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Could John Maynard Keynes be right about 2030?
Not the Depression-era Keynes who wrote the playbook that policy mavens still consult for ideas on combating high unemployment and sluggish economic growth. I’m referring to the Keynes who boldly forecast that the “economic problem” of insufficient wealth to meet everyone’s everyday needs would be solved in a hundred years. The prediction that economic abundance would replace economic scarcity was made in a 1930 article, “The Economic Possibilities for Our Grandchildren.”
The essay opens on the gloomy impact of the Great Depression: “We are suffering just now from a bad attack of economic pessimism.” People understandably believe, he said, “that a decline in prosperity is more likely than an improvement in the decade which lies ahead.”
Keynes didn’t buy into the conventional misery. “We are suffering, not from the rheumatics of old age, but from the growing-pains of over-rapid changes, from the painfulness of readjustment between one economic period and another,” he wrote. In the new economic era, he believed, the combination of rising productivity in manufacturing, agriculture, and other sectors of the economy, striking improvements in transportation networks, more capital invested in new equipment and technologies, and low population growth could boost per capita income by a factor of four to eight over the next 100 years among the developed nations. It turned out to be an “eerily accurate average growth rate,” according to Lee Ohanian, economist at UCLA.
Once again we’re living through a time of deep pessimism. Many forecasts call for at least an additional decade of high unemployment and economic stagnation. After all, 49.1 million Americans live in poverty and 25.4 million workers are unemployed, involuntarily working part-time, or marginally attached to the workforce. Twenty-nine months after the recession officially ended, the economy is barely sputtering ahead at a 2 percent annual rate.
The economic outlook has taken a dire turn on fears that the Mediterranean debt crisis presages a U.S. sovereign debt implosion, a concern that only deepened following the failure on Nov. 21 of the congressional supercommittee to strike a budget-reducing deal. “Athens, Rome, Washington … the shortest route from imperial capital to tourist destination is precisely this death spiral of debt,” warned Harvard University historian Niall Ferguson in a recent article, “Europe’s Disaster Is Headed Our Way.”
But what if we’re merely living through another painful adjustment from one economic period to another?
In recent writings, such scholars as Eric Brynjolfsson, Andrew McAfee, W. Brian Arthur, and Richard Florida, as well as consultants at McKinsey & Co., have made a strong case that we’re living through a transition toward an economy dominated by a digital ecosystem. “Technological progress—in particular, improvements in computer hardware, software, and networks—has been so rapid and so surprising that many present-day organizations, institutions, policies, and mindsets are not keeping up,” write Brynjolfsson and McAfee, scholars at the MIT Sloan School of Management and authors of the e-book, Race Against the Machine. Adds Arthur, a visiting researcher with the Intelligent Systems Lab at the Palo Alto Research Center in a McKinsey & Co. essay: “Is this the biggest change since the Industrial Revolution? Well, without sticking my neck out too far, I believe so.”
It takes time for major technological innovations to spread throughout an economy. A huge, nearly invisible digital economy has been built since the personal computer entered the workplace about three decades ago, followed by the commercial dawn of the Internet in 1995 via Netscape’s initial public offering. Arthur calculates that the digital “second economy” will rival the physical economy in size by 2025. Brynjolfsson and McAfee illustrate the rapid evolution of the digital economy with examples such as the driverless, software-controlled car being developed by Google and the Watson supercomputer IBM designed to play Jeopardy. Instead of electric power—a major innovation that drove productivity in the mass production economy of Smokestack America in an earlier era—think Big Data. In 15 of the U.S. economy’s 17 sectors, companies with more than 1,000 employees store over 235 terabytes of data, on average. That’s more data than the Library of Congress contains, according to McKinsey. Mining the data offers vast opportunities for improving efficiency and quality in most businesses.
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