Tags: Stiglitz | technology | GDP | economy

Stiglitz: Technology's Benefit to Economy Is Overstated

By    |   Monday, 10 March 2014 03:53 PM

Technological innovation doesn't provide as much strength to the economy as its advocates claim, says Nobel laureate economist Joseph Stiglitz of Columbia University.

"Around the world, there is enormous enthusiasm for the type of technological innovation symbolized by Silicon Valley," he writes on Project Syndicate. "In this view, America's ingenuity represents its true comparative advantage, which others strive to imitate. But there is a puzzle: it is difficult to detect the benefits of this innovation in GDP statistics."

There is some truth both to the idea that "GDP does not really capture the improvements in living standards that computer-age innovation is engendering," Stiglitz notes. And there is some truth to the idea that "this innovation is less significant than its enthusiasts believe," he adds.

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Stiglitz explains that before the 2008-09 financial crisis, the financial sector was lauded for its innovation. "But, upon closer inspection, it became clear that most of this innovation involved devising better ways of scamming others, manipulating markets without getting caught (at least for a long time) and exploiting market power."

The innovation didn't boost GDP or living standards, except for those in the financial sector, he writes. "The net social contribution of all of this 'innovation' was negative."

The dot-com bubble encompassed plenty of innovation, Stiglitz points out. "At least this era left a legacy of efficient search engines and a fiber-optic infrastructure," he argues.

"But it is not an easy matter to assess how the time savings implied by online shopping . . . affects our standard of living."

The profitability of an innovation doesn't necessarily relate to how it contributes to our standard of living, Stiglitz maintains.

Also, "in our winner-takes-all economy, an innovator who develops a better website for online dog-food purchases and deliveries may attract everyone around the world who uses the Internet to order dog food, making enormous profits in the process," he writes.

"But without the delivery service, much of those profits simply would have gone to others. The website's net contribution to economic growth may in fact be relatively small."

In addition, innovation can cost jobs by fostering automation, Stiglitz says.

"In a simpler world, where innovation simply meant lowering the cost of production of, say, an automobile, it was easy to assess an innovation's value," he notes. "But when innovation affects an automobile's quality, the task becomes far more difficult."

Other economists too argue that technological innovation isn't an unalloyed good for the economy.

"Rapid and accelerating digitization is likely to bring economic rather than environmental disruption, stemming from the fact that as computers get more powerful, companies have less need for some kinds of workers," Erik Brynjolfsson and Andrew McAfee, economists at the Massachusetts Institute of Technology, write in their book "The Second Machine Age," as cited in
The New York Times.

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Economy
Technological innovation doesn't provide as much strength to the economy as its advocates claim, says Nobel laureate economist Joseph Stiglitz of Columbia University.
Stiglitz,technology,GDP,economy
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2014-53-10
Monday, 10 March 2014 03:53 PM
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