Fed Chairman Bernanke's speech in Atlanta earlier this year focused a lot of attention on the debate about the forces that led to the current crisis. Was it primarily Greenspan's low interest rates, or as Bernanke suggested, was a lack of regulation and oversight a more important issue? Nearly everyone seems to agree that the crisis was brought on by some combination of these factors. In other words, the current situation is viewed almost entirely in financial terms.
While there is no doubt that the financial meltdown was the proximate cause of the current recession, is it possible that a more fundamental cause exists? What if the housing bubble and the financial crisis were merely symptoms of something even bigger---perhaps of a structural shift occurring in the broader economy?
I've argued previously that advancing technology is likely to result in structural unemployment in the future. In fact, I think this is a trend that is already well underway. The last decade has been characterized by substantial advances in information technology and fairly dramatic increases in productivity. Average workers have seen stagnant or even decreasing real wages, while health care costs have been exploding. Until the onset of the current crisis, official unemployment numbers were low, but those statistics fail to capture underemployment, such as workers who are forced to work multiple part time jobs with no access to benefits.
Globalization, of course, gets much of the blame for the plight of average workers, but the reality is that advancing technology has a larger impact. Jobs are not just moving to China---they are being automated away completely. This is happening not just in the United States but in low wage countries as well. And it isn't just in manufacturing; as I've pointed out here previously, service sector and knowledge worker jobs are increasingly subject to automation as well.
As the dual forces of technology and globalization progressed over the past decade, I suspect it became pretty clear to most average workers that holding a job at the prevailing wage offered little hope for getting ahead. Recognition of that reality certainly played an important role in the politics that led to the creation of subprime lending programs. You can make a pretty strong case that the housing bubble was caused not simply by low interest rates but by widespread recognition that investing in a home represented perhaps the only viable hope for a typical American family to achieve any measure of prosperity.
The last decade also saw a massive shift away from consumer spending supported by wages toward spending supported by debt (much of it anchored to inflating housing values). That debt-enabled spending drove economic growth not just in the U.S. but, of course, in China and in the rest of the developing world as well. Was all this really caused by the Fed's policy? Or was it fundamentally caused by advancing technology (as well as globalization) driving discretionary incomes down to a level where broad-based consumer spending became unsustainable without reliance on debt?
I think that is a very important question. Virtually all mainstream economists are focused on a financial solution to the current crisis involving some combination of monetary policy, additional stimulus and re-regulation. If it it turns out that the root cause of the crisis is really technology, rather than finance, those solutions will simply not be sufficient in the long run. Technology is relentless. Automation will never stop progressing, and no conventional financial or monetary policy can, by itself, address that issue.
In my book, The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future, I make the case that a basic shift is occurring in the economy. Technology is becoming autonomous, and job automation will invade virtually every employment sector. The result will be structural unemployment and declining wages for all but a tiny (and shrinking) elite. I think it is very possible that the beginning of that trend underlies the current crisis to a significant extent. I suspect that very few people will agree with me on this, but if I'm right, the implications are scary: it means that virtually everyone is focused on solving the wrong problem.
Martin Ford is the author of The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future and has a blog at econfuture.wordpress.com