Along with the Federal Reserve’s interest rate hike on Wednesday, the biggest economic news of the season was a 0.9% decline in second-quarter gross domestic product, following a 1.6% contraction in the prior quarter.
Fluctuations in GDP can be attributed to various factors such as supply chain issues, war, inflation and more. Now, new research is offering another option: tech news.
Christoph Goertz is a professor of macroeconomics at the University of Birmingham in England and one of the authors of this study. He joins The Marketplace’s Kai Rysdal to talk about the relationship between expected technological advances and increased spending and GDP.
The following is an edited transcript of their speech.
Christoph Goertz: Almost every day, we read and learn about new technological developments that promise a future of greater wealth and a better quality of life. But we don’t have to wait for these new technologies to affect our lives. So let me give you a simple example.
Kai Rysdal: I think an example is important because I have an objection. But give me your example and we’ll go from there.
Goertz: Consider this situation. With news of an upcoming big pay raise, one might want to celebrate this achievement with a fancy meal at a restaurant or by buying a long-sought-after, but very expensive racing bike. And typically, he doesn’t want to wait for a higher payout to show up in his bank account. But one wants to celebrate and feed in anticipation of that pay rise. So if you project that simple example onto the entire economy, something very similar happens.
Ryssdal Well, yes to all of those, and lord knows, I’ve fallen victim to it myself, just in case. But not all technological advances that affect the workplace are positive for wages or one’s mood or happiness at work, are they?
Goertz: Of course, but not only about consumers. It’s about entrepreneurs, producers, etc. New technologies mean business opportunities. It means high profit, potential. And in this way it means something positive for the whole economy.
Ryssdal Can you imagine the broad-based economic gains we’ll see as a result of news of future technological advances?
Goertz: So the advantage is not necessarily. Fluctuation is the business cycle, the ups and downs we see. About 50% of business cycle fluctuations are explained by news about future technologies because positive news does not always drive growth upward. And really, people realize at some point, well, our assumptions were wrong. We are not as rich as we thought. And then we could fall into recession. And actually, they believe that’s what happened around the time of the 2000 dot-com boom and the bursting of the bubble.
Ryssdal How to explain this? … One of the things that was on people’s minds many years ago, not so many years ago, is that robots are going to take all our jobs, technology is going to come in and it’s us. We don’t need 3 million truck drivers in the American economy, I don’t know. Do you think that upsets the optimism you mentioned?
Goertz: Well, that’s a good question because it depends on the composition of the workforce, right? And perhaps on the ability to retrain these truck drivers to do other jobs. So this will be very expensive, of course, painful for some and some individuals, but the economy will be highly profitable, then there will be many business opportunities and the country as a whole will be rich.
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