Waiting for The Crash
There's an awful lot not to like about the administration's handling of our Great Recession. As economists from Paul Krugman to Jamie Galbraith keep pointing out, government stimulus must be much larger if it's to get us anywhere near full employment. And almost everybody agrees that the bank bailout, as currently structured, is more a give away than a fix, at best being a stop-gap measure. Moreover, I keep worrying about the derivatives overhang — I notice at least one prominent neo-liberal economist (Bill Clinton's favorite, which is really no recommendation) agrees — and the 'make-it-up-as-you-go-along' so-called market in derivatives. Then there's the current account deficit, always a problem, and so many other structural problems, including not least things like health care and oil dependence. The U.S. economy is a giant mess. At the same time there's something of a silver lining that as far as I can tell very few people are talking about. "Very few" being a qualifier: in fact, I haven't noticed anybody talking about the role that technology plays in driving today's economic growth.
Perhaps with reason. Ten years ago we had the "tech bubble." After that collapsed, talking about technology as a driver made one seem stupid. But the fact is, right now we're experiencing a scientific and a technological revolution combined. The pace of change is extraordinary. It may seem like the recession slows everything down across the board but in reality a lot of advanced technology and science keeps charging ahead. The effect of that change on the current downturn almost certainly makes its nature different than that of the recession of 2001, or for that matter the crash of 1929.
Another good reason economists aren't writing about technological change is that it can't be easily or accurately modeled, as so much of the real economy can't be. Like "entrepreneurial returns" it's sort of a left-over accounting scoring once everything else has been totted up. Indeed, I suspect that some important part of the economic benefits of technological change simply can't be measured at all.
Nevertheless, heuristically we should expect that technology provides a powerful counter to the forces tearing us apart. When observers worry that the green shoots we see in the economy are only weeds their point is well taken but we should be open also to the possibility that things may not be quite so bad as we think. It's only prudent to remain extremely uneasy about the future but some very cautious optimism would not be out of place.
Posted by George Kenney on April 18, 2009 9:39 PM 
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Comments
I have long thought that economists have less understanding of their field of study than doctors had of the human body in the middle ages. You have put your finger on one of the reasons why. Unfortunately this unknown will not go away with further study. Perhaps the reason why economics fails is that its subject is truly unknowable.
Posted by: David Ford | April 19, 2009 11:54 PM
The economics profession and economic instruction has been stuck since Adam Smith’s Wealth of Nations — 1776. As such most economists have been apologists for and sycophants of power.
While the sciences and engineering moved from static "equilibrium" analysis to dynamic analysis leading to technological advancements and marvels, the economic profession's religious belief in "equilibrium" statics and its willful ignorance of the mathematics of dynamics, system dynamics and its application to economics in the real world, has led to state failure and human misery around the world.
For a dose of the reality in the debasement of economics and its misuse of mathematics in Neo Classical Economics I recommend Steve Keen's Debunking Economics (http://www.debunkingeconomics.com/).
For more insight into the current economic debacle I recommend Steve Keen’s Debtwatch blog (http://www.debtdeflation.com/blogs/). Steve Keen is the only economist I’ve read who has integrated Irving Fisher’s Debt Deflation Theory of Great Depressions and Hyman Minksky’s Financial Instability Hypothesis into a true dynamic system model that goes a long way to explain the internal dynamics of finance at a macroeconomic level.
While Steve Keen is Australian, I believe he has studied this longer and challenged the economics profession at a foundational level with solid reality based analyses. As such I believe he has more to offer than either Krugman or Galbraith. I’d like to hear Steve Keen interviewed on both of the above subjects.
[Thanks, Michael — I'll look into it. g.]
Posted by: Michael Cykana | May 10, 2009 11:24 AM