Sarah Kliff reports

Erik Brynjolfsson, director of the MIT Center for Digital Business and Andrew McAfee, the center’s associate director, had originally planned to title the book The Digital Frontier, a nod to all the opportunities that grow out of new innovations. As they recount in an e-book published today, their research led them in a slightly different direction: namely, to a book titled Race Against the Machine .

When discussing jobs and unemployment, there was a great deal of attention paid to issues like weak demand, outsourcing and labor mobility but relatively little attention given to technology’s role,” they write. “We wanted to correct that.”

Now, one could be saying that robots are changing the structure of the workforce so that demand for some jobs is up while demand for other jobs is down. Yet, the winners outweigh the losers. number of losers outweighs the number of winners.

That’s not, however, a story that is backed up by the data.

FRED Graph

Though construction is well ahead of the pack the unemployment rate in all industries has risen in unison.

Now perhaps this isn’t the right breakdown. I can try to guess at a few others.

We can try computer systems design services, which seems like it ought to be a net beneficiary of this trend and motor vehicles and parts, which I think is the most highly robotic industry in America and should therefore be shedding workers.

FRED Graph

Now the trend over the last decade has mirrored what the authors suggest. Cutely these two guys are on the same scale so, it was the case around 2002 that they had roughly the same number of employees.

But now lets look at year-over-year payroll growth

FRED Graph

You can see they move sort of together but certainly in sync once the recession hits. Its just that growth in computer systems designers is going from strongly positive to slightly negative while growth in autoworkers is going from pretty negative to really darn negative.

When the economy rebounds, note that actually autoworkers rebound more strongly than computer systems engineers. You can even see in the first chart that the recovery has changed the trend for autoworkers while computer systems designers have yet to return to their old trend.

Based on all of that its hard to say that the problem we are having now is that technology is shifting the nature of work. If so then the trend should have improved for someone.

However, there is another take on this which makes it a nominal issue. I have had trouble explaining it but I think this route might work:

Suppose that because of all of this great new computer/robotic technology the CPI was actually overstating inflation by 2%. Well then look at what happened to America over the last five years.

FRED Graph

The US just went through a strong deflation in 2009 and a double dip late last year.  If you strip out food and energy then the drop off isn’t as sharp but the picture might be more reminiscent of how the economy feels.

FRED Graph

That is, taking into account technological change one might be able to say that we have been experiencing deflation every since late 2008.

Put another way, its saying that monetary policy has been too tight because it has been underestimating the extent to which technology is expanding people’s standard of living.

It would also turn this mind-boggling graph

FRED Graph

into this

FRED Graph

Since the CPI is overstating inflation by 2%, bonds that are linked to the CPI – like TIPS – are actually paying you a 2% higher real rate than the numbers show.

So if your story is that technological change isn’t showing up in the data, either because of CPI bias or because of non-market rents (Tyler Cowen, 2011) then we are saying that for the market economy monetary policy had already been quite tight going into 2008.

Even pushing short term nominal interest rates to zero, barely got the 5 year real interest rate below 2% and then only in a sustained way just recently.

This is a long winded way of saying a technological story is a story about inadequate nominal demand.

With sufficient nominal demand the economy will create a job for everyone who wants one. This is what markets do. When their aren’t enough jobs that telling you that markets are failing to clear and that is a nominal problem. That is to say, it is a problem with prices.

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