December 28, 2003

The 1990s Boom

The keen-witted Paul Kedrosky points us to a very nice piece about the 1990s by Yale's brilliant and hard-working Bill Nordhaus:

The New York Review of Books: The Story of a Bubble: ...While the supply-side years are often touted as the "unshackling of American capitalism," the 1980s in fact had a miserable productivity growth of only 1.8 percent per year. This rate rose sharply in the "fabulous" Nineties, and, much to the surprise of many, has continued to increase during the last three years.

While these structural indicators form the backdrop of long-run economic performance, the business cycle makes the headlines and drives election results. Table 1 shows four major factors that are central to the business cycle: the inflation rate, the rate of growth of real GDP, the unemployment rate, and the rate of growth of employment. The striking feature of the Nineties was that each of the major cyclical indicators improved, often sharply, as compared to the supply-side period. For example, real GDP growth rose from 2.8 percent per year to 3.7 percent per year, and employment growth rose from 1.6 percent per year to 2.4 percent per year.

These changes in percentage points may seem trivially small. In reality, because of their compounding effects, small differences in the rate of growth make big differences in the actual levels of income and output. The small improvement during the 1990s of the annual growth rate of employment from 1.6 to 2.4 percent would translate into a higher growth of employment, totaling eight million jobs. Similarly, the higher growth of real output during the 1990s implies that total output at the end of the period was about $700 billion per year higher, which amounts to about $7,000 per American household per year....

[T]he fiscal contraction was offset by monetary expansion: the Federal Reserve kept interest rates at historically low levels through the 1990s. Low interest rates encouraged business investment and home-building, so that between 1992 and 2000 investment rose by 4 percent of GDP. The fiscal tightening reduced government purchases by over 2 percent of GDP over the same period. This combination, long advocated by pro-growth economists, is known as a change in the "fiscal-monetary mix." Here is one of the major lessons of the 1990s: well-designed monetary and fiscal policies can increase investment and long-run economic growth without increasing unemployment or inflation....

One important puzzle about this period is how the new economy of improved technology and computerization could have played such a central part in the rebound of the productivity growth of the 1990s while many new economy companies—selling toys, groceries, greeting cards, cartoons, legal advice, and auctioning airline and hotel reservations—proved to be such catastrophically poor investments. The performance of the new economy is best seen in the companies concerned with information technology and industrial machinery (which include computers, semiconductors, and related equipment). Here the growth in output per hour worked averaged 15 percent per year between 1995 and 2001. This rapid growth is responsible for at least half of the productivity upsurge in the last decade.

In view of the enormous productivity growth in these sectors, does it not seem plausible that those who invent these new products and services or put them on the market should be able to capture some of the profits from them? If GDP is $1 trillion larger in 2003 because of the new economy (which is a pretty good guess), shouldn't some of the higher income go to entrepreneurs in that sector? One might think so, but it did not happen. The underlying mistake here is what I call "the alchemist fallacy." I don't mean the obvious fallacy that a miraculous process could transmute base metals into gold. Rather, the alchemist fallacy was to think that once a process for producing gold from lead was discovered, gold would retain its scarcity, and the discoverers would be rich beyond belief....

I think Nordhaus is correct here. The right way to think about the bubble is that enthusiastic investors in the 1990s poured a fortune into expanding the nation's capital stock and as a result greatly boosted the productivity of the American economy, but that barriers to entry were too low and competition to fierce for anyone (save Intel and Microsoft) to reap high profits. Productivity growth in the 1990s showed itself not in high profits in falling product prices and rising real standards of living. (At least, the profits were not high once companies had finished restating their earnings.) This is what one would expect in a high-pressure low-unemployment boom economy. And all of those who invested in high-tech companies that then burned their money expanding the nation's capital stock and raising its productivity gave the rest of us a big and welcome present. We should thank them.

So far the 00s have been different: falling hours worked and stagnant real wages mean that the big gains from boosted productivity have gone into profits instead. Posted by DeLong at December 28, 2003 06:56 PM | TrackBack

Comments

I wonder what kind of contribution OSS has made to productivity increase?

I have a hunch that this may be important in a number of ways:

1- Jobs go to India because software engineers in India are more cost-effective, they require less to do comparable work.

Well it is like Goerge W. Bush needs a whole big Texas ranch to be a good President while Howard Dean can do with a three bedroom apartment.

2- Bill Gates needs to be the world's richest man to lead production of MS products, and Larry Ellison needs comparable wealth to have his sail boats and all, Linus Thorwald doesn't need any of that to give us Linux.

This is the point I am getting at:

Some people need less material reward to perform. They can do a lot on psychic (spell?) utility.

Through process of industrialization, people were turning from peasants to urbanites and so material rewards were important. Seeking material wealth was made fashionable, no, ideology, national ideology. But now that the process of industrialzaiton / urbanization is complete, we see more and more people who don't care much about material rewards.

(The role of women is extremely important here. If women tend to pick money grabbers as mates, then the money grabber breed would tend to prevail in the long run.)

Well, look, is it not clear now that a society with lots of skilled people willing to work hard for psychic utility rather than material would tend to be a high producdivity society?

I think this is where the importance of OSS processes should be looked for.

Not just social aspects, but psychological aspects as well are important in studying OSS movement.


Now that

Posted by: Bulent Sayin on December 28, 2003 11:51 PM

____

Nice article.

Kant once said that common fallacies should always have a vivid name, so that people can refer to them by a shorthand term. I reckon the term 'alchemist's fallacy' should be used in such a way in economics - rather like the way the term 'lump of labour' is used. Because the alchemist's fallacy is almost as common, and damaging, as the lump of labour one.

Posted by: derrida derider on December 29, 2003 12:11 AM

____

PS - Paul Krugman, though, had this issue taped at the height of the dotcom boom - see http://www.pkarchive.org/theory/backwrd2.html

Posted by: derrida derider on December 29, 2003 12:15 AM

____

"Alchemist fallacy" in economic sense is itself fallacy:

If you COULD turn lead to gold, you COULD indeed be rich beyond belief, in your life time, at least, and humanity would be better off too, as gold has its industrial and medical uses as well, and there would be no less than civilized phenomena such as California(?) Gold Rush!

Some economists make me think that perhaps the science of economics should be re-invented.

I guess they subconsciously think that there would be less work for economists if resources currently scarce were to become abundant.

Such narrow mindedness!

I guess these economists, if they were contemporaries of Johann(?) Gutenberg, would oppose the printing press as well, for it would make books abundant!

Posted by: Bulent Sayin on December 29, 2003 01:24 AM

____

I do a series of real per capita income -- not
real DPI -- that averaged over 3% growth from
1960 tp 1980. From 1980 to 1992 it was only 1.7%.
From 1992 to 2000 it rebounded to over 3%, and since 200 it has shown 0% growth. so much for the supply-side or voodoo economics. By any objective measure we have experimented with it for 20 years and it has been an abject failure.

In the bubble many of the HT startups essentially had a zero cost of capital
given the valuations of their stocks.
The fact that they still failed even though
for all pratical purposes they got their
capital free, just shows how unrealistic the business plans and economic assumptions behind all those start-ups were. It was a massive waste of capital even though some of it is now being used to make us better off. The question on my mind is why doesn't this impact the thinking of all those who say the market is so perfect and the govt always is so wastefull. No govt, except maybe in a major war, could ever have the power to waste as many resources as the free markets did in the 1990s.


Posted by: spencer on December 29, 2003 06:03 AM

____

No, Bulent, the point was the classic quantity-theory one. Apart from gold having real uses, the alchemists tried to basically print money. If they had succeeded, medieval Europe would have had a hyperinflation like Weimar Germany or much of Latin America in the 1980s. Look at Spain when it finally did extract a bunch of gold from the New World. Did they build civilized institutions and accumulate capital? No. They printed money and only got inflation (with some taxes going to the crown). The real economy didn't improve since the presence of gold doesn't make a harvest better or educate a citizen to do skilled work. And apart from that Swiss liquor, gold doesn't taste very good.

Spencer: You confuse the business cycle with long-run growth. You really have to look at productivity numbers to see that something structural has been going on above and beyond the business cycle. My guess is that it's somehow demographic but it's really a bit of a mystery. In fact, productivity has been growing explosively the past few years but you wouldn't know that from the business cycle. Very strange.

Posted by: Chris on December 29, 2003 06:52 AM

____

Since 1995 productivity growth has averaged 3.0%.
Basically, the great productivity revolution everyone talks about is just that the economy has returned to the 3% trend productivity growth we
had before 1975. The real unsolved puzzle is why was productivity so weak from 1975 to 1995.

Actually, on a cyclical basis the last two years productivity surge is not that unusual either.
The normal cyclical pattern is to have an extremely strong above trend productivity rebound in the recovery phase of the cycle and for productivity growth to slow to below trend growth once the expansion phase of the cycle emerges.
so far productivity this cycle does not look all that differrent. Right now it looks like 4th Q productivty will slow to about 2% growth if the consensus expectations of 4% real GDP are right since hours worked are now growing at a 2% rate.

The productivity and real percapita income data I was quoting for the period 1960 to 1980 vesus 1980 to 1992 and since 2000 was picked to represent full economic cycles and not be distorted as peak to trough data.

Posted by: spencer on December 29, 2003 07:08 AM

____

Derrida derider writes:

> PS - Paul Krugman, though, had this issue taped at the
> height of the dotcom boom - see
> http://www.pkarchive.org/theory/backwrd2.html

Yes, that's a really good one, overall. But note that he wrote this *before* (or just as) the dot com boom started. So some of his guesses at how fast information would spread are painfully slow (a whole month to pirate a movie? Hee hee!).

The piece simultaneously shows PK's strengths and weaknesses. He is sensational in his prediction that white collar jobs will disappear, but since he really doesn't know much about IT (or more importantly for the upcoming century, molecular biology) he has nothing useful to say about these things. Not that I'm any different...

Posted by: Jonathan King on December 29, 2003 07:09 AM

____

I see, Chris; then, had the alchemists succeeded, the world would have become familiar with inflation much earlier than it did and Spaniards and Weimar Germans would have been much smarter than they were. We would have all learned our lessons in economy by now and we'd have the technological capability to boot.

At any rate, I was reacting to someone's putting the efforts for developing new products and services at par with efforts to some sort of get-rich-quick scheme, and nearly call it "a mistake".

Thank you, by the way.

Posted by: Bulent Sayin on December 29, 2003 07:25 AM

____

"So far the 00s have been different: falling hours worked and stagnant real wages mean that the big gains from boosted productivity have gone into profits instead."

I.e., towards restoring depressed profits to the level of the 90s, which as Nordhaus notes was not particularly high to begin with.

Posted by: Jim Glass on December 29, 2003 09:41 AM

____

"And all of those who invested in high-tech companies that then burned their money expanding the nation's capital stock and raising its productivity gave the rest of us a big and welcome present. We should thank them. "

I'm sure all the retired people whose pension plans were nuked will appreciate our thanks. No wonder so few Americans bother to save if they are likely to get screwed again, leaving America dependent on the Bank of China and the Bank of Japan for capital. The Clinton/Greenspan boom was perhaps the most irresponsible episode since ... uh ... the last time the American people fell for a bunch of shady get-rich-quick schemes. And what did the US government do? They encouraged the boom with very low interest rates and financial deregulation. And what do former members of the administration which presided over most of this Saturnalia of financial crime and corruption do? Patronising thanks instead of humble apologies.

Posted by: retired saver on December 29, 2003 12:52 PM

____

Sorry, but that's just unfair. I'm no lover of Clinton, but blaming Clinton and his guys for the business cycle is just as absurd as blaming Bush for the Nasdaq crash that began a year before he took office. So what would you rather have Greenspan done, choke off liquidity in 1996 and cause 7% unemployment then?

Spencer, you're referring to the Solow residual puzzle. I know about that, but the way that productivity and employment appear to have moved in opposite directions for two to three years puzzles me a bit. This shouldn't last for this long. The GDP numbers don't seem all that strange compared with the employment numbers, so that's naturally what provokes my skepticism.

In your earlier post, you point out the failure of many of these businesses. Yes, most of them failed miserably. A few succeeded spectacularly. For a diversified investor it's the average that counts, when success and failure aren't obvious at the outset. If I'm in Vegas it's my combined gains and losses that matter, not just my losses.

Bulent, I totally agree with you on the failure of equilibrium thinking on the part of some people (I think that was what you were trying to say--sarcasm is hard to decipher on these comment boards), with firms entering industries (software, telecom) and driving economic profits down to zero. I was going after the folks who confuse business cycles with long term productivity increases; money seems to have an effect on the former but not the latter.

If we're going to define a term "alchemist's fallacy" let's find a good transparent analogy that doesn't require that good of a background in micro. The thing that happened in telecoms is an example of this, with people (i.e. junior analysts crunching spreadsheets) thinking out of equilibrium. No, profits can't grow at 10% forever. I offered the Spanish gold example as maybe an easier one for people to understand. I might have tripped over some sarcasm early in the morning but I hope I got the point across.

We should perhaps split this idea into two fallacies, come to think of it. Maybe I should call the Spanish gold curse the "King Midas" fallacy instead--money isn't wealth. The alchemist's fallacy involves entry into markets driving profits down to zero. Is this a good distinction? Both ignore equilibrium but they do so for different reasons.

Posted by: Chris on December 29, 2003 05:15 PM

____

"The keen-witted Paul Kedrosky points us..."

Um, what? I e-mailed you a link to that article on December 27th, Brad, suggesting you might want to blog on it. Do you read your e-mail? I wondered why you hadn't blogged it.

Posted by: Gary Farber on December 29, 2003 05:23 PM

____

"And all of those who invested in high-tech companies that then burned their money expanding the nation's capital stock and raising its productivity gave the rest of us a big and welcome present."

Following "retired saver", let's not forget that from a money point of view, what happened in the tech bubble was basically that insiders (many already well off) got richer at the expense of a massive number of ill informed and now unenthusiastic investors, who got suckered by the mutual fund business. That is, the companies not only burned the investment money in capital stock, but kept wads of it in their pockets too.

Posted by: Tom Slee on December 29, 2003 05:25 PM

____

If you read Jungian psychoanalytic theory, Alchemy wasn't originally really about making gold- it was about spirituality and a kind of "magick" formula for producing a kind of spiritual mental state probably not unlike the deep meditations of a highly trained Buddhist monk.

Kind of like Enron- it really wasn't about producing anything, but about making people feel good about buying the stock and giving them a warm fuzzy feeling inside. Turns out it was all just smoke and mirrors after all. However, the executives did real good for themselves- the truest sense of alchemy- start from crap and make gold out of nothing- at least for them.

Posted by: non economist on December 29, 2003 06:52 PM

____

Chris,

I like to think I'm about ten percent economist but I'm afraid I'm not even that. I'll post later something larger about what I think I don't know as it concerns the discusssion here. For now I'd like to mention something different that puzzles me:

Productivity, as far as I know, helps strengthen national currency. But it doesn't seem to be happening these days: Productivity up in big steps, dollar down radically. I find it strange and perhaps you might care to comment on that. Thank you.

Posted by: Bulent Sayin on December 30, 2003 01:47 AM

____

Chris;

The relationships between business cycle and productivity growth is one of the things I don't know / understand. I think I understand the productivity side but I don't know how business cycles proceed and I don't even know the difference between business cycle and economic cycle (unless they are synonyms).

I have only an elementary understanding of equilibrium, if at all.

And I had not been introduced to "alchemist's fallacy" as a notion in economics.

Now that I have learned from you that alchemist's fallacy refers to a process of profits being driven down to zero because of excessive competition, maybe overcapacity, etc., I don't think that's a good analogy, it is confusing, and it should be replaced, for the benefit of us laymen if no one else.

Alchemist trying to convert lead to gold at first appears as one who is trying to discover something, like Thomas Edison, rather than one who tries to replicate a process others are already performing.

At the same time, alchemist, UNlike Thomas Edison, appears as one who is trying to obtain something for nothing, money out of the blue, gold out of lead.

Hence the following paragraph becomes difficult to interpret:


"In view of the enormous productivity growth in these sectors, does it not seem plausible that those who invent these new products and services or put them on the market should be able to capture some of the profits from them? If GDP is $1 trillion larger in 2003 because of the new economy (which is a pretty good guess), shouldn't some of the higher income go to entrepreneurs in that sector? One might think so, but it did not happen. The underlying mistake here is what I call "the alchemist fallacy." I don't mean the obvious fallacy that a miraculous process could transmute base metals into gold. Rather, the alchemist fallacy was to think that once a process for producing gold from lead was discovered, gold would retain its scarcity, and the discoverers would be rich beyond belief.... "

In the end, though, this paragraph reads to me like it means to say those new products and services should not have been invented or put on the market, unless barriers to entry and high profits could be assured. And I don't like that interpretation.

I think humanity should be capable of developing a culture of work, a moral basis of motivation to work, far better than that.

And I think we'll get there, for example, enter OSS.

(By the way, Eastman Kodak thought microfilms would be a case of alchemist's fallacy, apparently, and so he would not touch it, and so he totally surrendered micro-film business opportunities to others.)

Posted by: Bulent Sayin on December 30, 2003 06:11 AM

____

Bulent, I think that we're in agreement on about 60% of this, and maybe half of the rest of our differences are from some confusion of terms. When I talk about profit, I talk about economic profit, which is not the same thing as accounting profit. Accounting profit is what you or the man on the street would think of profit--profit measured in cash. Economic profit is accounting profit minus the opportunity cost of capital--what other things could yield a return? Subtract that return. I was talking about economic profits. I agree that this is a confusing term but I'm not the one who invented it. Maybe "excess profit" is a better description in laymen's terms. This is what confused the heck out of Marx and about a billion undergraduates since.

Now, then. I was trying to talk to you and Spencer at once and I probably hit neither target. Business cycles and productivity, as a first approximation, are not that closely related. Productivity involves growth over time; business cycles are movements around the long-term growth trend. There is in fact a small correlation (which Spencer talked about) between these two but it's still a bit of a mystery. Anyway, business cycles are what people are talking about when they think of unemployment, jobs, and all of that pleasant stuff. Growth is what people are talking about when they talk about productivity, GDP growth over decades, or whatever. Conceptually they're different things (Some of you endogenous growth folks may disagree.). This also really confuses the heck out of people. They both talk about GDP and there is that statistical correlation. Let's just ignore this for now since it has little to do with the alchemist's fallacy.

Now on to equilibrium. Remember when I made the distinction between economic and accounting profit? Think of a situation where there's no risk and one industry earns 10% and the others 3% on their capital. Say that I want to invest; what do I invest in? The 10% industry (economic profit: 10%-3%=7%). I'd earn more. But everybody else does that until both industries' returns are the same (say, 4%).

So now everybody's earning 4% on capital instead of 3% and 10%. Economic profit gets pushed to zero (everybody earns the same return), and accounting profit may or may not RISE. What does this have to do with the alchemist's fallacy? The alchemist would sit around thinking he can earn 10% painlessly by producing a valuable commodity. What he doesn't understand is that everybody else is doing the same thing and this pushes the return down to normal levels. The commodity becomes less valuable.

Nordhaus seems to have invented this term but I think that it's a pretty good one. The market here is functioning as it should, apart from the hype ("10% growth forever!"). The lesson is to not take rosy (or gloomy) predictions too seriously and to think about what the equilibrium is. That is, are there any obvious opportunities to do better under some situation? If so, then it's not an equilibrium. The alchemists failed to understand this--if one person invented a philosopher's stone, the secret would get out and others would replicate it. Gold would no longer be particularly valuable.

So this story requires some theory of equilibrium, which makes it difficult for the man on the street. There are a lot of moving parts. In the paragraph that you quote, the additional products and services (telecom, cell phones, a version of Windows that actually works, etc) were beneficial and should have been produced. It's just that there weren't many extraordinary profits to be made. Even the New Economy had to become old sometime.

The lesson of the whole thing is to ignore hype and think of equilibrium. It isn't exciting conversation at dinner parties. Lastly, I don't understand your comment, "I think humanity should be capable of developing a culture of work, a moral basis of motivation to work, far better than that." What kind of moral motivation is there to doing something unpleasant like dig ditches, build buildings, or program computers? That's what markets are for. Work stinks. I'd rather not work but I have to eat. That's a moral enough motivation to work for me. I don't care so much about motivations as results.

This has turned into a remarkably interesting conversation. Keep it coming.

-Chris

Posted by: Chris on December 30, 2003 10:57 AM

____

Chris,

Beautiful! You must be teaching, and you should, if you are not! Or, maybe write?

I read some place that a successful entrepreneur once said that if he and his buddies knew the kind of hurdles that they'd have to overcome, they would have never start their business in the first place.

Entrepreneurs are simply not geared to think about equilibrium. Neither are venture capitalists, or else they would not be venture capitalists. Venture capitalists concentrate on times and peaks before equilibrium settles in.

Of course, every body knows about why entrepreneurs and venture capitalists start businesses. To increase their wealth, from the point of view of economics.

But that's not the only motivation that gets them moving, ticking, especially the entrepreneurs. Some need to succeed. Some need to see their ideas come alive. Some of them just can't work for others.

All that is well known as well, especially in American culture.

What is not well known, it seems to me, are other kinds of motivation to "work".

I take the word work in quotation, because, in communication with you so far, I did not use the word work to refer to dig ditches or code programs. I did not mean wage earning work.

I meant the work of entrepreneurs, capitalists, artists, politicians,..., and,... scientists?

And now we have OSS Open Source Software people, who have given us very good things and they had never thought either about profits or equilibrium.

What was the motivation of the scientists at CERN in developing World Wide Web? They wanted to have an easy way of conveying data among themselves. They could have written up a functional definition and specs and submit it to CERN management and recommend that a procurement process should be initiated to develop such and such means of transmitting data among themselves as it would be cost-effective in this and that manner. But rather than doing that, they just proceeded and did it themselves. Why?

The problem with limiting oneself to profit motive is, obviosly, that if a product or service is not profitable, it won't be on the market, unless the politicians decide that the subject product / service is a public good and therefore public money should be spent to make it profitable to develop, produce and supply that good. But a lot of good products and services could fall through the cracks that way and I would tend to think that they do.

This has gotten too long already, I take a short cut, set forth a conjecture, even though it is going to be in a very rough, rough form:

Conjecture:

An economy, in which the motivation for innovation and enterprise is limited to profit motive only, cannot compete against another, otherwise comparable economy, in which such limitatiton does not exist.


Another way of stating this could be that if China, for example, or Europe, developed a social and economic structure in which every body worked like people in the OSS community do, it would beat the American system in quite a short time.

This was more or less what I meant when I said "I think humanity should be capable of developing a culture of work, a moral basis of motivation to work, far better than that".


Posted by: Bulent Sayin on December 30, 2003 12:24 PM

____

I do in fact, Bulent, plan on going into teaching; I'm working on a PhD in economics right now. This is my practice for explaining these things and you are my victim. It reminds me of whoever cuts my hair, but thanks for the complement, as I can sure use the practice.

Anyhow, let me go in reverse order. You're positing an economy where people produce based on altruism. But how do producers know what people actually want? We'd have a hundred million people producing stable but difficult operating systems and nobody producing food or delivering the mail. I'd buy stock in Jolt Cola though. That's the role of the price system, allocating labor and capital and such. Less Jolt and more taco stands.

Not to appeal to authority, but this is where Adam Smith hit a home run when talking about self-interest as a positive driving force in economics. There's the famous line, "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own self interest." In 227 years I don't think that anyone has beaten him in this concise description of the role of prices. Economies are just too complicated to be governed primarily by altruism.

Going back to your comments about innovation, academia is in a really odd position. There's certainly some of that self-direction and that's a strength of the American academic system. I imagine that the quest for fame at least partially serves as the reward for discovery; it can't be all monetary. At any rate I'd prefer this to having everything be politically directed, so that scientists can solve real problems rather than fashionable ones.

Private research seems to be more complicated. I wonder how much the quest for reputation has to do with this, as in academia, how being the next Bezos or Jobs can give incentives to research. But then there's the monetary bit too. What kind of patent system exists? What are the probabilities of success? What kind of risk sharing is there (like venture capital or mutual funds)? That all matters a lot and everything is far from obvious. Are entrepreneurs rational? Delusional? My guess is both.

Look at my revealed preference. I'm sitting here spouting off rather than starting a business. Time for me to grab some lunch.

-Chris

Posted by: Chris on December 31, 2003 12:35 PM

____

Chris,

As productivity increases, more and more people will be working as scientists.

Right now one percent of US population is feeding the entire nation and more.

A time will come when one percent of the population will be more than enough to produce all the food and shelter and physical infrastructure the nation needs. That would mean a young person working for one year in any of these "primitive" sectors -- agro, manuf, service -- will have produced and earned food, shelter, infra for a life time. That would mean an extensive social safety net for every body.

We would have then machines for slaves and we, humans, will all have become aristoctrats.

Average education years will increase, it will probably be 15 years of mandatory education. We will all become scientists in this or that fashion and spec writers at worst.

Markets would still be there, you see, as well as free enterprise. But nobody would have to work for a "living", and capital would be owned collectively to a very large extent.

Then, a social and political system that can motivate people in more than one ways will be superior to systems that depend on the profit motive alone. Such a social and political system would have superior capabilities in defense industries and its armed forces.

Accumulation of productivity made it both possible and inevitable for Industrial Revolution to take place, bringing about the end of the feudal system.

Accumulation of productivity continues and capitalism will also end, leaving its place to I don't know what, "knowledge society", maybe. Or perhaps "democractic communism".

I envision (a)free markets, (b) free enterprise, (c) collective ownership of capital (e.g., pension funds), (d) a form of direct democracy, in which I imagine funds allocation processes very much akin to that at NIH National Institute of Health would be replete, and (e) universal coverage of social safety net and (f) universal coverage of higher education.

Productiviy increase points in those directions.

And only one thing can stop productivity from pushing the political and social systems in those directions: Wars -- or perhaps catastrophies of acopalyptic (spell?) kind.


Posted by: Bulent on December 31, 2003 02:41 PM

____

Post a comment
















__