The introduction of labor-saving technology will result in lower prices, but it will also reduce consumption by workers who are made redundant.
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While Brexit captures the headlines in the United Kingdom and elsewhere, the silent march of automation continues. Most economists view this trend favorably: Technology, they say, may destroy jobs in the short run, but it creates new and better jobs in the longer term.True, new jobs created by product innovation may be offset by a "substitution effect," as the success of a new product causes the labor employed in producing an old one to become redundant.In addition, competition between firms will lead to a general reduction in prices, increasing demand for products and hence labor.Keynesian economists argue that the fall in demand for goods resulting from unemployment will precede, and thus dominate, the reduction in prices resulting from automation.Automation of the economy is therefore not simply the result of increased computing power, a la Moore's Law, but depends on changes in the relative cost of labor and capital.
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