History And The American Economy: Where Have We Been? Where Should We Go? Part 4 of 5

Part One — Part Two — Part Three — Part Four — Part Five

The new economy generated millions of jobs in new research and development — intellectual activity. It also generated a burst of manufacturing: Back in those old days — the 1980s — we American workers built chips, hard drives, plastic casing and so forth.

I was just beginning my career as a historian back then, and I remember wondering how long this new foundation would last. When would the e-economy go the way of the producer and consumer economies? Even then, it was clear that many of the new economy’s jobs would go overseas. Asian countries, for example, quickly took over the work of manufacturing the hardware. And in the past decade or so, India and China have latched onto large parts of the intellectual work.

Here’s a trivial but telling example: The aesthetics aspects of my two websites — the parts you see if you visit either one of them — were designed by a company in Boston. But the “guts” of both sites — the code specific to my sites — were built in Bangalore. (*Note: I was referring to my previous website, not this current version.) These days, writing code is the equivalent of the manufacturing of the sort that Americans lost to Asia back in the 1970s. [NOTE: I now only have one website.]

But China and India have also snared large parts of the foundational intellectual labor needed to expand an e-economy. For example, ten or fifteen years ago, China sent its best engineering and science students here to learn. Those students then went back to China to spread their knowledge. Now, however, the Chinese don’t need to come here. They have built a world-class university system and are now generating much of the intellectual foundation of the wired economy right at home. (And unless we Americans start taking education more seriously, we’re gonna lose all the intellectual work to them.)

In short (or long), the structural underpinnings of our national economy have shifted and changed over the past 150 or so years. We lay a foundation, and then it changes or, as has been the case recently, other countries “catch up” to us.

Here’s one way to think it: Imagine the economy as a pie. During the historical heyday of each type of economy, whether consumer, producer, or wired, the U.S. owned most of the pie. In the 1980s, for example, we owned maybe three-quarters of the newly emerging wired economy. We generated the intellectual foundations of computer, and built much of the hardware. Over time, however, other countries grab more and more of the pie. Asians now manufacture and assemble most of the hardware.

So what’s the point? The wired economy is dwindling, just like the producer and consumer economies did earlier. Moreover, the “fake” economy of banking, mortgage swaps, subprime loans, and so forth has also proved to be, well, fragile. As more than one economist has pointed out in the past few weeks (and years), mortgage swaps don’t produce tangible goods. (*1) So any sensible person ought to be asking: What’s next? What will be the “foundation” of our next national economy?

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*1: It’s worth noting that during the recent weeks of economic chaos, “experts” kept referring to Wall Street and the “real” economy. The implication was that the Wall Street economy was “not real.” Experts also refer to the current economy as a “debt economy”: borrowing money is what keeps things going. Not consumption. Not production. DEBT. That’s real depressing. No pun intended.

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