Business, Politics & Society

The Economics of Technological Progress

Paul Krugman

Lesson time 7:29 min

Learn the impact of technological expansion on the job market, the economy as a whole, and on the individual citizen.

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Paul Krugman
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Around 2012 or so, it somehow rather became orthodoxy among a lot of important people. You had op-eds by Jamie Dimon or whatever, saying, structural modern technology, we have a workforce that's not suited for it, and there's no way we're going to get unemployment back down to the levels we used to have. And aside from the fact that I could give you very good economic analysis about why that was wrong, you could also say, gosh, there were a lot of people making exactly the same argument in the 1930s. Then, along came a big fiscal stimulus, otherwise known as World War II. And all of a sudden, not only did we need all of the workers that we had, but we needed Rosie the Riveter too, right? [MUSIC PLAYING] - At any given time there is a something that people think is what is the real economy and that the other stuff is fluff. And that view is usually pretty far behind the times. Takes a long time for people to catch up with reality. So if you go back, actually, before Adam Smith, there were the physiocrats in France. And what physiocrats believed was that agriculture was the real thing. These days, there are almost no farmers. And the reason is not because we don't grow lots of stuff, but because we're so productive at farming that we can feed the population with just a handful of people actually working the land. Somewhere I saw the claim that in America right now there are significantly more people playing World of Warcraft than there are farmers. Right? Farming is still important, obviously. We need to eat, but it takes very few people because we've become so productive. What came after farming was manufacturing. And manufacturing became more and more what the economy was about. So even in 1860 the majority of Americans were still on the farm, but by 1960 we were a manufacturing nation, where a third of the workforce was in manufacturing. And that was where wealth was generated, General Motors was the biggest company in the world, all of that. Mostly, we have less manufacturing for the same reason we have fewer farmers. We've gotten so good at it. We're still consuming lots of manufactured goods. And despite all of this globalization, most of them are made here. But it doesn't take very many people to make them because manufacturing has had a lot of technological progress. And so we've shifted our labor force into the parts of the economy where we haven't made that much progress, we haven't managed yet to replace nurses with robots, so we have lots and lots of nurses, but we have managed to replace assembly line workers with robots so we don't have very many assembly line workers. And, also, to a certain extent, as we get richer, what people want is services rather than stuff. We want health care, we want entertainment. Until recently, we had a lot of growth in retail. You need the people to sell us stuff. Now, that actually is in decline because of online shopping. But this is economic evolution. Like anyt...


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Reviews

4.7
Students give MasterClass an average rating of 4.7 out of 5 stars.

Mr. Krugman was preaching to the choir in my case however it did offer support for the political direction I have chosen.

This entire lesson was just to me was to look, analyze and find additional information to inform your understanding of the matter, Paul provided an insight into how he looks at matters. I particularly like his use of real time stories to make his point.

Definitely liked the content, the style and the delivery. It would have been even better to have a few more key deep dives into what drives what in the economy.

I choose this course because I care about economy. I have learned how to read and write economics. Thanks, Paul.


Comments

A fellow student

During this Lesson I thought of an Einstein Quote: It is not that I'm so smart, it's just that I stay with problems longer. These are the people to learn from.

Graeme R.

This is great information, and Professor Krugman's knowledge is deep and wide ranging. I do find his style of delivery painful, and bless the day that accelerated playback was invented.

Robert K.

Unbelievable how Krugman is unable to detach himself from politics. The academic ground was meant to be apolitical but is now infested with Maoists. If we are at it what about all those jobs lost to a totalitarian slave labor county named China? They exported a heavily subsidized production excess capacity to the world debilitating the working class on the west. All under the Clintons and Obamas and their advisors like Krugman here.

Pisko

what will happen is that we'll live in a more automated world, productivity rates will increase n only skilled non blue collar people will get a job in a few decades. Unenployement will raise until the education system is reinvented towards non manufacturing jobs. Mostly the older workers n the ones with less ability 2 learn new skills will suffer... so start learning quatum mechanics now!

Jack

Hi hot dog discussion goes against what he talks about in Say's Law. That is where, if you produce more, more will buy it, and he said that wasn't necessarily so. Now he is talking about automation produces more hot dogs. What are they going to do with all those hot dogs? Automation is not being built to produce more hot dogs, it is being built to lay off more people. And laid off people make very poor consumers. His discussion seems to be leaning toward political opinion backed by numbers he has chosen.

A fellow student

Technology can create machines that replace human jobs but finally, it takes humans to create the AI to keep those machines working.

A fellow student

Lack of manufacturing jobs in the USA is important to US citizens if all of the manufacturing is sent to Mexico and China. We mistakenly did this in the 1980s and 1990s. I was there and saw it for myself. (Once again his politics cause him to gloss over facts.)

Norm C.

With regard to some earlier posts about the Hot Dog Machine, I need more explanation. What happens if the hot dog makers automate to eliminate wage costs, not make more hot dogs? The unemployed won't be needed at the bun factory and if the bun factory automates to eliminate wage costs there will be even more unemployed. Then what? Will the cash strapped unemployed eat more hot dogs because they are cheap and increase demand? Wouldn't that be the ultimate irony and insult, eating the product of the machine that made you unemployed. I have seen such automation in logging, automation wasn't primarily done to increase output or cut costs, rather it was done to eliminate dealing with employees who can be troublesome. Just as farmers moved from horses to tractors. For those who are interested there was/is a political/economic school of thought named Social Credit which has a lot of ideas one of which was as the machine replaced people, the wealth produced by the machine should be shared by the people. Henry Ford for all his faults recognized that for all his innovations that reduced costs, unless people could afford his product he still couldn't sell it so he paid his workers more. This allowed his workers to buy his product and drove up wages overall and produced more customers. Benevolent self interest. We need more of that today.

Dewi A.

So, I hope someone of my fellow students of Paul Krugman or Mr. Krugman himself could answer it. I am wondering what could policy-makers do in terms of "Adapting with fast-paced technological evolution"? Because of course, what happen is some type of workforce can make a shift of industry, what happen with someone who couldn't make a shift? What type of training or education that policy-makers could do? Thanks

Mia S.

"One of the long, longstanding places where economists and normal people have tended to disagree is the effects of automation or the effects of rising productivity. People are always saying, 'Well, machines are making it possible to produce stuff with many fewer workers, and so jobs are going to disappear. Where will the jobs for human beings be? But if you think about the economy as a whole, that's a really bad story. The idea that rising productivity, automation, is going to mean that there are no jobs is just wrong. And so I had a little story where I said, 'Imagine an economy that just produces two things: hot dogs and buns. And people are always going to consume a hot dog with a bun, so you need both. What happens if you have an increase in the number of hot dogs that a worker can make in a day? What's going to happen is that you're going to produce more hot dog and bun combinations, but you're going to have fewer people engaged in producing hot dogs, more people engaged in producing buns. You look at that and say, 'Well, see? Productivity growth in hot dogs destroyed hot dog jobs.' What happens if we start to have productivity growth in buns, too?' The answer is actually, no - we'll just have more hot dogs and buns all together, we'll produce more of everything . It doesn't mean the jobs get destroyed. That's a parable that tells you that looking at what automation does to jobs in one piece of the economy is a very, very bad guide to what happens when you have automation, productivity growth across the economy as a whole. You cannot extrapolate from coal mining or hot dogs to what happens to overall employment when we have rising productivity. A 90% true fact about manufacturing is that we don't need as many manufacturing workers as we used to; certainly not as a share of the labor force. And nothing you do can change that, unless you can ban the new technologies - if you can push us back to 1955 technology, then yeah, you can get back a mostly-manufacturing economy. But we're not going to do that. So the real question in a well-run, rational political system, we'd be talking about: How do we learn to live with, how do we adapt to technological change? Although sometimes there may be no really good answers; sometimes there is going to be a lot of pain, and no one knows how to stop it. You have to take some arithmetic to accept that conclusion. If you don't believe in arithmetic, you just say 'make America great again,' then you think you can bring back the manufacturing jobs, but you can't - it's just not - technology, more than anything else, has just meant that you can't do that. And trying to recapture a past that can't be recaptured is going to have a lot of nasty side-effects."