“Computers are everywhere except in productivity statistics” this was said in 1987 by the great economist Robert Solow and became known as the “Solow paradox”. Except that the “paradox” has now been answered in two ways.
1. Because what Solow didn’t see in 1987, namely productivity growth, emerged with momentum in the 1990s, when annual average productivity growth in the US reached 2%. Studies later showed that the heterochronism that fooled Solow is due to “human capital” being slow to acquire the skills that turn technological innovation into increased productivity (The same is happening today with artificial intelligence).
2. Because Solow failed to take into account that the way we measure productivity is inadequate in the face of technological change. We necessarily measure it with a monetary equivalent. But new technology creates goods that, while fundamentally changing our lives, may not show up as either an expense or an income in the statistics. By hacking his cell phone today he can do in half an hour, even without the slightest financial burden, things that in 1987 would have taken perhaps weeks, also spending indeterminately large sums.
“In 100 years, due to increased productivity, our grandchildren will need to work 15 hours a week and be able to cover all their needs.” That’s what John Maynard Keynes said in 1930 – but it’s not like that. Keynes was wrong in his prediction because he had no understanding of the division of the economy into industries operating at the “technological frontier” and those that (still) operate in traditional ways. The industrial worker today has a much higher real wage than the industrial worker of 1930 because he has much higher productivity. And the symphony orchestra violinist, however, or the teacher has a much higher salary than the violinist or the teacher of 1930, even though they have not increased their productivity at all since then. What happens, and which Keynes could not perceive with the knowledge of his time, is that as productivity increases in the “technological frontier” sector, so does the demand for the positive income elasticity products – products of the traditional sector that are considered necessary for the quality of life. With equalized wages in both sectors so that more and more employment is transferred to the traditional sector. As a result, the percentage of industrial employment in the developed world, today, is only 11%. Even if we discovered the horn of Amalthea and sent all industrial workers on permanent vacation, total hours worked would not decrease by more than 10%.
