BERKO: Living through start of a new economic era is painful
Friday, June 08, 2012 7:00 AM
Dear Mr. Berko:
I’m 63. I closed my printing shop three years ago because I couldn’t compete, and 27 good people lost their jobs. A home builder I’ve known for 23 years declared bankruptcy last November. An acquaintance who makes specialty fibers is being undercut by a competitor who had his debts and labor contracts discharged in bankruptcy. My son’s employer lost an important contract to a firm in Malaysia. A specialty grocer where we shopped for years closed because of Whole Foods Markets. Things are scary, and guys in my “business circle” feel like they’re waiting for the other shoe to drop. We’re jumpy about the future, “do-nothing” politicians, people demanding more government money and a sick economy. We need economists who know what they’re doing. This bad scene is getting worse, and some of us feel turmoil in our bones. Thank you for letting me vent. It still doesn’t feel good. Maybe some of us need a psychiatrist. No need to respond.
D.S., Chicago, Ill.
Thanks for your long letter, which I’ve shortened more than I wanted to. Because I’ve received several similar letters, I’m compelled to respond.
There’s little difference between economists and psychiatrists. Psychiatrists guide the balance sheet of the mind, and economists guide the balance sheet of the economy. It’s said that most psychiatrists first wanted to be economists, and most economists initially wanted to become psychiatrists! And that’s why there are so many screwballs who can’t agree on anything. But Joseph Schumpeter (1883-1950) is an economist who rises above the swale of articulate incompetents. He easily explains the current state of economic, political and social disorder using simple English grammar. Joe, bald as a bean and serious as a hangman, clearly explains economics as Waves of Technological Revolutions (WOTR). He sees capitalism as a series of long waves of changing technologies lasting 50 years of so, suggesting that WOTR cause Gales of Creative Destructions (GOCD).
The first 50 years of GOCD, between the 1780s and 1840, were fueled by steam power, causing disruptive economic and social instability, displacing many American jobs and businesses. But during the ensuing 50 years, the U.S. gross domestic product (GDP) grew sevenfold, creating new businesses and enormous employment gains in cities. The second GOCD, between the 1840s and the 1890s, was driven by the railroads. They replaced the wagon train and stagecoach, moving raw materials and finished product cheaper, faster and in greater volume. It also displaced entrenched industries and craftsmen, but during those 50 years, our GDP exploded eightfold and immigrants were needed to fill job openings. The third GOCD, between the 1890s and 1940s, was charged by electrical power. This inexpensive, easy energy access increased manufacturing efficiency and labor productivity by orders of magnitude. It also caused legions of Americans to lose their jobs and caused temporary economic crises. But it paved the way for a sevenfold growth in GDP and a fivefold growth of the American labor force. The fourth GOCD, between the 1940s and the 1990s, was driven by cheap oil and automobiles. We relished our newfound mobility, populations exploded to the suburbs and most families owned two cars. During those 50 years, our GDP rocketed sixfold, and employment grew by a factor of eight.
Today we are in the fifth GOCD, called information technology. But unlike the previous GOCDs, we are living this one. We’re actively part of this creative destruction and living on the periphery of the wave as it sweeps away mature industries, older technologies and jobs that were once considered sinecures. We’re part of a quantum leap in technology. And over the next 50 years, the combined gains since the introduction of the printing press in 1440 will pale in comparison to what lies ahead. In the process, this GOCD will cause changes just as difficult, frightening and serious as the changes of 220 years ago, 170 years ago or 70 years ago. However, the changes will seem epochal because we are living them. And it’s not the end of the world; rather, it’s the beginning of a new era. The displacement of business and people can’t be avoided, but whoever said “Life is a bowl of cherries” never bit a pit.
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