What If Your Model Is Wrong?
There’s been something unsettling to me about Paul Krugman’s Great Depression II op-ed piece and I’ve struggled for a week to figure out what it is. And then today, I came across Umair Haque’s piece from last month called Do Economists Matter?
I don’t want to disparage Paul Krugman. He’s way smarter than I am, he has degrees from Yale and MIT, he’s taught at MIT, Stanford, Yale, and now Princeton. He received the Nobel Prize last year in Economics. He’s one of the most influential economists, thinkers, and writers in the world.
And yet, Krugman’s Depression II piece is essentially a debate and discussion of Keynes vs Freidman, tax cuts versus infrastructure investment. It’s a 20th century economics model being applied to a 21st century crisis. And I think there’s a really good chance that these models the economists are using are outdated and focused on the wrong issues.
Haque, on the other hand, sees this economic crisis differently. He says:
We can’t fix today’s problems unless we change yesterday’s rules. But
economists — and the models they rely on — are bounded by yesterday’s
rules.
I wrote a long piece over the holidays called Bits Of Disruption where I argued that technology has fundamentally changed the economic model of most, if not all, industries and we are witnessing the destruction that goes along with that disrpution.
That’s one big vector of change, but it’s not the only one. Globalization is another huge impact. The most influential book (on me) I read last year was Fareed Zakaria’s The Post American World. Surely the economic models our leaders are using incorporate global money flows and other important global factors. But we’ve never been in a world where you can hire someone anywhere in the world in a matter of days, where you can transact instantly with companies all over the world, and where global factors weigh so heavily on economic issues. I just don’t think our models fully incorporate the global world we live in today.
But neither of these vectors are what Umair is obsessively focused on. He sounds more like Marx than any current economist to be honest. Umair’s interested in DNA, not what makes each of us unique, but what makes companies, institutions, and even governments unique. And he points out that the old models don’t work anymore.
Starbucks, for example, pursued a
textbook approach to strategy; growing from a strong core defended by a
powerful brand, value chain control, and scale, into adjacent markets,
like food, music, and events. All of which led it directly and deeply into strategy decay – by robbing it of purpose, vision, and empathy.Microsoft, perhaps the ultimate hardball player, focused on ownership
of a standard at all costs – and is now struggling to compete in an
industry whose fabric has been riven by open standards and open code:
its own domination games have returned, like the ghost of strategy
past, to haunt it.
The old rules certainly don’t work for many (most?) businesses anymore and they probably don’t work for the economists either. So Obama will spend upwards of a trillion dollars of stimulus in a combination of tax cuts, building roads, bridges, and hopefully public transportation. And it can’t hurt and maybe it will help.
But what matters more is how we change our culture, our society, our government, our economy and the companies that help make it up. A good place to start are Tim O’Reilly’s three rules:
1) work on something that matters more than money
2) Create more value than you capture (that’s the kind of DNA that’s winning the day now)
3) Take the long view
I had dinner last night with some friends, all of whom were big supporters of Obama and his vision of change. All of us were at least a little (and in some cases a lot) concerned that in the transition from candidate to President, Obama was getting sucked into conventional thinking. Spending a trillion dollars may work, but helping change the DNA of america and the world would help a lot more. And he doesn’t need economists to tell him how to do that.
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Comments (Archived):
First, lead by exampleI¹d have done away with all the galas and balls during the inauguration, forexampleThe swearing in and speech is so importantBut spending tens of millions on galas is just wrongugh
Right. And he completely lost me by asking for money for the gala 5 times. Instead, give me a survey. Let me hashtag myself in a database some where and have the meetup on my block for the issue I care about. Barcamp away.Then come up with X prizes. X amount to schools for X number of hours of volunteer. Give me and my local interest group a goal.Reduction in local carbon verified by amee.
I saw that subtle hint that google itself may be falling into the same trapandy
Wow. Google is scary sometimes
Ok, here¹s oneStop spending money sending your kids to colleges and use the web to educatethem insteadI can keep going if you¹d like
I think about 25% of the US population has a college degree.If you learn about pedagogy and psychology, not everyone learns the same way. Consigning education to the Internet for all would be a disaster. What about those who need personal attention, who need the emotional connection of a teacher? Can’t come from pixels.And brick and mortar schools are certainly a disaster for some people in some areas…..this solution could be a good niche solution. (The University of Phoenix is out there.) the point is, this suggestion is far from complete. Fred, you’re a brilliant entrepreneur. I dearly wish I had your skill set. But you are not in the public policy major league at all.I don’t mean to be harsh. My suggestion to you would be to start to learn about this stuff from people at places like the Center for American Progress (liberal), some counterpart on the right, and perhaps journals. Start tuning in to foundations. You’ll meet brilliant people like yourself, but who come from different places with different skill sets. After you’ve engaged in this way, you will be able to engage in public policy in a way far deeper than you can currently imagine. I’m guessing you’re quite wealthy. This would be a phenomenal way to spend the last 20 or 30 years of your life.
one simple phrase might have value for you, me, us all .. “change your mind, change your life” …
That comment was way off target. If you read it post properly, you’ll see that it was about companies, their business models and leaders who are building companies. When it said “work on something more important than money”, it wasnt about people who couldnt feed themselves, it was about people starting companies. It was asking them to think bigger than “I want to get rich through a startup”.
And if you need evidence of students frustrated with their parents and schools making the wrong call on this one, check out this thread:http://search.twitter.com/s…
Fred, I am not sure if this is a good suggestion. Going to college is not just to learn quantum mechanics or Algorithms. It is an experience that shapes a person to who he/she is and how he/she can face the world in the future. I hope you come up with a better answer to Frank’s question. How is your suggestion different from home schooling where parents teach christianity and creationism? We cannot remove college experience and still expect the person to have an all round development. My 2 cents.
Maybe they go do public service for four years instead
I agree with some of your thinking Fred and I’ve been thinking about some of these issues recently. There’s a lot of inefficiencies in the Educational system and I believe several interesting startups will emerge over then next 5 years to address those inefficiencies. Same goes for Health Care – information intensive but the supporting IT systems are just so archaic, expensive, and proprietary.That said, there is value in having kids co-located in classrooms and schools. A great teacher can have a spellbinding influence on children.So, ultimately I think it’s going to be a hybrid model: keep schools, but repurpose them somewhat. Instead of using them as distribution hubs of information – the internet does a far better job of that – I think time spent in schools should be used for close, low-ratio teacher/child mentoring and socialization among peers.I think there’s some terrific innovation waiting to happen around this.
Comments is a bad place to put forth something as serious as the ideas I’ve been thinking about for reinventing educationThe Hacking Education post I did a while back is a better explanation of what I have in mindBut I agree, we can’t lose the socialization that happens in schoolsBut the education is pretty bad
Sorry, revisiting an old post. I assume you saw this in the NYT about our alma mater:http://www.nytimes.com/2009…Think something like this could work at a high school level?
Yeah, that was a great pieceThis is the future of education for sure
Fred, you have a daughter applying to colleges right now, right? How does that square with your recommendation? I’m not being snarky, I’m struggling with the same ideas looking at my kids’ futures.
It¹s not up to me, it¹s up to her. But if it were me, I¹d do what rob kalindid instead of what I did. University education has vastly increased inprice in the past 20 years and it¹s less useful in the real world. That¹snot a good dynamic.
I thought Rob got his BS from NYU, though he did various unconventional things on both sides of that.Or did I mis-read something?
I think we are already well on our way to addressing the credit freeze issueby virtue of all the actions taken alreadyI read Krugman¹s piece as a debate on how to get the economy growing againI fear Obama is going to try to prop up a bunch of failing companies andeconomic modelsAnd I think saving the auto companies and a host of other companies is a badidea because there are forces at work that make their economic modelsunsustainable
Agree with you on all pointsBut its soooo scary to contemplate letting huge companies fail. Republicanstried it lehman bros – -and are still getting politically destroyed overit. Think obama admninistration and dem congress will have the politicalstomach to let the chips fall where they may? (also, wasn’t that herberthoovers strategy, the decision that earned him a place in infamy?)
It’s a moot point, because its not going to happen
> also, wasn’t that herbert hoovers strategy, the decision that earned him a place in infamy?No, it wasn’t. Hoover’s approach was basically the same as FDR’s, which was to intervene massively. FDR basically waged war on production and trade, which significantly lengthened the great depression and pushed us back into a recession at the first signs of a revival.It took the run-up to WWII to convince FDR that the US should start producing like crazy. That’s what finally ended the Great Depression.
hmm… no. FDR was very different than Herbert Hoover.Herbert Hoover was focused on decreasing government outlays to match decreasing tax revenues.FDR was focused on using government deficit spending to put people to work. In particular, the WPA (and its ilk) were focused on providing gainful employment. These were not “make-work” jobs. The US infrastructure was dramatically improved. I come across many bridges and roads with a construction stamp from the 30’s that were the result of FDRs projects ( not Herbert Hoover). Look at buildings in the National Parks, many of those buildings were built as part of FDRs programs to spend money and put people back to work.Herbert Hoover on the other hand was convenience that government should not do anything to help. The Marget God would solve all ills.
They asked me for $50k for the inaugurationI would have gladly given $50K toward a program to re-train auto workers butnot some black tie dinner and dancesheese
Beautiful sentiment Fred.And I like the idea that thinking how to change our business culture is more important than bean-counting. As William Blake once said, “bring out number, weight and measure in a year of dearth.”
Did you give $50k towards a program to re-train auto workers?
I¹m not an entrepreneur actuallyI just invest in them
It’s inspiring to see someone in your position speak with such guts and passion about dispersing and sharing value.Whether it’s altruism or smart business, seeing the bigger picture and creating value for more than yourself and your company can only put you in a place where the world wants to keep you around.Thanks Fred!Jordanvolunteerbig.com
The key line in your post is “creating more value than you capture.” This should be the motto that drives startups, big companies, organizations and even governments. Such a simple premise can dare all of us to dream bigger and better, but we see countless examples where value is being lost in the chain. Detroit is a good example – there are probably 30-40 brands of cars that don’t have a product-market fit, that look terrible and have poor sales. Why are these cars still being produced? Toyota on the other hand almost always produces cars that provide a tremendous amount of value. Granted even the mighty Toyota is having problems. But companies that create more value than they capture will almost certainly make it through this crisis and not only survive, but thrive.
I’m with you and your friends on Obama. I love Umair’s writing – I think a strong voice arguing for “good” is a welcome addition to the conversation.And . . . how does Obama change the DNA of the structure that is in place? There have been better and worse leaders, appealing to our better or worse tendencies, but how does the leader fundamentally change the structure?I’m very excited to watch, discuss, and participate in any effort to embed better DNA into the structure that will outlive any one leader.
When Microsoft was chasing Yahoo, I always said the happiest and smartest party was Google, because they head faked their opponents into playing an old game on old rules (search), as opposed to finding new ways to create value (for example looking at real time communications).President-elect Obama has an opportunity to drop a mind bomb on us all and change the rules within which we think we are operating, but are outdated and dangerous. I hope he does it.
Great post, but it really hit home when I saw the following ad juxtaposed to the bottom of the post in my RSS reader: http://scottshapiro.postero….
I honestly have no idea what you’re talking about. How is an everyday person, perhaps without a college degree, or with one, just not from an exclusive school, or someone with a 2 year degree, going to “……1) work on something that matters more than money,2) Create more value than you capture (that’s the kind of DNA that’s winning the day now) 3) Take the long view……”?What if these very people have gone or are nearly bankrupt paying healthcare bills? What if they can’t move somewhere to get a job, because they’re tied to family? Or can’t leave a job because of its benefits? What if it’s a single parent trying to juggle insane housing, transportation, healthcare, and education obstacles/costs?Obama, for whatever faults he will prove to have, came from nothing. He has seen a broad range of the human economic experience.I am sorry to say that you and your 3 friends strike me as hoplessly abstract and thoroughly clueless about how regular people live their lives. Try coming up with some concrete proposals or suggestions.
I think your point – that economists are using old models to describe a new world – is surely valid. But I would go further: its not just that Krugman et. al. rely on old models, its that we all strive to oversimplify complicated equations that sometimes are unable to be accurately described when we do so.No one knows what the aftermath of the drastic government policies of the last few months will look like, and surely no one can predict what $1T stimulus package will do to the economy. Best guesses are nuanced and recognize their limitations.But for a society with A.D.D. and a lack of finance and economics training, sound bites and headlines like Krugman’s carry weight.I agree that the velocity and *quality* (to borrow from O’Reilly’s post this morning) of our economy is changing because of the digitalization of our world. Just what the implications of all of this will be will take decades to decipher…which is why we should let entrepreneurs and innovators lead the way in creating the future rather than trying to engineer it from the top.
Amen, Fred. One of the topics I’ve been thinking about a lot lately is the role and path of the individual worker in today’s new world. While the models need to change, so do people’s mentality. The “security” society is over. I’d rather take $1T and support small businesses. Some of the businesses can fix infrastructure (roads, bridges, etc.). But others will help lead us to a world in which we control our destiny and aren’t dependent on handouts and bailouts and failouts. Entreneurship can lead us out of this position we’re in. It can also lead many “workers” to a new position of working on something that matters and is stimulating. More of my thinking can be found at http://www.lazerow.com. Be well.
Yes, it’s official that the New Deal (cradle-to-grave security society) has failed. A Ponzi scheme for the ages. Now, how do we get the memo to the media that’s trying to sell us Obama as the next FDR…as if that’s a good thing!?!
Fred, you lost me.Krugman was mulling over how best to add liquidity to a market in a credit freeze. Credit freezes have happened before (and will happen again.)Why is it not relevant to look to past situations for lessons learned?(In this and in anything?)Looking to the past for guidance and learnings in no way limits ones ability to think openly and to innovate and improvise etc. I for one believe we can all walk and chew gum at the same time!And biasing ones thinking against the past just because it is the past sometimes is extremely debillitating – turning one’s back on the past often causes people to repeat mistakes, or go around and around and around, wasting time and resources and good will etc, re-inventing the wheel.I suppose every generation convinces itself that “things have changed so much the past is irrelevant”, as you seem to say Umair feels, and also your dinner party companions. But isn’t it getting a little familiar and tiresome by now? The 1960s revolution was a total rejection of the past… until it wasn’t. The New Economy of the 1990s was totally different and unique… until it wasn’t. Now this economic crisis and brilliant election demand that we throw out the old ways of thinking and acting… until they don’t?Honestly, I think we have money supply problem, plain and simple, albeit writ humungous. Human history is literally stuffed to the gills with examples of monetary crises. I believe there is no permanent fix; we can only hope to avoid the extreme highs and extreme lows over time…PS: Also, how does Tim O’Reilly’s rules help guide the Obama administration in managing the USA (and perhaps, by proxy, the global) economy? I’m not being facetious; I am really befuddled by your use of that as some kind of example for how to think about the larger economy…I’m not arguing for looking backwards rather than forwards. I’m just concerned that more and more in the contemporary age we all end up a bit busy and distracted flattering ourselves — hey! the world is entirely new and the old ways are entirely dead and only we the new generation of new thinkers can save us! — to the point where we end up wsting huge opportunities for collective thinking and action and change. Case in point, the huge promise of the 1960s generation that (IMHO anyway) squandered so much opportunity by endless arguing over new versus old, young versus old, future versus past, etc…
I don’t think we have a money supply problem. We have a “lendable credits” problem that is driving a deleveraging situation. There are natural boundaries to how much debt an entity can take and it’s clear we blew by many of those signposts awhile back on the way to Vegas. You can put as much money as you want into the banks, but if on the other hand we’re asking them to reinstitute sane lending practices, then the money supply will still contract and the banks have nothing left to fund except their performance bonuses.
Remember that photo of candidate Obama reading the same book by Fareed Zakaria ?Remember the 200K people crowd in Berlin ?Remember Obama in Israel, Paris and London ?Obama gets it.Those around him may not totally get it though.How can Obama execute on this big world vision ? How can he do it if there’s so much to fix and rebuild at home ?You know there’s different management styles, and Obama is of the rare kind, a mix of humanistic idealism and hardcore pragmatism. He inspires and lets his players play, but he also steers the ship straight.Even if the sailors around him don’t totally get it, the sum of these attributes makes me think he’s getting some things right. That’s what DNA is about.He will be wrong at a lot of stuff, but the system he’s building is self-correcting and really not the traditional kind.
Tim O’Reilly’s rules are new?No organizations that has created less value than it captured has ever survived – except governments. We are seeing the direct results of that rule.”President-elect Obama has an opportunity to drop a mind bomb on us all and change the rules within which we think we are operating, but are outdated and dangerous. I hope he does it.”This is looking 180 degrees in the wrong direction – each of us has to look at ourselves and where we spend our time. Government telling us where to look has never worked – and never will. Government has as its role creating the enabling space for us…. not being our parents.
You’re confusing two different concepts.One thing is to be paternal and taking everyone by their hand, spying them to see they’re doing their homework. (that’s more like Bush)Another different thing is to show leadership, to confront us with better options and show us the higher road. (hopefully Obama will do this, if one is to judge by his campaign)Not all leaders are fathers, and not all fathers are leaders.
This, along with “Bits of Disruption”, does a tremendous job of highlighting why our current situation doesn’t lend itself to traditional economic/sociological analysis. I expect 2009 in many ways to be gut-wrenchingly painful, yet at the same time I truly believe that it may end up being one of the most transformational years in modern history – for the positive. These pieces help to frame the situation in a way that traditional media can’t yet comprehend.Thanks Fred, keep ’em coming.
a couple things can be said about contemporary economists:1. most of them are non-austrian economists2. because of #1, they didn’t see the economic rationale for the crisis coming (and because they are not conspiracy factualists they did not see the political rationale)3. as such, they don’t understand it was created by federal reserve policyoccasionally non-austrian economists like krugman and roubini do get things right but the solutions they propose will invariably be wrong, as they are naive enough to think the federal reserve loves them and wants to kiss them on the forehead and sing lullabies to them and tuck them into sleep at night and tap them on their bottom when they misbehave. if only that were the case.obama is going to take what would have been a steep recession and turn it into something that stands to be worse than the great depression. the trillion dollar deficits are remarkably foolish and will destroy the value of the dollar while weakening the ability of the free markets to solve the problem. what happens this year in the treasury market is key and we should begin to see appetite for treasuries dry up at which point the money printing begins, as it was destined to since the bailout frenzy began. then the run on the dollar begins.hope all are equipped with gold and silver. it’s going to be quite a ride!
How does real estate fare in an economy when the dollar is falling and wehave hyperinflation because we are printing money?I¹m not saying I agree with your conclusion, but I¹d like to know if thereare other options other than gold and silver (or the yuan I suppose) to playyour thesis
1. gold 2. silver3. swiss franc govt bonds4. commodities, oil and agriculture5. eastern currencies, AUD and JPY are my personal favorites and what I am in and out of the most these daysbasically in the dollar doom scenario US financial assets (stocks, bonds, derivatives, fiat currencies) will do the worst, commodities and metals will do the best. everything else will adjust to their “real” value. as real estate is a fairly big bubble in general i think that is still trouble.also in terms of new economic models you may be interested in eric janszen’s ka-poom theory: http://www.itulip.com/kapoo… i am generally a huge fan of any serious idea given a kooky name although this one is particularly delightful as it has accurately forecasted the dot com bubble, the housing bubble, teh rise in gold, the stock market crash….basically everything since it was discovered in 1998. based on ka-poom theory janszen is calling new energy/infrastructure as the next US boom. janszen is a former venture capitalist, maybe you’ve heard of him or know him though i’ve never seen him linked to from the internet VC community. he’s a very smart guy IMO.
The blogs everyone here should be reading are http://globaleconomicanalys… and http://www.georgereisman.co…. Your gut is telling you Krugman is wrong. A little reading on Austrian economic theory will explain to your mind what your gut already has figured out.
i second your endorsements here of those blogs. i’d also add stefanmikarlsson.blogspot.com and europac.net.
Yeah, unfortunately you’re right on, and it’s important. Macro-economic policy is built around industrial economies, not knowledge economies. And it wasn’t exact science to begin with.One area that seems ripe for massive investment is ubiquitous wired and wireless broadband, and electronic learning. hope that doesn’t get overlooked.There’s an argument that one cause of the Great Depression was too much change too fast – adoption of electric motors, assembly lines led to massive overcapacity, the pre-assembly line economy was disrupted faster than a new consumer economy could take its place. 21st century globalization and digital technology might also be more change than the economy could quickly absorb without the kind of huge imbalances we’ve seen.None of this will matter if institutions like government and Wall Street remain, well, kleptocracies. If the elites are just looking out for themselves then policies like the bailouts will just be more feeding at the trough.Also none of this will matter without international cooperation. The deficits for fiscal stimulus have to get financed by foreigners (the alternative being, of course, much higher interest rates), and I’m not sure why they should be confident of earning a good return, given current interest rates and policies. Maybe policy coordination will save the day during a period while imbalances are worked out.But I’m not hopeful.
This is a great comment with some real classic linesI reblogged the whole thing at fredwilson.vc
The two examples you’ve given – both Starbucks and Microsoft – were held up as exemplars of great companies not too long ago. It makes me think its just the natural growth cycle of businesses – growth, stagnation, decay, failure. Some companies may have cycles of different length, some may never have the growth to get them to the next step, and probably no company is exactly the same. 10 years from now (or less) we’ll be could be denigrating Google in the exact same way. It’s the rare company (IBM and Apple come to mind) who can reignite the cycle and grow again.
Amen, Owen. “The rules” worked very well for Microsoft and Starbucks. But they won’t grow forever. Maybe the assumption of permanent growth is the problem with “our models.”
Has no one read The Black Swan?
I¹ve read it. I understand why everyone loves it so much, but I was notimpacted by it as much as a bunch of other books this year.
I’m not sure Black Swan applies for the current crisis at all.It should have been blindingly obvious for anyone with a bit of common sense that lending vast amounts of money to people who had no ability to repay it, secured against assets with prices that where overinflated was not sustainable and was only ever going to end in tears. The only thing in question should have been the scale of it..The current crisis, with common sense and hindsight was as predictable as gravity, it was hardly a Black Swan event of the same type as 9/11 was.
I agree there is no black swan here. This was very predictable, and if you had been reading Austrian-flavored sites like iTulip, Mish, Prudent Bear, Daily Reckoning (just to give a few illustrative examples among many, many others), they saw this coming. They all predicted nothing less than disaster coming as early as 2004, when it was clear Greenspan had chosen to (yes it was a conscious choice) inflate housing to get the economy out of the dotcom bust. All of these commentators predicted (based on Austrian theory) that this would lead to the mother of all credit bubbles, and end in disaster. Krugman, in the fall of 2004, cheerleading the low interest rate policies of the Fed.Here is an example of prescience in investment: Bill Bonner of Daily Reckoning has been advocating his “trade of the decade” since 2000: Sell the Dow, buy gold. At that time, Dow was ~12,000 and gold was ~$250 an ounce. His recommendation was based on a healthy common sense, and a firm grounding in Austrian economics.
Fred writes… “Technology has fundamentally changed the economic model of most, if not all, industries and we are witnessing the destruction that goes along with that disruption. That’s one big vector of change, but it’s not the only one. Globalization is another huge impact.”I’d argue that globalization — especially as it currently exists — is but one sector’s leveraging of technology. As such, it’s a subset of the same vector.”Globalization” is a catch-all phrase for “how economies are tied together.” You could also add “…and manipulated by those with leverage to their advantage.” It’ll keep changing, even if the name stays the same.
True, the globalization I am thinking about has technology at its core
This is a thought-provoking post and the comment thread is interesting, insightful and informed.What we are facing today requires a hybrid solution: stuff that is broken needs to be fixed and stuff that needs building needs to be built. I do believe we can – and should – learn lessons from the past, but can’t be constrained as to our thinking about today’s and tomorrows problems. New insights are needed to build upon the base of intellectual capital and experience that has already been created.The financial services sector is severely broken and needs to be fixed. This has to be a high priority given the importance of the banking and insurance sectors in the functioning of our economy and all developed economies. What has been devoted thus far via TARP has largely been misdirected, and the short-term amounts required to properly deal with problem have not yet been spent. More is needed. As to the “what” and “how,” I written about this extensively at Information Arbitrage and won’t rehash it here.Our technology infrastructure requires additional investment. Our communications networks need upgrading and standardization. Businesses should be incentivized to invest in enabling technologies. Greg Mankiw’s article in today’s NYT questions the magnitude of Government spending, and raises the issue of the “multiplier effect” of dollars spent. I think this is the right question to be asking – which dollars generate the most leverage? It is a pure investment question; where would a prudent investor rather devote resources? Answer: the projects that have the greatest impact on society – helping economically disadvantaged people become more productive, helping businesses grow more rapidly and with less friction, providing the right kind of education for the greatest numbers in preparation for tomorrow’s world, etc.So how should this money be spent? Business and personal tax cuts. Direct Government investment in technology infrastructure. Creation of a framework for restructuring our educational system, including providing alternatives to four-year colleges for which so many are either not suited or who have alternative ways of learning. Investment in select high-value infrastructure projects directly linked to commerce and business expansion.I question how much of this thinking is actually “new.” The power, however, isn’t in the thinking: it’s in the execution. Many presidents have talked about educational reform, tax reform, technology investment, etc., but few have walked the talk. I am hopeful that President-elect Obama will be just the man for the job.
Roger thanks for stopping by. Great comment. You should have left a linkto your blog.Roger is a great source of inspiration for me and many others and he blogsat http://www.informationarbit…
errr. It’s been a couple of years since Econ 101, but why are most of you applying microeconomic analysis to a macroeconomic problem?Obama’s stimulus package, if properly implemented, will increase Aggregate Demand, thereby supporting wages, and prices.And yes, I got a C in Econ 101.
We all can tell why you got a C.http://www.marginalrevoluti…
Fred, I have been very critical of Krugmanite orthodoxy for a while now. His throw-caution-to-the-winds-and-just-spend “solution” makes no sense at all – if easy credit was what got us into this mess, how is easy credit going to fix it?Krugman has gone further, and in recent weeks has advocated: a) international “cooperation” so there are no responsible governments left – particularly, Germany should not be allowed to free-ride on other people’s excess spending, while staying prudent itself b) 50 states are forced to balance their budgets, so move their most critical responsibilities (education in particular) to the Federal budget. Very soon, if Krugman has his way, every significant area of government activity will be supported by the Federal budget and the printing press.Mises and Hayek had foreseen this, and the Krugmanite path leads straight to socialist dictatorship. History is crystal clear.I predict that Krugman’s 2008 Nobel will come to be seen in hindsight as signaling the intellectual bankruptcy of much of mainstream, academic economists. There is not another economist alive who is so clearly wrong-headed, and yet who is so widely thought to be a genius.
WARNING: this comment contains high doses of Truth. may shock those who live in a world of lies.
You know, there ought to be a version of Godwin’s Law for Mises and Hayek. Krugman’s ideas lead to socialist dictatorship about as often as Mises and Hayek’s ideas lead to anarchy. People aren’t going to choose dictatorship or the law of the jungle if they’ve tasted civilization barring some unforeseen cataclysm. Let’s try to stay on point.I agree with Fred that Zakaria’s book was hugely influential, and the synchronicity between his analysis and Obama’s worldview had me hoping for great things. Some of the transition has definitely shaken my confidence, and I wish I were privy to the power struggles being waged behind the scenes as Obama prepares to battle on numerous fronts.I don’t think it’s a matter of models that’s the issue here, however. I think it’s a matter of scale. Fred aptly quotes O’Reilly’s rules, and that reaffirms my thoughts that Obama will focus a significant portion of his attention to innovation and small businesses that can disrupt and scale, rather than supporting “broken models”. This actually bodes well for larger businesses if they have the foresight to support new initiatives within their large infrastructure, without smothering them with sclerotic institutional requirements. Cisco leaps to mind.
It really seems that the internet is forcing companies, new and old, to “scale to me.” I’m no longer a statistic buried within a demographic category. My individual social actions are amplified by Facebook, Yelp, and Twitter. Maybe that’s part of the challenge start ups and economists face today. Spreadsheets and models can’t seem to track how my behavior influences all of the people I connect with using these services. And I think that’s at the heart of today’s crisis – businesses and economists have underestimated how powerful you and I have become through technology.
Jeff Jarvis covers this ³scale to me² issue well in his book, What WouldGoogle Do?http://bit.ly/OnMk
Hi Fred,Reading your blog post today reminded me of an article I read in International Socialism (of all places!!!) recently: http://www.isj.org.uk/?id=340 It is a bit long but I think you may find it intersting. I think it is interesting that a socialist (Marxist, really : ) framework feels more intuitive and helps me understand what is going on better than traditional economics.Abrazo,Wences
Yeah, that¹s what Rob Kalin told me yesterday as wellHe said we must think about the means of production like Marx didI¹ll check out the article Wences.Happy to see you at AVC!
I hate to break it to some on the chat, but the President’s role is not to ‘change the DNA’ of America. It is up to Americans to change the DNA if they choose to do so. The President’s role is of Commander in Chief, defend the nation, create budgets, sign or veto bills from Congress, interact with foreign leaders, and in general lead the executive branch. The President can speak to the American people but not force them to do something different.A President can set fiscal and monetary policy, but it is the people of America that work within the economic environment to create, build, change, etc. To me it is frightening that so many think a politician elected to the Presidency is some kind of ruling ‘czar-like’ being that dictates how Americans will function. He serves us, not the other way around.
If the President’s job isn’t at the most fundamental level to influence the direction, tone and ethics of a nation, I’m not sure you could really ever call him a leader. Would you honestly say that the role of General is to decide only where battles are fought but not how and why? That’s ridiculous.
The President is not the General of the country.For example, a General can order soldiers to things. A president doesn’t get to order most folks.
That¹s true, but all great leaders inspire people to change how they thinkand act
Echoes of “Things are different this time.” Technology doesn’t drive economies, people do. And people, sadly, haven’t really changed much, particularly not in the last 10 years or so. I would argue that the old models work just fine–your two examples, citing Mr. Haque, are perfect example of how well the old model does work: Starbucks drifted away from its core business and Microsoft quit listening to its customers years ago. The result, loss of market share. Pretty clear examples of failures to heed the rules of the old models.
As far as infrastructure goes, I think it’s a great idea, but it needs to be focused on broadband, in the same vein as the Electrification Act of 1936 was. Rural America is badly lagging behind on internet speeds, and it could wind up holding the entire country back.
Very interesting post, Fred. My two cents … no offense to Umair but he doesn’t speak like an economist, because he isn’t one, and I’m not sure he really even understands the question he posed. With his rationale, you can insert pretty much any title/profession/name into where he says, “Do [Economists] Matter?” See my response to his post that you linked above, which I left a few weeks ago when he first published it. Apparently it wasn’t very appreciated. Paul Kedrosky had a discussion similar to the “do economists matter?” one last week where he was commenting on some specific models and there again were people commenting that really didn’t understand any rationale behind the discussion. I think this whole discussion has gotten so heated b/c two things have dramatically changed the current dynamics of everyday economics: the financial crisis and Barack Obama. Both have caused many economists to completely forget their previous research and positions on various economic principles and theories, and for a variety of reasons, some good, others not so good. Dr. Gary Becker had a great post on this recently at the Becker-Posner Blog about how this crisis/recession has brought out many Keynesian converts, more so than any recession in our lifetime. See the piece I wrote up on the matter tonight: “Keynes appointed as Chief Economic Advisor.” http://adjix.com/2aqz
Good stuff. Becker Posner is one of the best blogs out there.
Isn’t MORAL HAZARD an important part of any model, and haven’t we basically admitted that we don’t care at all about moral hazard anymore? So to the extent that we aren’t actually applying any models anyway, I would be reluctant to throw dirt on the works of Keynes or Friedman. And I think we can safely say at this point that we all share in the responsibility for throwing caution to the wind when it comes to ensuring that companies/individuals do not experience the full repercussions for their poor actions (unless you’re Lehman Brothers). Bush/McCain/Obama were equally on board for the recent bailouts. This stretches across party lines.Bigger problem than the potential that the models are outdated/don’t work – nobody in charge knows what they’re doing. How could they? They haven’t experienced this kind of economic event before… nobody has. How many things could you or I just step in and do that we have never done before? I could do very few.It’s a huge problem when you have people who don’t know what the F they are doing, enacting sweeping policy changes (see Hank Paulson).
I think the big thing with Keynesian style big money projects (roads, transport, et al) is that they worked in the 30s when building roads took thousands upon thousands of people to achieve the goal. These days building infrastructure consists of pulling out some big machines, pouring in concrete and steel, and voila, one road system. Number of actual people involved? Not that many, relatively speaking. And the flipside? Monetary controls have been overused to the point where no one believes the official numbers on inflation anymore.What is the answer? I don’t know, but I bet it has something to do with putting in fiber to the curb, stepping back and letting innovation happen.
So in essence, you are claiming this is a once-a-century change in fundamental economics ?My favorite instance of this was when (in the 1600s) the prevailing world economic view was thatthe market (western europe) was a fixed size (so growth wasn’t an option) it was all about how biga slice of a fixed pie you could grab. This worked for a short while until new markets (Americas)opened up and improved agriculture allowed the populations to expand creating an ever expandingmarket for physical goods.We may be in the middle of the same sort of change now, where the market for physical goodsis shrinking but virtual goods is still expanding – it is hard to tell.Tim.
I don¹t know either Tim, but I sense there¹s some new dynamics afoot andwe¹d better pay attention to them
change is not enough …the change we are hoping for is just the change in position on the deck-chair in order to continue in comfort …we need kick-butt transformation in all arenas … and the “sacrifice” word is an essential tool in bringing in a higher order of functioning out of a lower order of functioning …strange how little mention of pain or sacrifice there is .. it doesn’t play well
Krugman is indeed a very smart guy – especially when it comes to trade economics, which is what he won his Nobel prize for.However when it comes to his Keynesian leanings, he is off base – Keynesianism has been thoroughly discredited and the only reason it is still popular in policy setting is because it has the allure to policymakers that “the right policy” can solve any economic problem (which it cannot).We should all remember the last time Keynesianism got to roam freely in policy setting – that would have been the 70ies, with a predictable result of stagflation (stagnation and high inflation).That being said, Friedman is not entirely accurate either. I am surprised more people do not look to Austrian economics as put forth by von Mises and Hayek. Followers of that school of thought predicted both the current crisis and the dotcom bust long before anyone else even had a whiff. If results are anything to go by, the “Austrian” guys are way ahead of anyone.
spot on. austrian economics is the only real economics, even calling it austrian economics is a misnomer, it should just be called economics. i.e. no one calls biology “venezuelan biology”keynes is just a punk ass chump whose ideas help sell socialism to otherwise rational people, and helps create the illusion that economics is such a complex science that mere mortals cannot understand it.
It’s easy to forget when you’re at the fast front end of a movement that the rest of the world isn’t going so fast. ‘yesterday’ and the complementary ‘tomorrow’ aren’t very useful in this respect: although the world has changed it’s unlikely the entire rulebook should go out of the window overnight. Let’s not forget that economics is a science about human behaviour first and foremost, and as Hugh Macleod said: “Technology changes, humans don’t”. So while Keynesian (Friedman-ian?) economics in the most rigid sense might not be fully applicable as a solution to this current crisis, the ideas that it is based on surely are. So we may need to change the tactics, but depending on whose side you’re on, the basic idea is not going to change all that much. And certainly not in the span of mere months that this crisis has been going on.
True, you can¹t do a wholesale switch, but I do think you need to try somenew things
I am going to change the nane of this blog/community to richdilettantes.com to be honest about what goes on here.But could you please use your real name when you post here. Its bullshit that you don’t. You are an example of what’s wrong with blog comments. Stand behind your ideas and I’ll take them more seriouslyAnd you are certainly right about what happened to both microsoft and starbucks but I don’t see amazon falling into that trap, for exampleAnd untested ideas are the only way we can move forward. What if I said ‘I’ll only invest in stuff that’s been proven to work?’
Starbucks and Microsoft are two of the most successful companies in the world. Obviously they’ll both have trouble in depression 2.0, but come on. Microsoft in particular’s problem is that it’s so huge there are no more real vectors for growth. It’s reached it’s “end state” No company can keep growing forever. It may be that Starbucks could grow more, but how many coffee drinkers are there?New thinking means untested thinking. The last thing this country needs is a bunch of rich dilettantes with heads full of delusions of greatness. As I recall, it was that kind of thinking that got us into trouble in the first place (house prices will always go up! dot-com! etc!)
What I’m missing in Krugman’s and other pieces is the explanation of why credit from banks isn’t coming, even after receiving stimuli for some months? Is it because banks, having lost their cash-cow of mortgages and derivatives, don’t see their prospects of making, and hence lending money as very probable? If that is the case, shouldn’t that problem be addressed first?
It’s funny how everyone keeps p*ssing on “solutions” and then failing to propose anything better.What’s even funnier is that all these “solutions” don’t address — or even indicate that they are aware of — the larger order problems (further up the nested tree of problems). It mostly boils down to greed. Throw in some corruption (another form of greed) and short-term, perverse incentive systems, and you get this.How do you fix that? By example, I guess. Then again, maybe I’m being overly optimistic. Maybe the pipeline from Yarvton and the other old-by clubs will maintain its dominance, which wouldn’t be bad if it weren’t for the fact that the pipeline has proven itself tainted. Maybe that last bit is not relevant, maybe I’m exaggerating for effect, but you get the point: the “solutions” on the table don’t address the root problems.-ChrisPS: Don’t even get me started on how these bailouts are mostly effectively socialism for the rich (i.e. a transfer of assets from taxpayers to the people and their investors who created, and profited from, this mess, which you could see coming years away. I even created a memorial website for it, and it’s poster boys: http://AlansBubble.com.
Kid you have taken over Jackson¹s role on this blog. I miss Jackson as herarely posts comments here anymore, but he¹d be proud to have been replacedby you
yes i noticed the disappearance of jackson, which is a shame, with the exception of his anti-digital music propaganda that he would try to brainwash us with he seemed like a good fellow. i am honored to try to fill his void. that’s even a bigger promotion than being community bouncer!
>helping change the DNA of america and the world would help a lot more.I think it would help, even if it doesn’t produce any solutions it would allow America (and the rest of the West) to maintain thought-leadership and influence in shaping the world’s cultural and technological future. Thus maintaining asymetric distribution of information (the key economic assets of the 21st century) and creating new markets to fuel the next boom. We need to keep doing this until we a) figure out how to survive on this planet and b) get off it or c) create some form of life that can do those things.(Not that it really matters whether it’s the West or someone else. I used to think western cultural thought was further advanced along this line and therefore likely to achieve things sooner, but the fact that it hasn’t really done so during my entire life, makes me wonder if I should back a different horse…)
Too many MBA’s than Tech’s and Scientists…There is a dialogue in one of the movies i saw”to build a bridge you need money…but, for moneyyou should not be building bridges”.The world can only consume what it needs. Only because weadvertice more one cannot eat 100-burgers for a meal….This immediately everyone will agree and would say whyare you saying what we knew centuries back…..however one can buy a house for 50-million…is thatfor living? Hell NO. These are the people who build bridges into the sea (not connecting islands…butgoing into the sea….and still want to sell it…how? the simple answer isbail-out).There were lot of industries which were building bridgesfor money….the top 2-according to my thinking (limited though).1) The automobile industry….2) I am putting this at 2….but it is the 1..the Real-estate (realty) industry…it was never real.(these 2 are pointing fingers to banking).My opinion is ….these 2-industries which were building bridges formoney should take the brunt of it….and ofcourse it takes many othersalong with them. Bail out is just a stupid thing to do. It is allabout selling those bridges for ….. common man’s blood and sweat.Let us all sink….the real needs of humanity will swim and so are thebusiness’s which serves them….this may be too scary for the peoplewho have built bridges into the sea…..
What if models don’t work – period? In the past few years, we’ve seen increasing evidence that:1. Statistics predict better than rules engines (e.g. Google vs. old-style “linguistic” search engines)2. We can’t escape our biases, and our models and experiments reflect it3. Even “validated” models have base assumptions, and we never know what they are (e.g. counterparty credit models that presume the global housing market never fails catastrophically)4. See also behavioral economics, cognitive neurology, decision-making theory, etc.In software, we’ve largely moved from a “prove correctness” mindset to an “acceptance test” mindset, because the latter is more pragmatic AND more useful. Maybe economics needs to do that? Forget the models. Figure out how we measure “bad”, figure out what knobs we can turn, watch the numbers, and tweak the knobs.
Is the feedback quick enough for that to work in economics?
Not yetGot a good one to give to?
Mine are: – Wounded Warrior<https: http://www.woundedwarriorproject.org=“” content=”” blogcategory=”” 101=”” 873=””/>(Fischer House <http: http://www.fisherhouse.org=“” aboutus=”” aboutus.shtml=””> is also great) – My local Free Clinic – Local Hospice – Family Services Agency <http: fsa.convio.net=”” site=”” pageserver?pagename=”Neighbors”> – Hospital for Sick Children <http: http://www.hscpediatriccenter.org=“”/>I’m in the DC area, so they are all DC or Northern Virginia based. Butobviously there’s a free clinic by you. These are organizations that Ibelieve in, so I’m putting my money where my mouth is. Supporting injuredtroops who put their lives on the line for my liberties; helping those lessfortunate than me who need medical services, and keeping them out ofemergency rooms which drives up insurance premiums and the cost ofhealthcare; as well as children and those who are dying.You could send back another “No” to Obama and tell them the money went towhatever worthwhile organizations you choose.And being in DC mysef, I share your sentiment that the amount of money spenton the galas is absolutely over the top. We do this every four years, andevery administration comes in this way unfortunately.
ThanksI think I am going to do something like thisI need to talk to my wife about it
Mine are: – Wounded Warrior<https: http://www.woundedwarriorproject.org=“” content=”” blogcategory=”” 101=”” 873=””/>(Fischer House <http: http://www.fisherhouse.org=“” aboutus=”” aboutus.shtml=””> is also great) – My local Free Clinic – Local Hospice – Family Services Agency <http: fsa.convio.net=”” site=”” pageserver?pagename=”Neighbors”> – Hospital for Sick Children <http: http://www.hscpediatriccenter.org=“”/>I’m in the DC area, so they are all DC or Northern Virginia based. Butobviously there’s a free clinic by you. These are organizations that Ibelieve in, so I’m putting my money where my mouth is. Supporting injuredtroops who put their lives on the line for my liberties; helping those lessfortunate than me who need medical services, and keeping them out ofemergency rooms which drives up insurance premiums and the cost ofhealthcare; as well as children and those who are dying.You could send back another “No” to Obama and tell them the money went towhatever worthwhile organizations you choose.And being in DC mysef, I share your sentiment that the amount of money spenton the galas is absolutely over the top. We do this every four years, andevery administration comes in this way unfortunately.
I love the term “infrastructure investment”. So much nicer than “government spending”.
I agree with your questioning of the currently accepted models used to formulate economic policy. A book I enjoyed reading that identifies current problems and holds up various solutions is “The Origin of Wealth, by Eric D. Beinhocker. In particular his focus on how taking an evolutionary approach leads to a better likelihood of success is really interesting.As far as Obama and his idea for sending tons of money into the economy to create new jobs, if his $750 billion dollar plan works to create 3.1 million jobs, what is that? Like $200k spent per job created? At that rate we could just pay Asura (http://ausra.com/technology/) to cover 93 square miles with their technology and have enough solar power to run the US. And we could spend the leftovers on running major power lines to support high power transmissions from the area’s of sunlight to the colder, darker areas.But to get back at the topic at hand, unemployment and low wages are symptoms of a larger underlying problem and we need to fix the underlying problem, not just fix the symptoms.
Long comment stream on this one.I share the concern that Obama is getting sucked into Washington politics. Then again, if he’s as sharp as we all would like to believe, he’ll spend a year making friends before he sets out to accomplish the goals of his campaign. I imagine that doing so will make him far more effective. I’m reading Dreams from my Father right now and am thoroughly impressed with the quality of his writing and discourse, particularly for someone in law school.
After looking at the past “solutions” of the federal government like Social Security, Welfare, Public Education, Fannie/Freddie, etc……When you are the leader of an organization as inept as the federal government, it is often the best “solution” to get your group the hell out of the way.
A Hoover shout out!
I don’t think the problem with modeling isn’t old model or new model the problem is wrong assumptions in all models. The techniques used to model risk in financial products and economic impact are based on bad assumptions.The best analogy is the 100 year storm that happens every 5 years. Based on models extreme events are extremely rare how ever they happen with frightening regularity. Until the models accurately account for the risk I will continue to say “You can’t spell economist with out con.”
Fred,I’ve been following Umair for a little while now and I like your question of whether he’s an economist or a revolutionary. I think he is so far ahead of the curve that’s a bit of both, but strategist at the core. I liken his “DNA” concept to “managing the edges”. The old model of strategy is so well-worn that following it leads to a lack of strategic differentiation. Umair’s approach to turning old ideas on their head is extremely valuable at identifying which strategic assumptions may be outdated. Still, it’s a bit difficult to choke down sometimes because it just doesn’t “sound” like all of the other discussions. But maybe that’s why his ideas will work.I would also caveat that much of what he writes about includes a couple of trends as fact: the rise of collaborative technology, work methods and models, and the impact that this will have on traditional hierarchical organization. If you don’t presuppose most of that, then it’s hard to get to the same conclusions. Which is why it will look like heresy in traditional conference rooms for some time to come.
He comes around every now and then but I think we’ve gone in a direction with this blog that doesn’t interest him so much
i bet it was the redesign and domain name change that did it. going pop was bound to lose some of your hardcore fans. like when dylan went electric. what can you do, can’t please everyone.
Yes, the Mankiw piece was good
Fred,It’s a first time I’m posting on this blog. Great material here.I somewhat follow the latest intellectual thinking about the stimulus. The latest research has actually brought questions to Keynesian thinking, specifically on spending vs tax cuts. Greg Mankiw has done a nice job putting this to light: http://gregmankiw.blogspot…. – this brings up a host of questions to conventional thinking.
Fred,you are right about Obama getting sucked into conventional thinking. Everything about his transition screams: “Enough with the screw-ups, responsible adults are in charge now.” Where’s the “audacity”?We have a big problem if we think that 2000-2008 problem of a “incompetent, lazy, dishonest, stupid Administration with grand delusional visions” is with the “vision” part. It’s not! The problem is with “incompetent, lazy, dishonest, stupid and delusional”. We still need visions.Another problem, reflected in the comments here, is how do we implement Krugman’s recipe of a $1T govt. “borrow and spend” when borrowing was the root cause of the economic crisis? Krugman may very well be right, but it is a tough sell for the people to accept.So, you are generally right, you need something bold and visionary.Here’s an idea: Transform the car industry into the fabless semiconductor model. First, nationalize Ford, GM and Chrysler, and then divest of all the marketing and R&D functions. Make them into the equivalent of a semi foundry. I believe government can run a factory, it is with creativity they struggle. If you have enterpreneual start-up companies design and market vehicles that are built in state-owned factories, I believe that in a very short time America will be producing the best cars in the world.That’s just an example of unconventional thinking, I am sure there may be more ideas like this…
I don¹t like the idea of the government running anything to be honest
I know this sorta missing your point, but I think Krugman would argue that what’s going on today isn’t necessarily a “21st century” crisis or, if it is, it’s a crisis precisely because we’ve cast aside rules that were developed over the course of the 20th century.What’s “21st century” about a housing bubble? (In fact, in Krugman’s latest talks he says the Internet bubble was more justified than the housing bubble because pricing internet stocks was so new, whereas people have been pricing houses for a long time).On the other hand, institutions that are chartered as banks (“20th century banks”) have limitations on leverage and capital/reserve requirements. Krugman points out that when hedge funds and other institutions act like banks (“21st century banks”) but don’t face those “20th century” restrictions, they can get into big trouble.So maybe the “20th century” models aren’t incorrect; maybe it’s just that “21st century” technology “scales” those models beyond what anyone could have contemplated in the 20th century.
While there’s nothing inherently wrong or illogical with this line of thinking, the problem is that 99% of the time that we talk about how the old models might be wrong and maybe we’re going through something new, the reality is it’s just wishful thinking. In my 15 years of watching technology and economics, the technological advances have still not managed to shake the foundations of any economic models. While maybe *now* is the time that’s about to change, statistically I’d say it’s pretty unlikley.Your examples also conflate economics with MBA-think business-running. Starbucks didn’t follow any perfectly rational economic approach, they followed the MBA-think of the day. Traditional Economics only peripherally touches on things like “brand” and “adjacent markets.” Ditto for standards-owning.
Read the bits of destruction post if you want to understand my thinking on technology disruptionThe starbucks and microsoft examples are from umair, not me, and are about dna, not tech disruption
He may have but he did it very unconventionally
Marx is cool. I accept that.But he was wrong. Well you don’t have to be correct to be cool. Maybe the opposite…
Interesting post Fred. The problem I have with it is that it cuts both ways. To wit, the day before the collapse of Bear Stearns you had the CEO of Goldman joking that his parents were still waiting for the depression to come back. It seems to me that the more we choose to believe that things are truly different the more trouble we seem to get ourselves in.Two examples come to mind, the dot-com bubble, where everyone was declaring a “new” economy and “new” way to do business, ready to drag old revenue-generating companies out behind the woodshed. We know what happened there. The second is the current economic crisis, which really comes down to credit, debt service and liquidity. The master alchemists on Wall Street found they could churn billions in fees out of the market by loading borrowers up on unsustainable debt with new financing models, and packaging those instruments every which way to sunday to sell to investors. It was proclaimed a new model, that the old way of lending had died, and of course, we can see that’s wrong from were we now stand.I do believe that technology and globalization will help mitigate this some, but the world isn’t that free of American influence yet. The manufacturing indexes of the major economies around the world are all moving in lockstep down with American manufacturing. That said I do think they’ll help lessen the effects and hopefully help us avoid people living in cardboard boxes on mainstreet and waiting in soup lines across the country.
I was one of those people declaring a ³new economy² in the late 90snwho hadtheir head handed to them. But the thing is, I never stopped believing itand I still do.
Inflection points (where the rules of the game change) are difficult to see except in hindsight. WE had no idea in 1890 that the rules of the agrarian society no longer applied in an industrial age… but we found out. It is at least plausible that we are at a similar inflection point between the industrial/information ages…The stimulus is – in many ways – designed to support an industrial/manufacturing economy. The assumption being that the old rules apply. I’ve been thinking about this recently as well. Given that I’m re-reading Titan by Ron Chernow perhaps my radar for an inflection is too high… but maybe not.
Just got done listening to the Jan. 13 conversation with Paul Krugman at the 92nd Street Y and immediately thought of this blog post. The talk is long (about 1.5), but if you scroll to about the 1:22 mark the interviewer David Brancaccio asks Krugman about thinking creatively/innovatively about use of bailout funds. I thought you’d be interested in his response.http://blog.92y.org/index.p…