|Evil, thy name is automation.|
"Today, persistent low interest rates encourage firms that do invest to use capital-intensive technologies, such as replacing low-skilled checkout clerks with machines. In this way, the Fed may still be contributing to a jobless recovery, when we finally do recover."
"He was shocked to see that, instead of modern tractors and earth movers, the workers had shovels. He asked why there were so few machines. The government bureaucrat explained: “You don’t understand. This is a jobs program.” To which Milton replied: “Oh, I thought you were trying to build a canal. If it’s jobs you want, then you should give these workers spoons, not shovels."
P.S. By the way, I think I know the premise Stiglitz was working with here. Its a micro equilibrium condition that determines how much capital and how much labor a firm will use to hold output constant and minimize costs (hence maximizing profits). It goes like this:
MPl/w = MPk/r
Where MPl and MPk are the marginal products of labor and capital and w and r are wages and interest, or the cost of labor and cost of capital. Arithmetically, if you lower r relative to w and hold the marginal products and total output constant, you find it behooves the firm to use less labor and more capital to produce the output. I think Stiglitz extrapolated this single-firm condition into a fallacy of composition to the entire economy, ignoring that increases in investment leads not to displaced labor but to an increase in the marginal product of labor, increased, not decreased, labor demand, and RISING, not constant, output.