What Disruption? Tech Has Not Shaken Basic Economics
A funny thing happened on the path to disruption. This decade, most of Silicon Valley's big societal claims have turned out to be wrong.
These claims arguably began around the time this cycle's real expansion began, in late 2011. Two scholars' 2011 text, "Race Against the Machine," looked at some of the problems plaguing the U.S. economy -- stagnant wage growth, falling labor force participation and growing inequality -- and chalked them up to the impact of technology and its exponential growth.
Around the same time, "millennials" entered the popular lexicon. This young tech-savvy generation was coming of age in the aftermath of the Great Recession and preferred living in walkable urban communities. Tech companies that catered to this lifestyle like Groupon, Zynga and Yelp were booming. "Sharing economy" companies like Uber and Airbnb were beginning to capture the public's imagination.
Social commentators, especially venture capitalists and thinkers in Silicon Valley, looked at these three coincident trends -- a new post-recession economy, consumer preferences of young millennials and the success of new technology companies -- and declared it a new era.
The first claim made is that car ownership is going away. The argument began in the early years of the recovery when auto sales remained low and highway data showed very low growth in miles driven. Some concluded we had reached "peak car." Then, as employment recovered, auto sales and miles driven did as well. Gas prices plunged, leading to an acceleration in miles driven and a shift in car purchases from passenger vehicles to trucks. The narrative shifted. No longer were we seeing peak car, but rather companies like Uber would kill car ownership. This week, October auto sales were around their highest of this expansion, led by truck sales. There's no evidence that Uber is killing car ownership.
The second claim made is that technological gains will cause mass unemployment, causing a societal crisis. It's been five years since "Race Against the Machine" was published, and during that time the U.S. economy has created over 12 million jobs. As the expansion has aged and the labor market has tightened, both labor-force participation and wage growth have increased. One of the mysteries of the past five years is why productivity growth remains so weak. There are good explanations for all of this -- companies rationally chose to hire low-cost workers in the early part of the expansion rather than invest in expensive equipment -- but those explanations come from classical economists, not technologists.
The third and final claim made is one of lifestyle preferences, that in this era of cloud computing and on-demand services people would give up ownership, choosing to rent instead. And in the early years of the recovery, this was undeniably true, particularly for young millennials. But the interesting thing about young people is that they get older. And as they've gotten older, millennials have increasingly been buying cars. First-time home-buying is on the rise. Was the "rentership society" merely a phase that millennials went through?
This isn't to deny the impact technology has had this decade. Facebook and Netflix have transformed media and entertainment. Amazon continues to reshape commerce. Ad dollars continue to move from print and television to digital, particularly mobile. But for economists and academics concerned with the big drivers of the economy -- employment, productivity, housing and big-ticket consumer purchases -- the late 2010s are not a glimpse of the new economy. They are textbook examples of the old economy.
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