As I learned (sometimes painfully) during my time at the Treasury Department, words spoken by Treasury secretaries can over time have enormous consequences, and therefore should be carefully considered. In this regard, I am very surprised by two comments made by Secretary Steven Mnuchin in his first public interview last week.
In reference to a question about artificial intelligence displacing American workers, Mnuchin responded that “I think that is so far in the future — in terms of artificial intelligence taking over American jobs — I think we’re, like, so far away from that [50 to 100 years], that it is not even on my radar screen.” He also remarked that he did not understand tech company valuations in a way that implied that he regarded them as excessive. I suppose there is a certain internal logic. If you think AI is not going to have any meaningful economic effects for a half a century, then I guess you should think that tech companies are overvalued. But neither statement is defensible.
Mnuchin’s comment about the lack of impact of technology on jobs is to economics approximately what global climate change denial is to atmospheric science or what creationism is to biology. Yes, you can debate whether technological change is in net good. I certainly believe it is. And you can debate what the job creation effects will be relative to the job destruction effects. I think this is much less clear, given the downward trends in adult employment, especially for men over the past generation.
But I do not understand how anyone could reach the conclusion that all the action with technology is half a century away. Artificial intelligence is behind autonomous vehicles that will affect millions of jobs driving and dealing with cars within the next 15 years, even on conservative projections. Artificial intelligence is transforming everything from retailing to banking to the provision of medical care. Almost every economist who has studied the question believes that technology has had a greater impact on the wage structure and on employment than international trade and certainly a far greater impact than whatever increment to trade is the result of much debated trade agreements.
As for the secretary’s questioning of tech company valuations, no one can predict markets, so he may turn out to be right. But with Apple trading at below the market average price earnings ratio, and Google trading with a price earnings ratio in the 20s at a time of very low volatility and near-zero long-term real interest rates, I do not understand the basis for Mnuchin drawing a conclusion about the inappropriate valuation of technology stocks.
In a highly uncertain world with a major tax reform debate upcoming, the credibility of the Treasury secretary is an important national asset. I hope Mnuchin will soon find an opportunity to clarify his thinking on technology and to back off from judging appropriate sector valuations in the stock market.