Is it possible to live through a period of profound economic change and not notice? There is accumulating evidence that something is very different about our economies; stuff is happening that was not expected – too many puzzles are out there that defy conventional wisdom.
In the UK, for example, there are too many jobs being created. That sounds strange, but economic recovery is coming at a time when the data suggests a productivity collapse has occurred. That's another way of saying that the recovery is creating jobs but not much output. There are hints something similar is happening in Ireland.
Inadequacies
GDP statistics, for long subject to all sorts of inadequacies, could be to blame. But it seems to be much more than the known problems with how we measure the size of our economies.
Some economists have been arguing that today's firms produce stuff that is badly mismeasured by our conventional techniques. Statisticians play catch-up up but there is a suspicion that they are failing – a new method of measurement is about to lead to a near doubling of the UK saving ratio, for example, leading to the redundancy of a thousand learned articles bemoaning the spendthrift habits of the UK consumer. Another change is about to lead to a wholesale revision, upwards, of past UK output. Something similar has already happened with regard to US economic data.
Encyclopaedias
GDP data finds it hard to cope with collapsing technology prices – and the ubiquity of that technology. The money that my parents' generation spent on encyclopaedias for the home added to economic growth. Does today's GDP number accurately reflect the fact that I carry access to the entire stock of human knowledge in my pocket, almost completely free of charge?
An individual may be suffering from measured income inequality but in some regards is richer than millionaires were only a couple of decades ago. That individual has access to technology and intangible services that cost next to nothing (and therefore do not make much of an impact on GDP data) and that did not exist a short while ago.
The costs of solar energy have collapsed to the point where serious dents can be imagined in carbon emissions: nobody seems to have noticed; nobody seems to know how to measure this or other new technologies like 3D printing.
An extraordinary rise in self-employment is happening in the UK, again with suggestions that it is also occurring elsewhere, including here. Self-employment income and output are notoriously hard to measure. Technology may be freeing some of us from wage slavery.
Companies in lots of countries are seemingly awash with cash but are on an apparent investment strike – despite improving economies, firms are sitting on cash piles, refusing to spend the money, at least in traditional ways.
Typical of the times, Apple announced this week that it is going to give some of its massive cash hoard back to shareholders – but is going to borrow on the bond markets to do so. Is Apple's capital spending conceptually and fundamentally mismeasured?
The debate about inequality is related to all of this. It is becoming clear that in many economies the growth in GDP is accruing to ever-smaller fractions of the population – the rise of the 1 per cent. Or, in the case of the US, the rise of the 0.1 per cent.
But if structural change is leading to massive measurement errors, how can we be sure that the data is sending the correct signals?
Much forecast
Rising inequality is usually put down to globalisation and the demise of trade unions: a victory of capital over labour. But technology is playing a big part here. "The rise of the robots" is much discussed, much forecast, but may already be here.
Stratospheric executive pay is not just about the power of the financial sector: whole swathes of traditional industries are figuring out how to do more with less people. The $30 million a year CEO is common in the US and elsewhere but is often to be found in ordinary companies that have figured out how to replace people with technology – cost-cutting on a massive and continuous scale. Stock markets reward executives who reduce costs but not those who invest in buildings and machinery. Yet the productivity gains that should automatically flow from this are not showing up in GDP data.
My guess is that all of this is because the robots have arrived. Cheap technology is turning our economies upside down, in ways that we cannot measure and, in many instances, tax.
