Economics & Education: What You Need To Know About Productivity
Erik Brynjolfsson, a professor at the Sloan School of Management at MIT, was on Morning Joe today
promoting his book "Race Against The Machine. While his ideas are quite intriguing regarding the implications of rapid technological growth, his comments on entrepreneurship, education, and productivity were misleading at best. To pin the current economic woes on a lack of entrepreneurship and skills is to misread the short-term nature of our current problems. The financial crisis did not change the stock of human and physical capital in this country. For those unfamiliar to macroeconomics, this is a simplified but useful model for thinking about such matters:
Education is a key input in supplying goods and services and entrepreneurs are often seen as the conduits for new ideas and goods to come to market. If Brynjolfsson is right that these two elements to aggregate supply are deficient, the short-run aggregate supply curve has shifted up and left, leading to lower output AND higher than expected prices. But we see lower output AND lower prices than expected. Confusing supply and demand will get you in trouble in this conversation.
The other matter to keep in mind is the nature of the productivity beast. Brynjolfsson talks about workers at firms getting more productive, which should improve welfare right?
But suppose there was only one firm in country A that previously employed everyone in country A. The firm then decides to cut half of its workers and double the output per hour of its other half. The firms' productivity has doubled. Yet the nations' output remains the same while the number of willing workers and stock of human capital was still the same as it was before the layoffs. Brynjolfsson is looking at nonfarm (firm) productivity when he makes his claims about the productivity boom. He does not mention the stagnation in (national) total factor productivity over the past 30 years.
Brynjolfsson also got some coverage on Greg Mankiw's blog where the discussion has revolved around returns to education and productivity...Don't ask Fred and I for our opinions on the returns to education for society and its productivity.