[Marxism] Paul Krugman questions validity of "creative destruction"

Louis Proyect lnp3 at panix.com
Mon Dec 10 08:25:55 MST 2012

(The takeaway: "[C]an innovation and progress really hurt large numbers 
of workers, maybe even workers in general? I often encounter assertions 
that this can’t happen. But the truth is that it can, and serious 
economists have been aware of this possibility for almost two 
centuries." I dealt with this a while back: 

NY Times Op-Ed December 9, 2012
Robots and Robber Barons

The American economy is still, by most measures, deeply depressed. But 
corporate profits are at a record high. How is that possible? It’s 
simple: profits have surged as a share of national income, while wages 
and other labor compensation are down. The pie isn’t growing the way it 
should — but capital is doing fine by grabbing an ever-larger slice, at 
labor’s expense.

Wait — are we really back to talking about capital versus labor? Isn’t 
that an old-fashioned, almost Marxist sort of discussion, out of date in 
our modern information economy? Well, that’s what many people thought; 
for the past generation discussions of inequality have focused 
overwhelmingly not on capital versus labor but on distributional issues 
between workers, either on the gap between more- and less-educated 
workers or on the soaring incomes of a handful of superstars in finance 
and other fields. But that may be yesterday’s story.

More specifically, while it’s true that the finance guys are still 
making out like bandits — in part because, as we now know, some of them 
actually are bandits — the wage gap between workers with a college 
education and those without, which grew a lot in the 1980s and early 
1990s, hasn’t changed much since then. Indeed, recent college graduates 
had stagnant incomes even before the financial crisis struck. 
Increasingly, profits have been rising at the expense of workers in 
general, including workers with the skills that were supposed to lead to 
success in today’s economy.

Why is this happening? As best as I can tell, there are two plausible 
explanations, both of which could be true to some extent. One is that 
technology has taken a turn that places labor at a disadvantage; the 
other is that we’re looking at the effects of a sharp increase in 
monopoly power. Think of these two stories as emphasizing robots on one 
side, robber barons on the other.

About the robots: there’s no question that in some high-profile 
industries, technology is displacing workers of all, or almost all, 
kinds. For example, one of the reasons some high-technology 
manufacturing has lately been moving back to the United States is that 
these days the most valuable piece of a computer, the motherboard, is 
basically made by robots, so cheap Asian labor is no longer a reason to 
produce them abroad.

In a recent book, “Race Against the Machine,” M.I.T.’s Erik Brynjolfsson 
and Andrew McAfee argue that similar stories are playing out in many 
fields, including services like translation and legal research. What’s 
striking about their examples is that many of the jobs being displaced 
are high-skill and high-wage; the downside of technology isn’t limited 
to menial workers.

Still, can innovation and progress really hurt large numbers of workers, 
maybe even workers in general? I often encounter assertions that this 
can’t happen. But the truth is that it can, and serious economists have 
been aware of this possibility for almost two centuries. The 
early-19th-century economist David Ricardo is best known for the theory 
of comparative advantage, which makes the case for free trade; but the 
same 1817 book in which he presented that theory also included a chapter 
on how the new, capital-intensive technologies of the Industrial 
Revolution could actually make workers worse off, at least for a while — 
which modern scholarship suggests may indeed have happened for several 

What about robber barons? We don’t talk much about monopoly power these 
days; antitrust enforcement largely collapsed during the Reagan years 
and has never really recovered. Yet Barry Lynn and Phillip Longman of 
the New America Foundation argue, persuasively in my view, that 
increasing business concentration could be an important factor in 
stagnating demand for labor, as corporations use their growing monopoly 
power to raise prices without passing the gains on to their employees.

I don’t know how much of the devaluation of labor either technology or 
monopoly explains, in part because there has been so little discussion 
of what’s going on. I think it’s fair to say that the shift of income 
from labor to capital has not yet made it into our national discourse.

Yet that shift is happening — and it has major implications. For 
example, there is a big, lavishly financed push to reduce corporate tax 
rates; is this really what we want to be doing at a time when profits 
are surging at workers’ expense? Or what about the push to reduce or 
eliminate inheritance taxes; if we’re moving back to a world in which 
financial capital, not skill or education, determines income, do we 
really want to make it even easier to inherit wealth?

As I said, this is a discussion that has barely begun — but it’s time to 
get started, before the robots and the robber barons turn our society 
into something unrecognizable.

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