guess who is no longer the only person on si without cnbc?
greenspan speech... futures down since this was released, havent read it yet... so i dont know if this is the reason...
Thursday January 13, 9:04 pm Eastern Time
Note: this article has a followup with more information.
TEXT-Greenspan's speech on economics, technology
WASHINGTON, Jan 13 (Reuters) - The following is the full text of Federal Reserve Chairman Alan Greenspan's speech on Thursday before the Economic Club of New York. A text of the speech was speech released in advance in Washington.
"We are within weeks of establishing a record for the longest economic expansion in this nation's history. The 106-month expansion of the 1960s, which was elongated by the Vietnam War, will be surpassed in February. Nonetheless, there remain few evident signs of geriatric strain that typically presage an imminent economic downturn.
Four or five years into this expansion, in the middle of the 1990s, it was unclear whether, going forward, this cycle would differ significantly from the many others that have characterized post-World War II America. More recently, however, it has become increasingly difficult to deny that something profoundly different from the typical postwar business cycle has emerged. Not only is the expansion reaching record length, but it is doing so with far stronger-than-expected economic growth. Most remarkably, inflation has remained subdued in the face of labor markets tighter than any we have experienced in a generation. Analysts are struggling to create a credible conceptual framework to fit a pattern of interrelationships that has defied conventional wisdom based on our economy's history of the past half century.
When we look back at the 1990s, from the perspective of say 2010, the nature of the forces currently in train will have presumably become clearer. We may conceivably conclude from that vantage point that, at the turn of the millennium, the American economy was experiencing a once-in-a-century acceleration of innovation, which propelled forward productivity, output, corporate profits, and stock prices at a pace not seen in generations, if ever.
Alternatively, that 2010 retrospective might well conclude that a good deal of what we are currently experiencing was just one of the many euphoric speculative bubbles that have dotted human history. And, of course, we cannot rule out that we may look back and conclude that elements from both scenarios have been in play in recent years.
On the one hand, the evidence of dramatic innovations -- veritable shifts in the tectonic plates of technology -- has moved far beyond mere conjecture. On the other, these extraordinary achievements continue to be bedeviled by concerns that the so-called New Economy is spurring imbalances that at some point will abruptly adjust, bringing the economic expansion, its euphoria, and wealth creation to a debilitating halt. This evening I should like to address some of the evidence and issues that pertain to these seemingly alternative scenarios,
What should be indisputable is that a number of new technologies that evolved largely from the cumulative innovations of the past half century have now begun to bring about awesome changes in the way goods and services are produced and, especially, in the way they are distributed to final users. Those innovations, particularly the Internet's rapid emergence from infancy, have spawned a ubiquity of startup firms, many of which claim to offer the chance to revolutionize and dominate large shares of the nation's production and distribution system. Capital markets, not comfortable dealing with discontinuous shifts in economic structure, are groping for sensible evaluations of these firms. The exceptional stock price volatility of most of the newer firms and, in the view of some, their outsized valuations, are indicative of the difficulties of divining from the many, the particular few of the newer technologies and operational models that will prevail in the decades ahead.
How did we arrive at such a fascinating and, to some, unsettling point in history? The process of innovation, of course, is never-ending. Yet the development of the transistor after World War 11 appears in retrospect to have initiated an especial wave of innovative synergies. It brought us the microprocessor, the computer, satellites, and the joining of laser and fiber-optic technologies, These, in turn, fostered by the 1990s an enormous new capacity to disseminate information. To be sure, innovation is not confined to information technologies, Impressive technical advances can be found in many corners of the economy.
But it is information technology that defines this special period. The reason is that information innovation lies at the root of productivity and economic growth. Its major contribution is to reduce the number of worker hours required to produce the nation's output. Yet, in the vibrant economic conditions that have accompanied this period of technical innovation, many more job opportunities have been created than have been lost. Indeed, our unemployment rate has fallen notably as technology has blossomed.
One result of the more-rapid pace of IT innovation has been a visible acceleration of the process of ''creative destruction,'' a shifting of capital from failing technologies into those technologies at the cutting edge. The process of capital reallocation across the economy has been assisted by a significant unbundling of risks in capital markets made possible by the development of innovative financial products, many of which themselves owe their viability to advances in IT.
Before this revolution in information availability, most twentieth-century business decisionmaking had been hampered by wide uncertainty. Owing to the paucity of timely knowledge of customers' needs and of the location of inventories and materials flowing throughout complex production systems, businesses, as many of you well remember, required substantial programmed redundancies to function effectively.
Doubling up on materials and people was essential as backup to the inevitable misjudgments of the real-time state of play in a company, Decisions were made from information that was hours, days, or even weeks old. Accordingly, production planning required costly inventory safety stocks and backup teams of people to respond to the unanticipated and the misjudged.
Large remnants of information void, of course, still persist, and forecasts of future events on which all business decisions ultimately depend are still unavoidably uncertain. But the remarkable surge in the availability of more timely information in recent years has enabled business management to remove large swaths of inventory safety stocks and worker redundancies.
Information access in real time -- resulting, for example, from such processes as electronic data interface between the retail checkout counter and the factory floor or the satellite location of trucks -- has fostered marked reductions in delivery lead times and the related workhours required for the production and delivery of all sorts of goods, from books to capital equipment.
The dramatic decline in the lead times for the delivery of capital equipment has made a particularly significant contribution to the favorable economic environment of the past decade. When lead times for equipment are long, the equipment must have multiple capabilities to deal with the plausible range of business needs likely to occur after these capital goods are delivered and installed.
With lead times foreshortened, many of the redundancies built into capital equipment to ensure that it could meet all plausible alternatives of a defined distant future could be sharply reduced. That means fewer goods and worker hours are caught up in activities that, while perceived as necessary insurance to sustain valued output, in the end produce nothing of value.
Those intermediate production and distribution activities, so essential when information and quality control were poor, are being reduced in scale and, in some cases, eliminated. These trends may well gather speed and force as the Internet alters relationships of businesses to their suppliers and their customers.
The process of innovation goes beyond the factory floor or distribution channels. Design times and costs have fallen dramatically as computer modeling has eliminated the need, for example, of the large staff of architectural specification-drafters previously required for building projects. Medical diagnoses are more thorough, accurate, and far faster, with access to heretofore unavailable information. Treatment is accordingly hastened, and hours of procedures eliminated.
Indeed, these developments emphasize the essence of information technology -- the expansion of knowledge and its obverse, the reduction in uncertainty. As a consequence, risk premiums that were associated with all forms of business activities have declined.
Because the future is never entirely predictable, risk in any business action committed to the future -- that is, virtually all business actions -- can be reduced but never eliminated. Information technologies, by improving our real-time understanding of production processes and of the vagaries of consumer demand, are, reducing the degree of uncertainty and, hence, risk.
In short, information technology raises output per hour in the total economy principally by reducing hours worked on activities needed to guard productive processes against the unknown and the unanticipated. Narrowing the uncertainties reduces the number of hours required to maintain any given level of production readiness.
In economic terms, we are reducing risk premiums and variances throughout the economic decision tree that drives the production of our goods and services. This has meant that employment of scarce resources to deal with heightened risk premiums has been reduced.
The relationship between businesses and consumers already is being changed by the expanding opportunities for e-commerce. The forces unleashed by the Internet are almost surely to be even more potent within and among businesses, where uncertainties are being reduced by improving the quantity, the reliability, and the timeliness of information. This is the case in many recent initiatives, especially among our more seasoned companies, to consolidate and rationalize their supply chains using the Internet.
Not all technologies, information or otherwise, however, increase productivity -- that is, output per hour -- by reducing the inputs necessary to produce existing products. Some new technologies bring about new goods and services with above average value added per workhour. The dramatic advances in biotechnology, for example, are significantly increasing a broad range of productivity-expanding efforts in areas from agriculture to medicine.
Indeed, in our dynamic labor markets, the resources made redundant by better information, as I indicated earlier, are being drawn to the newer activities and newer products, many never before contemplated or available. The personal computer, with ever-widening applications in homes and businesses, is one. So are the fax and the cell phone, The newer biotech innovations are most especially of this type, particularly the remarkable breadth of medical and pharmacological product development.
At the end of the day, however, the newer technologies obviously can increase outputs or reduce inputs and, hence, increase productivity only if they are embodied in capital investment. Capital investment here is defined in the broadest sense as any outlay that enhances future productive capabilities and, consequently, capital asset values.
But for capital investments to be made, the prospective rate of return on their implementation must exceed the cost of capital. Gains in productivity and capacity per real dollar invested clearly rose materially in the 1990s, while the increase in equity values, reflecting that higher earnings potential, reduced the cost of capital.
(Note: this article is ''in progress''; there will likely be an update soon.)
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