Digital Abundance Meets Scarce Architects: Implications for Wages, Interest Rates, and Growth

Digital technologies are creating dramatically cheaper and more abundant substitutes for many types of ordinary labor and capital. If these inputs are are becoming more abundant, what is constraining growth? We posit that most growth requires a third factor, a scarce ‘bottleneck’ input, that cannot be duplicated by digital technologies.

Our approach parsimoniously resolves several macroeconomic puzzles involving automation, inequality, and secular stagnation. We show that when capital and labor are sufficiently complementary to the bottleneck input, augmentation of either will lower their price and income shares in the short and long run. We consider three distinct microfoundations for bottlenecks as well as implications for government policy.