An old friend on the East Coast, Al Shelly, sent me an email picking up on something I had written in my memoir, Outsider's Reverie, where I suggested, in contrast to the well-known Marxist economist Ernest Mandel, that the computer revolution provides the basis for a long wave of economic growth.
Al responded with a rather technical argument that I won't repeat here, saying he was more in agreement with Nobel Prize winners Paul Krugman and Joe Stiglitz, among the few big name economists who see a deepening depression ahead rather than a recovery. Al wrote:
"Since the Stimulus is now drying up, I have predicted that in a year, unemployment will be at 12%. That's assuming that the underlying situation (the investment collapse) doesn't get worse. Actually, I expect the underlying collapse to get worse, by degrees, over the next several years. So, I think that in, say, three years, we shall be looking at 15% or 20% or even 25% (a la 1932) unemployment."
Al seemed to suppose that my comment on computers meant that I am not sympathetic to Krugman and Stiglitz. Actually it is more the case that I do not see the current recession, even if it becomes a full-fledged depression, as directly related to the viability of IT technology as a growth engine. Below is my comment to Al.
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I am not a technical economist, nor do I claim any ability to predict the economic future. I read Krugman and Stiglitz generally with pleasure, but don't stake out any special territory of my own in the debates.
What I do see in my limited way are these trends:
(1) The computer/knowledge based technologies do provide a systemic foundation for a wave of economic growth, if you accept the Kondratiev notions, comparable to those of the past.
(2) However, they are spreading their effect very widely in a world with inherited radical differences in standards of living. This is shaping up with rapid technological development in India and China and a rise in their standard of living, while creating a relative decline in the standard of living of the advanced countries due to an implicit slow wage equalization on a world scale. These IT technologies are working their way into the world economy at the same time, and in part because of them, that for the first time the national isolation of labor markets is breaking down in significant ways, pitting American workers into more direct competition with Indian, Chinese, Russian, etc., workers.
(3) American corporations have for several decades been intent on shifting manufacturing operations overseas to take advantage of high skill/low wage sectors in developing countries, leading to a relative shift in the US toward low paid service jobs, one of the few things that can't be outsourced. This, in contrast to previous highs in the business cycle, tends to increase the inequality in income distribution and at a faster rate.
(4) Thus while there is a high-tech US sector that remains prosperous, the overall place of the US in the world economy is in decline, marked by the displacement of industrial capital by finance capital, with all the speculative bubbles of recent years based on stock manipulation rather than on production of real values.
(5) The wealthy and the political right wing have responded to the relative international decline, now compounded by the financial crash of the collateralized mortgage bubble, by seeking through populist demagogy to throw overboard the middle class and the poor and champion the rampant growth of wealth of the small minority of the rich. This is something of the gated community mentality where the wagons of the aging whites are pulled in a circle, the supplies are brought in, and guns pointed outward. Not much of a real concept of a nation as a whole. So the federal goverment becomes largely an onerous expense, particularly as it spends money on sections of the population regarded as unworthy of survival. This is likely to lead over time to a crisis of legitimacy for the right.
Frankly while I support Obama and want to see the Tea Party and the Republican right restrained, I no longer believe that destroying the system wholesale as the Marxists envisioned would lead to anything but a ruthless dictatorship and general impoverishment. My sense is that the sheer volume of value vaporized in the crash, part in the fall in housing prices and part in the fall in stock values, will take five or ten years to work its way out, and this will be a period in which an unhappy middle and working class will be inclined to lurch from one demagogic fix to another, at the moment lurching far to the right.
More broadly I think that there are still larger impending problems we face that have not much to do with classic business cycles or even the Kondratiev waves. Rather, because of unrestrained population growth, mightily compounded by rapid industrialization that multiplies the economic and environmental impact of each individual on the globe's resource base, we are entering an era of resource wars and brutal competition amidst the threat of a general world decline in living standards. Global warming contributes to this in reducing arable land or the produce from it. The seas are being fished out. We are not so long from hitting peak oil, after which prices will begin to climb again. From the 1940s to the 1970s world oil reserves were dominated by the Seven Sisters: Standard Oil of New Jersey, Standard Oil of New York (now ExxonMobil); Standard Oil of California, Gulf Oil and Texaco (now Chevron), all US owned; Royal Dutch Shell; and the Anglo-Persian Oil Company (now BP). Today the largest oil companies are state owned by regimes more or less hostile to the United States: Russia, China, Iran, Venezuela, Kuwait, and Saudi Arabia. That doesn't augur well for life in the US when the oil starts to get really expensive.
The retreat of the American electorate and its emergent dominant party, the Republicans, into anti-scientific religious obscurantism and flight from facticity to me seem to be signs of a loss of confidence in the future, which ironically will only hasten an American decline. It will be interesting to watch, though we are too old to see very much of how it plays out.