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Is the collapse of productivity in the developed world really so close at hand?

Is the collapse of productivity in the developed world really so close at hand? thumbnail

The developed world may be facing another Malthusian moment. The first came at the end of the 18th century, when Thomas Malthus predicted dire consequences for humanity if population trends continued on their trajectory. But along came something no one predicted: technology that helped humans use resources more efficiently and get more from the land they had.

Our modern Malthusian moment is the opposite problem—a shrinking and aging population might mean less growth and prosperity.

Economic growth comes from three potential sources: You can add more people (labor), you can add more machines (capital), or you can figure out new ways to use labor and capital more productively (innovation/technology).

An aging population means fewer bodies working, which lowers output. There’s not much you can do about it. You can add more machines to make up for fewer people, but that can only get you so far. Giving another computer to a worker who already has one won’t make him more productive.

An aging population depresses growth in other ways. There may be less capital for investment in new machines because retirees consume their wealth instead of saving it. And as baby boomers leave the labor force, they also take their experience and expertise with them. (It’s a common fallacy to think that retirees simply make way for young people to get jobs; in many jobs, the young and old compliment one another.) Maximizing productivity of the labor force requires finding the right ratio of young and old workers.

Another way to increase productivity is to increase education. Not all workers are equally productive; the more educated you are, the more productive (in economic terms) you tend to be. You can try and make individuals more productive by boosting their education levels. But we may be reaching diminishing returns from education now, too.

Economist Robert Gordon of Northwestern University estimates that between America’s aging population and static educational attainment, US growth will be 0.4% lower each year going forward. He and George Mason University’s Tyler Cowen both argue we’ll be lucky if new technology can restore old levels of productivity, let alone make up for an aging work force.

But this supposes, much as Malthus did, that the gains from technology are tapped out—when it may just be too soon to tell what technology today will mean for workers of tomorrow. Economics historian Joel Mokyr, also at Northwestern, notes it took more than 100 years for the invention of the the steam engine (responsible for the industrial revolution) to show up in productivity estimates. Similarly, a small, unnoticed innovation in artificial intelligence today might completely transform elder care tomorrow, or perhaps an innovation in molecular biology and genetics might alter the nature of aging.

And what of the advances to come? Technology might change to compliment a workforce with a different age structure, for instance. Other innovations might help make a smaller workforce more productive.

Depending on your point of view, one two things are true: We are on the verge of new technologies that will transform how we work and live, and maintain the richness and prosperity we are used to, or the aging population will mean the collapse of productivity in the developed world is close at hand.

QZ



9 Comments on "Is the collapse of productivity in the developed world really so close at hand?"

  1. forbin on Thu, 27th Oct 2016 9:00 am 

    Economic growth comes from three potential sources:

    You can add more people (labor),

    meaning more people means more demand

    you can add more machines (capital),

    less people working = less demand

    or you can figure out new ways to use labor and capital more productively (innovation/technology).*

    less people working = less demand

    * to the point of maximun utlity **

    ** energy is sadly missing from the equation

    Energy + Resources = goods & services ,which are converted to landfill and heat

    I’m sure others will point out what I’ve missed (!)

    Forbin

    PS: the aging population will mean the collapse of productivity in the developed world is close at hand

    maybe , maybe not , Japan has sligtly shrunk its population and GNP is improved a little and GDP is still rather good

    depends doesnt it ?

  2. paulo1 on Thu, 27th Oct 2016 9:06 am 

    To couch this argument as a choice between two points of view is disingenuous, at best. There are a lot of outcomes in between, and also potential/probable outliers. It reminds me of the PO arguments. On one hand it was all doom and gloom with an abrupt collapse, or happy BAU. I think the final end of both issues will be somewhere else, maybe somewhere in the land of unforseen consequences.

  3. Davy on Thu, 27th Oct 2016 9:33 am 

    This individual fails to see how productive older people are especially with improving health standards. Besides that failure the other failure is to see it as systematic deflation along with demand destruction across a multidimensional spectrum of both physical and the abstract. This condition is being resisted by progressive growth from population coupled with areas of technological innovation and efficiency gains. To further complicate this add this into a varied global economy. One thing is for sure we are in change both destructive and constructive. Short term the status quo is alive and well longer term it looks more bleak. To shape this outlook in traditional economics leaves it unprepared to answer so many nontraditional questions.

  4. Apneaman on Thu, 27th Oct 2016 10:39 am 

    Cancer cells can be quite productive, but eventually they run out of healthy tissue to infect/consume. At that point no amount of technology or fantasy can undo their terminality.

  5. Apneaman on Thu, 27th Oct 2016 10:57 am 

    Seems to me the humans have never been more productive doing what they do best.

    Humans have wiped out nearly three-fifths of all animals with a backbone: report

    http://news.asiaone.com/news/world/humans-have-wiped-out-nearly-three-fifths-all-animals-backbone-report

    World facing first mass extinction since the dinosaurs as wildlife populations plunge by 67 per cent in 50 years
    ‘We ignore the decline of other species at our peril – for they are the barometer that reveals our impact on the world that sustains us

    http://www.independent.co.uk/environment/extinction-wildlife-since-dinosaurs-populations-fall-67-per-cent-wwf-zsl-a7381906.html

    Actually there is one thing the humans are more productive at than destroying – bullshitting themselves and each other with their never ending hopium tales.

    How unrealistic optimism is maintained in the face of reality

    http://www.nature.com/neuro/journal/v14/n11/full/nn.2949.html

  6. penury on Thu, 27th Oct 2016 11:12 am 

    Really? For what reason do humans need to be more productive? Productive of what? More garbage for landfills? More weapons to destroy other living beings? I am convinced that the great extinction is happening, the only thing left to argue is the time it will take to fall.

  7. Jerry McManus on Thu, 27th Oct 2016 12:36 pm 

    The authors recipe for economic growth is very telling.

    Economists, almost as a whole, have convinced themselves that labor and capital are the only factors to consider. Nothing else matters except as it relates to labor and capital. Not energy. Not resources. Not even the universal laws of thermodynamics.

    That is why these types of asinine articles keep popping up. The idiots have convinced themselves that resources can be infinitely “substituted” and that energy is just a problem of not enough clever humans around to solve those kinds of pesky little “technology” problems.

    Once you learn just how juvenile their models really are it boggles the mind that economists are treated like masters of the universe.

  8. makati1 on Fri, 28th Oct 2016 2:40 am 

    Economists will be one of the careers that will be lost in the new world after the collapse, I think. They can sell pencils on the street like the beggars when I was a kid.

  9. onlooker on Fri, 28th Oct 2016 3:32 am 

    Economists have proved to be no better than zealous priests peddling feel good fantasies

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