In light of the ongoing economic crisis, Michael Mandel feels that contrary to conventional wisom, the innovation boom of the past two decades has not transformed lives and moved the economy dramatically forward.
He claims the commercial impact of the technological breakthroughs in IT, communication, medicine and bio-technology, clean energy, and even financial market engineering, has not been as beneficial and widespread as believed. In fact, he describes it as "(not) an era of rapid innovation, (but)... an era of innovation interrupted". The commercialization of these technological innovations has proved much harder than expected. The salience of Google, Internet, mobile phones, wireless technologies, biotech drugs, social networking sites and so on aroused a widespread and mistaken impression that the age of innovation had ushered in a "new economy".
He argues that while Wall Street's mistakes may have triggered off the crisis, the innovation shortfall has ensured that its effect on the economy as a whole has been very broad. He quotes a few anecdotes that captures the relative failure of the technology and innovation revolution - shares of biotech, pharma and IT companies have fallen over the period; on advanced technology products, the US has gone from a $30 billion trade surplus in 1998 to a $53 billion deficit by 2007; in the 1998-2007 period, earnings for a US worker with a bachelor's degree rose only 0.4%, adjusted for inflation; and the small numbers of tech start ups that have sprung up this decade and those that have gone public.
About how the irrationally exuberant optimism about the "new economy" spawned the tech and finanacial market bubbles, he writes, "In the late 1990s most economists and CEOs agreed that the U.S. was embarking on a once-in-a-century innovation wave—not just in info tech but also in biotech and many other technologies. Forecasters upped their long-run growth estimates for the U.S. economy. Consumers borrowed against their home equity, assuming their future incomes would rise. And foreign investors lent America money by buying up U.S. securities, assuming the country would come up with enough new products to pay off the accumulated trade deficit. This underlying optimism about the economy's growth potential became an enabler for Wall Street's financial shenanigans and greed. In this narrative, investors and bankers could convince themselves that rising home prices were reasonable given the bright future, which was based in part on strong innovation. In the end, the credit market collapse in September 2008 reflected a downgrading of expectations about future growth, which put trillions of dollars of debt underwater."
Mandel's arguement echoes with the widely held belief that the supposedly spectacular technological breakthroughs of the past two decades have not resulted in the desired level of newer jobs. This period has coincided with a long term trend of lower job creation, lending credence to the feeling that the "new economy" was creating "jobless growth".
In this context David Leonhardt draws attention to the statistics realeased by the US Bureau of Labor Statistics that points to a striking characterisitic of the ongoing crisis (in comparison with the previous ones) - a significant dip in fresh hirings by businesses. As he argues, the recession has been marked not as much by lay-offs, which are no more a problem than it was in previous recessions, but by weak hiring trends.
He feels that the long-term decline in both jobs lost and created, may be a result of the inability of the "new economy" to commercialize its innovations at the pace required to generate the numbers of jobs required to both off-set those being lost (to both phasing out of older technologies and sunset sectors, migration of jobs due to outsourcing and the growing dependence on imports) and those additionally required to accomodate the new additions to the labor market.
The US unemployment figures for May 2009 shows unemployment rate at 9.4%, the highest since 1983. The silver-lining was that the economy lost only 345,000 jobs in May, the smallest loss since October and a significantly smaller one than economists were expecting. More analysis of the jobs report here, here and here.
Barry Ritholtz shows how job openings have declined, even as the unemployed has risen.