>When historians disagree on a perplexing topic -- say, what did happen to that vaunted Athenian ferocity in the Peloponnesian War? -- they engage in civilized debate.
But that's not the way such matters are settled on the Las Vegas Strip or on Wall Street -- two places with disquietingly similar predilections.
Those people gamble on the resolution of a conundrum, no matter how convoluted: Put up or shut up, roll dem bones, right now.
That's the scene these days:
Economic historians are engaging in drawing room discourse on whether today's high-tech advances can match those of the late 19th and early 20th centuries and whether the productivity generated by infotech innovation tosses old economic dogmas out the window, permitting the economy to rapidly grow at rates previously believed to generate high inflation.
From 1995 through the first quarter of last year, Wall Street and many economists put their money on infotech: Anyone not believing in the virtuous circle -- heavy high-tech investment begetting productivity gains begetting robust profits begetting still more investment, etc. -- was considered, well, less than virtuous.
Back then, one of the prominent apostles of the New Economy, or New Era, was Ray Kurzweil, a Massachusetts tech whiz who won the National Medal of Technology from President Clinton.
Kurzweil, who had plenty of company among academics, argued that "exponential improvements in the price-performance of a wide variety of technologies" constituted a powerful deflationary force.
The Internet and telecommunications advances enhance efficiency enormously. "The biggest danger to the economy is economists with outdated economic models," harrumphed Kurzweil, arguing that potentially inflationary factors such as low unemployment, high asset values and fast economic growth could be offset by the power of the new technologies.
Boy! Did Wall Street put its chips on Kurzweil & Colleagues! The heavily tech-loaded Nasdaq index surged to where it was selling for a mind-exploding 200 times earnings. Venture capitalists pitched money at any dot-com, no matter how inane its business plan.
But who was to say the New Era acolytes were wrong? The economy was growing at 4, 5 and 6 percent with few signs of inflation.
There were skeptics among scholars. Robert W. Rich and Donald Rissmiller of the New York Federal Reserve argued that the fast growth and low inflation of recent years had not come so much from infotech wonders, but from a "large and protracted decline in import prices."
Some economic historians saw blasphemy in the cyber-hype.
A. Gary Shilling of Springfield, N.J., although one of the first to say that deflationary forces were altering the economic landscape, argued strongly that incremental high-tech gains of the late 20th century, such as the Internet, were nowhere near as revolutionary as the strides of 80 to 150 years earlier.
Those strides included railroads, autos, airplanes, telephones, electricity, radios, household appliances, farm machinery, photography, indoor toilets and public health.
Perhaps the most outspoken throughout this colloquy has been Northwestern University's Robert J. Gordon, who has steadily argued that the entire improvement in productivity since 1995 has been in durable goods manufacturing, such as computers, peripherals, telecommunications and such.
There has been no significant productivity improvement in the 88 percent of the private economy lying outside durables manufacturing, Gordon has stated.
In a new paper for the National Bureau of Economic Research, Gordon cogently explains why the Internet has not enhanced productivity to the extent that its champions advertise.
First, much Internet use simply substitutes for other activities, such as watching TV or going to the library. Second, much investment in Internet Web sites and infrastructure represents competition for market share -- redistribution of sales, rather than creation of markets.
Further, much Internet content is "not truly new," but simply represents pre-existing forms of information made more cheaply and conveniently, Gordon says.
Fourth, much Web site development duplicates rather than replaces existing forms of information, and, finally, "a large fraction of consumption activity on the Web takes place at the office," where workers are frittering away their time buying stocks or panting at porn, thus lessening productivity, rather than enhancing it.
Gordon also agrees that the technology innovations of the late 19th and early 20th century were more revolutionary and productivity-enhancing than today's advances.
Indeed, Gordon says, it's likely that, "The greatest benefits of computers lie a decade or more in the past, not in the future."
And, how is Wall Street betting? Since spring of last year, when the dot-com bubble burst and high-tech stocks started their downspiral, the fast-money folks seem to be betting on Gordon, et al.
Of course, that could change. But I don't think it will change dramatically this year.
Wanna bet? |
