Friday, December 28, 2012

Investing in technological progress leads to increased economic growth

Paul Krugman writes, in Is Growth Over? -


" Smart machines may make higher GDP possible, but also reduce the demand for people — including smart people. So we could be looking at a society that grows ever richer, but in which all the gains in wealth accrue to whoever owns the robots."

Dean Baker responds, in
Capital Biased Technological Progress; It Doesn't Just Happen | Beat the Press

"Krugman discusses the case where there is an exogenous change in the nature of technology that makes capital relatively more productive than labor. This leads to more capital being used, driving up its price, and less labor being used, driving down its price (i.e. wages)."

"the fact that we may appear to be seeing capital-biased technological progress should not be viewed as just some unfortunate event in the world that we have to learn to cope with. If we are in fact seeing capital-biased technological progress it is almost certainly the case that it is at least in part the result of policy decisions that could be handled differently"

I can see innovation shrinking employment, but the owners of the innovations theoretically would get the marginal wealth. Otherwise there'd be no point to the innovation. Raising tax rates on unearned income to the same as those of labor income would help a lot with the resulting inequality of wealth distribution.. This would be a policy decision that offsets the policy decisions mentioned by Baker.

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