Trump and Growth

Neil Irwin used an Upshot column to address the issue of whether Donald Trump can acheive the 4.0 percent annual growth rate he has promised over the next decade. He argues that insofar as it is possible it is likely to involve two items that Trump voters may not like: job displacing innovations and increased immigration. While Irwin is right in identifying these two factors in promoting growth, there are few additional points to add to his discussion.

In the case of job displacing innovation, Irwin points to the prospect of self-driving trucks destroying up to 1.7 million long-haul trucking jobs over the next decade. Irwin notes that these jobs pay an average of $42,500 a year to workers who generally do not have a college education. (Many truck drivers do earn considerably more than this amount, especially if they are in a union.)

While the spread of self-driving trucks is likely to cost a substantial number of jobs, the savings should in principle allow other workers to be paid more. For example, the remaining workers involved in loading and offloading trucks (who might be supervising robots), should be a position to get higher pay. This was the pattern among longshoreman, as pay increased as fewer workers were needed for the job. If there are strong unions and/or a tight labor market, this can be the outcome.

The tight labor market issue brings up a second point. The Federal Reserve Board has been actively working to limit the number of jobs. This was the purpose of its rate hike earlier this month. The point was to slow demand growth in the economy and thereby reduce the rate of job creation. The rationale for this move was the fear of inflation.

Whether or not the Fed is right to fear inflation, there is a simple point here that everyone should understand. The Fed is deliberately acting to limit the number of jobs in the economy. It is more than a bit bizarre that we have people worried that automation will destroy large numbers of jobs who are fine with the Fed raising interest rates to destroy jobs. If we think there are too few jobs in the economy, then we should be very upset that the Fed, an arm of the government, is trying to keep people from getting jobs.