be noted) David Graeber has written extensively about boring, mindless pseudo-employment that he calls 'BS Jobs'. Mr. Graber refers to John Maynard Keynes' prediction that technology, by the end of the 20th century, would allow for a 15-hour workweek in Britain and the United States.
"We are quite capable of this. And yet it didn't happen. Instead, technology has been marshalled, if anything, to figure out ways to make us all work more. In order to achieve this, jobs have had to be created that are, effectively, pointless. Huge swathes of people, in Europe and North America in particular, spend their entire working lives performing tasks they secretly believe do not really need to be performed."
The economics of abundance may also lie behind current global deflationary pressures and the prevalence of central bank monetary stimulus most recently underscored by the Bank of Japan. Financial Times writer Izabella Kaminska, who's Beyond Scarcity series of reports form the most valuable public resource on the topic of abundance, wrote, "an abundance of goods is naturally deflationary unless accompanied by equal or greater credit expansion." This suggests that the race to provide liquidity and credit in China, Japan, Europe and until recently the United States, is to some extent in response to the increase of global industry's ability to provide goods. The money supply has to keep up with production or goods go unbought.
The steady migration of global manufacturing activity from developed to developing economies – exemplified by Mexico's rise as an auto manufacturing powerhouse at Canada's expense – will only increase the prevalence of technology in G10 economies. This will only make maintaining employment levels harder. Economist Paul Krugman, in a 2012 speech, noted that General Motors employed 400,000 workers at its peak whereas technology firms need much less labour. Facebook Inc., for instance, with a market capitalization of $327-billion (U.S.), employs only 12,691 people.
The full anti-employment effects of technology will be felt gradually over decades. This is fortunate, because potential policy solutions to the job shortage problems are not obvious, either not economically viable over the long term (like trade tariffs or mass subsidies for inefficient businesses) or politically unpalatable (paying people not to work with large increases in welfare).
Solutions will eventually be found – we'll have no choice. Ideally, a new form of wealth distribution will allow for technology's continued development and its considerable benefits, while also providing citizens with rising standards of living without subsidized employment of unnecessary drudgery.
As Professor DeLong writes, his profession may be ill-prepared to deal with the new theoretical challenges of technology and economic abundance. The history of economics has been the study of scarcity – fostering an economic orientation that limits starvation.
Prepared or not, developed world economies have already embarked on momentous changes, in many ways as large as the urbanization of North America in the late 19th and early 20th century. Like a Canadian farmer moving to Montreal in the 1920s, we likely won't recognize the economy 30 years from now.