Michael,
Thank you for your carefully considered response.
I I did not claim that there was no limit to how much technology can improve productivity. But I will claim that there are reasons to believe that productivity growth will continue to grow. First, technology change has shown no sign of decelerating and new technology brings new opportunities for improved productivity. Second, many companies, particularly in older industries, have not taken full advantage of the technology opportunities available to them and will not do so until competitors offer them no alternative. The status quo is still the mantra in many companies. Third, application of technology without changing the fundamental process simply makes waste more efficient. The biggest payoffs are available when the process is made more efficient. In my company, buying a PC used to take 68 steps and 9 months. Now it takes 24 steps and three months. I maintain further improvement is possible. To you point regarding productivity growth slowing: Could happen. Might slow temporarily or permanently. No one knows. Might speed up.
Regarding "reducing the need to hire new workers." Some companies are hiring new as fast as they can to support rapidly expanding. Some other companies are losing workers to the "new economy" companies but are maintaining sales and production by changing processes and applying technology to maintain operations with fewer workers. Ten years ago, when we wanted to expand or someone left, the solution was to hire more people. In today's economy, the first question we ask is how can we change what we are doing to allow us to minimize the need to hire someone new. We buy COTS software instead of writing our own. We eliminate a level of bureaucracy. We streamline our purchasing function. We outsource payroll. Etc. In some parts of our business, we are going out of business. Competitors who have become more efficient are hiring our people, paying them more, and selling competing products for less than we can.
My point was not that everything is great and there is no end to this boom. My points are 1) that technology and productivity growth are significant factors in explaining both the growth of the "new economy" (in an absolute sense and relative to the "old economy") and the low inflation rate in spite of low unemployment, and 2) that the leverage the Fed has on the "new economy" financed by th equity market is different than the leverage it has on industries financed by debt.
As for the prices of stocks being too high. I vote with my purchases and sales of stocks.
Jack |
