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Richard
02-17-2011, 07:03
An insightful thesis to ponder as we seek a path to move beyond the current economic plateau we've scaled.

Richard :munchin

The Experience Economy
David Brooks, NYT, 14 Feb 2011

Tyler Cowen’s e-book, “The Great Stagnation,” has become the most debated nonfiction book so far this year. Cowen’s core point is that up until sometime around 1974, the American economy was able to experience awesome growth by harvesting low-hanging fruit. There was cheap land to be exploited. There was the tremendous increase in education levels during the postwar world. There were technological revolutions occasioned by the spread of electricity, plastics and the car.

But that low-hanging fruit is exhausted, Cowen continues, and since 1974, the United States has experienced slower growth, slower increases in median income, slower job creation, slower productivity gains, slower life-expectancy improvements and slower rates of technological change.

Cowen’s data on these slowdowns are compelling and have withstood the scrutiny of the online reviewers. He argues that our society, for the moment, has hit a technological plateau.

But his evidence can also be used to tell a related story. It could be that the nature of technological change isn’t causing the slowdown but a shift in values. It could be that in an industrial economy people develop a materialist mind-set and believe that improving their income is the same thing as improving their quality of life. But in an affluent information-driven world, people embrace the postmaterialist mind-set. They realize they can improve their quality of life without actually producing more wealth.

For example, imagine a man we’ll call Sam, who was born in 1900 and died in 1974. Sam entered a world of iceboxes, horse-drawn buggies and, commonly, outhouses. He died in a world of air-conditioning, Chevy Camaros and Moon landings. His life was defined by dramatic material changes, and Sam worked feverishly hard to build a company that sold brake systems. Sam wasn’t the most refined person, but he understood that if he wanted to create a secure life for his family he had to create wealth.

Sam’s grandson, Jared, was born in 1978. Jared wasn’t really drawn to the brake-systems business, which was withering in America. He works at a company that organizes conferences. He brings together fascinating speakers for lifelong learning. He writes a blog on modern art and takes his family on vacations that are more daring and exciting than any Sam experienced.

Jared lives a much more intellectually diverse life than Sam. He loves Facebook, YouTube, Wikipedia and his iPhone apps. But many of these things are produced outside the conventional monetized economy. Most of the products are produced by people working for free. They cost nothing to consume.

They don’t even create many jobs. As Cowen notes in his book, the automobile industry produced millions of jobs, but Facebook employs about 2,000, Twitter 300 and eBay about 17,000. It takes only 14,000 employees to make and sell iPods, but that device also eliminates jobs for those people who make and distribute CDs, potentially leading to net job losses.

In other words, as Cowen makes clear, many of this era’s technological breakthroughs produce enormous happiness gains, but surprisingly little additional economic activity.

Jared’s other priorities also produce high quality-of-life gains without huge material and productivity improvements. He practically defines himself by what university he went to. Universities now have nicer dorms, gyms and dining facilities. These improvements have not led to huge increases in educational output.

Jared is very health conscious and part of a generation that has spent much more on health care. This may help Jared lead a vibrant life in retirement. But these investments have had surprisingly little effect on productivity or even longevity.

For Sam, income and living standards were synonymous. But for Jared, wealth and living standards have diverged. He is more interested in the latter than the former. This means that Jared has some rich and meaningful experiences, but it has also led to problems. Every few months, new gizmos come out. Jared feels his life is getting better. Because he doesn’t fully grasp the increasingly important distinction between wealth and standard of living, he has the impression that he is also getting richer. As a result, he lives beyond his means. As Cowen notes, many of our recent difficulties stem from the fact that many Americans think they are richer than they are.

Jared is also providing much less opportunity for those down the income scale than his grandfather did. Sam was more hardhearted, yet his feverish materialism created more jobs.

Jared worries about that. He also worries that the Chinese and others have a material drive that he and his cohort lacks. But he’s not changing. For the past few decades, Americans have devoted more of their energies to postmaterial arenas and less and less, for better and worse, to the sheer production of wealth.

During these years, commencement speakers have urged students to seek meaning and not money. Many people, it turns out, were listening.

http://www.nytimes.com/2011/02/15/opinion/15brooks.html?_r=1&src=me&ref=general

silentreader
02-17-2011, 08:16
In other words, as Cowen makes clear, many of this era’s technological breakthroughs produce enormous happiness gains, but surprisingly little additional economic activity.





During these years, commencement speakers have urged students to seek meaning and not money. Many people, it turns out, were listening.[/I]




Very interesting piece, and certainly raises many good points. However, these two sentences seem to be somewhat conflicting to me; have Americans shifted to this post-modern way of living by choice, or is the process an inevitable byproduct of the technological revolution/globalization?

It seems to me that people are still interested in making money, one look at the percentage of Harvard students going to investment banks and consulting firms (pre-recession) will show that, but that there have been fundamental structural changes that change what the best way is to make money now. Simply put, it is not only more emotionally fulfilling, but also smarter economically to organize conferences these days than it is to make car brakes.

I think you'll find this article interesting (http://www.theatlantic.com/magazine/archive/2011/01/the-rise-of-the-new-global-elite/8343/1/), looks at another piece of the puzzle.

Key quote:

The good news—and the bad news—for America is that the nation’s own super-elite is rapidly adjusting to this more global perspective. The U.S.-based CEO of one of the world’s largest hedge funds told me that his firm’s investment committee often discusses the question of who wins and who loses in today’s economy. In a recent internal debate, he said, one of his senior colleagues had argued that the hollowing-out of the American middle class didn’t really matter. “His point was that if the transformation of the world economy lifts four people in China and India out of poverty and into the middle class, and meanwhile means one American drops out of the middle class, that’s not such a bad trade,” the CEO recalled.

I heard a similar sentiment from the Taiwanese-born, 30-something CFO of a U.S. Internet company. A gentle, unpretentious man who went from public school to Harvard, he’s nonetheless not terribly sympathetic to the complaints of the American middle class. “We demand a higher paycheck than the rest of the world,” he told me. “So if you’re going to demand 10 times the paycheck, you need to deliver 10 times the value. It sounds harsh, but maybe people in the middle class need to decide to take a pay cut.”

GratefulCitizen
02-17-2011, 13:29
Demographics, generational preferences, and technology.

Technology, specifically information and transportation, has connected the least-cost (most efficient) producers of goods with the consumer.
This makes competition more severe, which drives production costs even lower.

The costs of services have not declined in tandem with goods.
When people make a higher wage for services, and pay a lower cost for goods, they have more disposable income.
http://scottgrannis.blogspot.com/2011/02/inflation-deflation-and-china.html

As the article cited, the boomers ('46-'64) preference in disposable spending tended towards getting more stuff, which kept the machine spinning.
The Xers ('65-'80) preference in disposable spending tends towards forgoing income; i.e. working less.

Remains to be seen what will happen with genY ('81-'95).


The killer is demographics.

Combining the Xers preference in forgoing income with their small numbers and the Ponzi design of retirement systems results in an intractable problem.
The problem will not be solved, it will be borne.

The Xers have no incentive to change, because the wealth isn't disappearing.
It just gets funneled from a larger generation into a smaller generation, and they have the time to wait.

IIRC, the bottom of the demographic trough was in 1973.
The problem should start going away about 2035 or so.

Those retiring and/or entering into old age between now and then are in for a rough time.

You reap what you sow.
Not enough babies were sown, their productive adulthoods will not be reaped.