Why Rapid Technological Change is the Key to Greater Prosperity

One way economists gauge the impact of technology on the economy is by looking at productivity growth—the measure of producing more output with fewer inputs, such as fewer raw materials, fewer labor hours, or less capital. If a new technology cannot reduce costs or help us make more with less, it effectively fails the productivity test, and there’s no major reason to adopt it. But when technology does boost productivity, it benefits everyone: goods and services become cheaper, leaving consumers with extra disposable income to spend on new things, driving further economic expansion.

‍

Yet, despite the transformative technologies that have emerged in the last 50 years—personal computers, the internet, smartphones, and so on—there remains a paradox: productivity growth has slowed considerably compared to the mid-20th century. From 1920 to 1970, often dubbed the Golden Age of Productivity, the introduction of electricity, the internal combustion engine, and mass production techniques propelled labor productivity to new heights. During the 1960s, for instance, U.S. labor productivity growth was at a peak, with an average year-over-year increase of around 2.29%. After the 1970s, however, the Post-1970 Productivity Slowdown set in, with U.S. growth rates dropping and creating a notable gap between rising productivity and stagnant wages. Between 1973 and 2013, productivity grew by 74% over a 40-year period. Even from 2010 to 2019, productivity growth in the business sector averaged just 1.1% annually, the slowest rate since World War II—especially jarring when you consider all the technological marvels of the digital age.

‍

This discrepancy explains why we aren’t living in the “Jetsons” future many once expected. If productivity growth remains weak, the economy risks stagnation, forcing governments and citizens to vie for a fixed “pie” and breeding social and political unrest. By contrast, strong productivity growth expands that pie, creating opportunity, defusing zero-sum thinking, and raising living standards. It’s easy to worry about the disruption caused by new technologies, because rapid productivity gains can feel disorienting. Old jobs often disappear, new ones appear, and people must learn new skills. But over time, more jobs tend to be created, and they often pay better or involve more creativity and less drudgery than the ones they replace.

‍

This is what some call the “opportunity economy”: as outdated, low-productivity tasks are phased out, the workforce transitions to roles that leverage newer, more efficient methods, setting off a virtuous cycle of higher wages and cheaper goods. Productivity growth fuels economic growth because when a product that used to cost $80 can be produced for $50, there’s an extra $30 in the consumer’s pocket to buy new goods and services. Spread that savings across the economy, and you get widespread prosperity. Without it, we end up in a game of musical chairs, competing for the same limited resources and funding—gains for one group often come at the expense of another.

‍

Ultimately, the real enemy isn’t automation or advanced robotics; it’s stagnation. When productivity is allowed to grow freely, optimism follows. Economies can fund social programs without over-burdening taxpayers, and people are better able to adapt and thrive in newly created industries. So, the next time you hear alarm bells over self-driving trucks or advanced AI, remember that, throughout history, waves of innovation have led to new ways of working, new skill sets, and a general improvement in the standard of living. If anything, we should encourage the kind of rapid, transformative productivity growth that propels us toward a future of abundance and greater prosperity for all.

‍

Source: Bureau of Labor Statistics

‍