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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: Gemlaoshi who wrote (9961)	9/21/2001 4:16:35 AM
From: Don Lloyd	Respond to of 74559

Dave - The Austrian School of Economics misses some important points by concentrating on economic progress as primarily a series of financial flows (i.e. availability of credit).... This is a mis-characterization of the ASE, which is primarily based on the actions of individual consumers choosing among their available alternatives and the competition of entrepreneurs to serve them. Economic progress is made by a continuing march of increasing productivity in the supply of existing products and services and the creation of new products and services to sop up both the newly released disposable income and the displaced labor created by the increased productivity. Financial flows are only a portion of the visible part of the ASE iceberg. ...Peter Drucker has written extensively on technological/financial progress, and their assimilation into the mainstream of the economy. That is, the full economic benefit of technological progress is not realized until it is assimilated into the economy, and the assimilation cycle takes much longer than the original tech/financial cycle. That, therefore, leads to a cycle of overinvestment (malinvestment according to the Austrians), underutilized capacity, bankruptcy, industry consolidation, and resizing back to match the assimilation cycle. Drucker points out that the assimilation cycle is shorter now for new technologies (computers, microwaves, fiber optics, etc.) than past developments (railroad, auto, airplane, telephone, etc.), but the mismatch still exists, leading to a continuation of the boom/bust cycles. Every entrepreneurial decision is subject to error in trying to predict and influence an uncertain future. Competition assures that these errors will not go unpunished and a winnowing selection process among entrepreneurs tends to improve the breed. The improvement in productivity normally involves the investment of consumer savings and past entrepreneurial profits in a time consuming development process which may or may not pay off. To the extent that a credit expansion has artificially signaled (and enabled a response) a higher consumer demand for future products vs current consumption than in fact exists, there will result a much increased error rate in entrepreneurial investment decisions synchronized in time across all sectors of the economy, and an exaggerated boom/bust. Technology is part of, but only a part, of economic progress. The development of more efficient production processes and methods and new products need not involve technology at all. Technology is important because it can quickly create whole new ranges of products and services and because it can so change the production efficiencies of existing products that the entire highly evolved production microstructures for a wide range of products are wiped away. Regards, Don