[The Editors' Verdict] Lessons from the American Economic Association Annual Meeting

Kim Kyung-soo, Professor Emeritus at Sungkyunkwan University

The annual meeting of the American Economic Association, held every early January, is the largest economics-related event attended by economic experts from universities, central banks, international organizations, and research institutes worldwide, not just in the United States. This year, more than 12,000 participants gathered in San Diego, California. A labor market for job seekers and employers also opens at this event. Applicants who have just completed or are about to complete their degrees cannot help but feel nervous.

The academic conference, where over 2,000 papers are presented across various fields, provides a great opportunity to grasp trends in economics and the global economy. Last year's conference introduced, for the first time in earnest, the ripple effects of automation such as robots and artificial intelligence on employment and wages. This year, detailed follow-up studies using firm-level data were reported.

Technological progress reduces the demand for old labor while creating demand for new labor. The Green Revolution in the 1950s changed people's lives. As agriculture no longer required many workers, a demographic shift from quantity to quality in child-rearing followed. Greatly expanded educational opportunities for women led to active social participation again. The focus of jobs shifted from agriculture to manufacturing and then to the service sector, and countless new jobs that had never been seen before emerged. As demand for new labor increased significantly, college enrollment rates also rose accordingly.

Last year at the American Economic Association conference, it was reported that automation is a product of aging. It aims to overcome the decline in the economically active population ratio through productivity improvements via automation. It is no coincidence that countries with advanced aging, such as South Korea and Japan, actively use robots in production activities.

Automation has reduced the share of labor while the new labor entering the market is less than the old labor being displaced, resulting in a decrease in employment. This same phenomenon was confirmed in other European countries at this year’s conference. Furthermore, displaced workers relied on social security systems instead of finding other jobs, showing that labor market adjustments are not smooth.

Moreover, automation is led by leading firms, and as their market share increases due to productivity improvements, employment in these firms has increased, but this increase was smaller than the employment decrease in lagging firms. Ultimately, the employment reduction caused by automation was concentrated in lagging firms with lower productivity.

Despite more than ten years of ultra-low or negative policy interest rates by central banks in advanced countries, the global economy’s sluggishness continued after a brief recovery in 2017, leading to the rise of the theory that monetary policy is ineffective. Monetary policy faced criticism for causing asset inflation rather than economic recovery, increasing the risk of financial instability. Currently, government bonds worth $15 trillion are yielding negative returns, accounting for 25% of the global government bond market.

The theory of monetary policy ineffectiveness has sparked interest in fiscal policy as an alternative. However, the ratio of national debt to gross domestic product (GDP) exceeds 120% for the G7 and 100% for advanced countries, leading to the assessment that fiscal policy capacity has been exhausted.

At last year’s American Economic Association meeting, Blanchard, then the president of the association and former director of the International Monetary Fund (IMF) Research Department, suggested that the increase in national debt due to deficit fiscal policy might not impose as severe an economic burden as initially expected, based on the fact that real interest rates in major advanced countries are lower than economic growth rates. Even if national debt increases somewhat, the debt-to-GDP ratio decreases by the difference between growth rate and real interest rate.

However, economists at this year’s conference concluded that Blanchard’s argument is unrealistic. In short, if national debt increases, bond prices will ultimately fall, and real interest rates will inevitably rise as well. This highlights how vulnerable the global economy is to shocks such as trade disputes and geopolitical risks.

Kyungsoo Kim, Professor Emeritus, Sungkyunkwan University

This content was produced with the assistance of AI translation services.