When we expect big things from tech, the economy does better, according to new research
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Along with Wednesday’s interest rate hike by the Federal Reserve, the big economic news of the moment is the 0.9% decline in second-quarter gross domestic product, which followed a 1.6% pullback the quarter before.
GDP fluctuations can be attributed to a wide variety of factors, such as supply chain issues, war, inflation and more. Now, new research is offering another option: tech news.
Cristoph Görtz is a professor of macroeconomics at the University of Birmingham in England and one of the authors of this research. He joined Marketplace’s Kai Ryssdal to talk about the connection between expected technological advances and increased spending and GDP.
The following is an edited transcript of their conversation.
Christoph Görtz: On an almost daily basis, we read and learn about imminent technological changes that give us hope of higher future wealth and better quality of life. But we do not have to wait for these new technologies to become actually available for them to start affecting our lives. So, should I give you a simple example?
Kai Ryssdal: I was just gonna say an example would be helpful because I’ve got an objection, I think. But give me your example, and then we’ll go from there.
Görtz: Consider this scenario. Upon news of a substantial future pay rise, one may want to celebrate this success with a nice meal at a restaurant or the purchase of that really long-wanted, but far too expensive, racing bike. And typically, one would not want to wait for the higher pay to actually show up in the bank account. But one would want to celebrate and consume already in anticipation of that pay rise. So if you project that simple example onto the whole economy, something very similar happens.
Ryssdal: OK. Yes to all of that, and Lord knows, I myself have fallen victim to the, to the circumstances where that happens. But not all technological advances that affect the workplace are necessarily positive for one’s paycheck or one’s mood or one’s happiness at work, right?
Görtz: Indeed, but it’s not only about the consumers. It’s also about entrepreneurs, producers, etc. New technologies mean business opportunities. It means higher profits, potentially. And in that way, it means something positive for the whole economy.
Ryssdal: Can you quantify how much broad-based economic gain we see because of news of future technological advancement?
Görtz: So it’s not necessarily about the gain. Fluctuation is the business cycle, the booms and recessions that we see. About 50% of the business cycle fluctuations are explained by news about future technologies because it’s not always that this positive news will drive growth upward. And actually, people at some point realize, well, our assumption wasn’t correct. We are not as wealthy as we assumed. And then we may fall into a recession. And actually, this is what people believe has happened around the 2000 dot-com boom and the burst of that bubble.
Ryssdal: How to phrase this? … One of the things that was on people’s minds a number of years ago, not so much anymore, but a number of years ago, is that robots are going to take all our jobs, that technology is going to come in and we’re not going to need, I don’t know, 3 million truck drivers in the American economy because we’re going to have self-driving trucks. Does that, would that temper the optimism of which you speak, do you think?
Görtz: Well, it’s a good question because it depends on the composition of the labor force, right? And on the ability for maybe these truck drivers to retrain to do other jobs. So this will be costly, definitely, for some and very painful for some individuals, but the economy will have higher profitability, more business opportunities from that and as a whole the country will be wealthier.
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