Thursday, January 28, 2016

For Long Term Growth, Proactive Responses are Needed

Unfortunately, Robert Gordon's dismissal of long term growth potential, is emblematic of a passive approach which has likely contributed to changes in economic circumstance since the Great Recession. His rationale is but one example, how long term growth needs a more proactive response, than has been the case thus far.

But in the meantime, there's supposedly "solace" to be had, in resignation! People are encouraged to believe that in terms of the real economy, "little" can be done. Paul Krugman also reviewed Robert Gordon's recent book, for the New York Times. One of the things which struck me about Krugman's review, was the fact he wasn't inclined to question Gordon's assertions about the lack of future growth potential ("Is he right? A definite maybe.") Krugman continues:
Robert J. Gordon...has been arguing for a long time against the techno-optimism that saturates our culture, with its constant assertion that we're in the midst of revolutionary change. Starting at the height of the dot-com frenzy, he has repeatedly called for perspective. Developments in information and communication technology, he has insisted, just don't measure up to achievements. Specifically, he has argued that the I.T. revolution is less important than any of the five Great Inventions that powered economic growth from 1870 to 1970.
Also, here's Robert Gordon in a recent Bloomberg View post (part one of two), entitled "Goodbye Golden Age of Growth":
The rise in the U.S. standard of living from 1870 to 1970 was a special century--and won't likely be repeated...Future growth in output per person, therefore, will fall short of growth in output per hour. 
And he reasons:
The good news is that the economy will be able to maintain relatively full employment as the fruits of computerization cause work to evolve slowly, rather than in a great rush. I'm optimistic that job growth will continue and that new jobs will appear as rapidly as technology destroys old ones. 
Regular readers likely know where I find fault with Gordon's assertions, as to a supposed lack of potential for future growth and gains in living standards. Technological gains created the possibility of a completely new foundation for communications, knowledge use and physical infrastructure as well. This foundation could transform our burdensome non tradable sectors, which now sap the collective will and resources of governments, citizens and tradable sectors alike.

Yet organizational patterns which could contribute to widespread gains in knowledge use application, have scarcely begun. The same I.T. revolution which Gordon has downplayed, is the same infrastructural mechanism which could act as the conduit for a completely new services based economy. As to those "horrifying" aspects of slow Southern development he described, I can attest (as someone old enough to remember baths in a washtub), that it is more horrifying to be left out of economic loops at some point in one's lifetime, than to experience living structures which don't necessarily have every basic amenity.

I also need to address Gordon's apparent confidence that the economy can maintain relatively full employment, should structural shifts in organizational capacity (innovation) not be given a chance to take place. Granted: for a long time, new jobs appeared as quickly as old ones disappeared. However, a gradual decrease in knowledge based work as tradable sectors shift to non tradable sectors, has not been acknowledged. Given the fact that so much of non tradable sectors are supposed to be about knowledge work, this is what is truly "horrifying" so to speak.

The future growth in output per person which Gordon mentions, is directly tied to the knowledge use potential which could make human capital a direct component of wealth creation. Further, this is the missing element of capital as a whole, which has so many onlookers still mystified. Another important factor is that current services formation places too many participants outside of actual production capacity, at all stages of life.

In fairness to Gordon's continued observations, however, much of what attempts to pass as innovation in public dialogue is not real. Only consider how vested interests frequently promote what amounts to artificial "disruption", so as to prevent the real thing from happening, as was pointed out in this Techcrunch Davos presentation:
It's clear that the Forum gets whats happening and the Fourth Industrial Revolution is a critically important topic, but it's being filtered through a corporate reality of these large players carefully controlling the conversation...This is dangerous.  
By continuing to operate under the assumption that the biggest multi-national corporations are on the cutting edge of disruption, we risk not acting on globally significant opportunities like radical reform of education systems, government bureaucracies, energy management and transformation of transport systems...In the words of Buckminster Fuller, "We need to build new models that make the existing models obsolete."
Exactly. It's not so much I am intent on "destroying" outdated models, because oftentimes that's not the point. I just don't want outdated models to have the chance to needlessly destroy us. And right now, some of them (including wrongheaded monetary reasoning at the Fed) would do so, if nothing is done to short circuit all the hand waving and high profile excuses.

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