Is Too Much Regulation or Too Much Innovation Responsible for Killing Jobs?

Earlier this year, Tyler Cowen suggested that the Great Stagnation in productivity and incomes observed recently in the West primarily in the United States has been occurring since the 1970s and is a result of it having exhausted the "low-hanging fruit" of innovation.

An opposite case can also be made that too much innovation has led to this slowdown. The Economist through its science and technology blogger comments on the practical advances occurring in the field of Artificial Intelligence or AI:

Today, automation is having an impact not just on routine work, but on cognitive and even creative tasks as well. A tipping point seems to have been reached, at which AI-based automation threatens to supplant the brain-power of large swathes of middle-income employees.

The pace of technological progress rather than having slowed down, appears to be speeding up. So much so that as "capital becomes labor" in many industries, leading to cheaper goods and better products, income growth for workers has stagnated while corporate profits have soared.

Advanced manufacturing, financial engineering, creative industries and even mining no longer require as much labor as their first wave cousins might have. Yet to attract such industries, governments have had to cut taxes, lower regulatory hurdles and so forth. This in turn has led to more constrained fiscal spending on their side.

The one area in which more regulation has led to greater innovation is that of climate change and environmental policy. The White House under the Democrats has elected to shelve its proposed cap-and-trade scheme in favor of greater powers for its Environmental Protection Authority to promote greater air quality for the health of its citizens.

The increased restrictions on the carbon emissions of power generators is causing a shift away from carbon intensive coal fire plants in favor of gas fired stations. The adjustment into a low carbon economy is creating just about as many jobs as it destroys according to economists.

Whether or not regulation encourages or discourages jobs however is beside the point, as one Stanford policy expert was quoted by the Washington Post as saying. The adoption of regulation should be based on whether it benefits society, he says. I couldn't agree more.

Tyler Cowen's The Great Stagnation

George Mason University's economics professor Tyler Cowen's new book The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History,Got Sick, and Will (Eventually) Feel Better has been making waves since it was released in January as an e-book. His main thesis is that the rate of technological progress has slowed since the 1970s leading to stagnant median wages.

In February, he sat down with EconTalk to discuss the reasons for this slowdown. He identified three major causes which are outlined below:

Technological plateaus. He uses the invention of the car at the start of the last century as an example. He says

If we look at the broader sweep of history, growth tends to come in spurts. The car was a big deal but the next thing after the car, while it will come someday, is really hard. 

As The Economist pointed out, 

The most transformative of modern innovations—the internet—generates fewer jobs and revenues than past technologies. General Motors once employed over 600,000 people; Facebook serves 500m customers with a staff of 2,000. Americans spend and borrow much as before the advent of the web.

Government distortions. He talks about the problem of measuring the value of investments in health and education

Considering our economy right now: about 17% of it is health care; about 6% in terms of GDP is education; and with some overlap, 15-20% is what we call government consumption--government activity, not just transfers. At all levels of government, including state and local. Add those all up, take out the overlap, and it's a pretty big chunk of the economy, like 20-30%. Those are all sectors where there are massive subsidies, massive distortions of incentives, a lot of bad policy; and it's hard to measure value.

Education. As a broader proportion of the population has become college educated, it becomes harder to generate producitivity improvements through higher participation rates.

Anyone in college at the beginning of the 20th century, it was very easy to educate the marginal person. You get a big gain out of it and it's easy to do…To make them much more productive through education is simply a much harder endeavor. And, we are relying on distorted institutions. 

Here he is discussing the same ideas with a fellow blogger Matthew Yglesias: