Prosperity agenda can overcome U.S., CA problems

April 6, 2013

By Ed Ring

“Everything that can be invented has been invented.”

Contrary to a common misconception, it was not Charles Duell, the Commissioner of the US patent office, who said that quote back in 1899. According to PatentlyO.com, and a host of other debunking sources online, this line was actually part of a parody that appeared in an 1899 edition of Punch Magazine. But it was a common sentiment of that era that saw the development of the light bulb, phonograph, automobile, airplane and so many other inventions.

Over a century later, with innovations in recent years that were entirely unimaginable back in the great era of steel and steam, we might be hesitant to think everything that can be invented has been invented. But reputable economists are on hand to diminish the potential of information technology to continue to yield advances in productivity. Robert Gordon of Northwestern University, for example, “downplays the role of computer technology in the economic growth of the latter 20th century and questions the actual productivity of such technological developments.”

While such overt skepticism regarding the potential of information technology to stimulate economic growth is rare, equally rare is unbridled optimism. And thanks to an overbuilt environmental movement, accompanying today’s tepid assessment of technology’s transformative promise is a Malthusian pessimism that has become conventional wisdom. Supposedly, “Technology cannot save us” and “resources are running out.”

Add to this organized labor’s propensity to oppose automation and innovation because they allegedly cost jobs and hurt the economy, and you have a trifecta of gloom.

These are the core sentiments that prevent the leaps of faith that are necessary to reignite global economic growth. It is the opposite values that will enable robust, sustained economic growth:

* Technology will continue to deliver astonishing leaps in productivity and create entire new industries employing millions of people.

* Resource depletion will never even come close to outrunning humanity’s ability to innovate and adapt.

* Creative destruction of entire sectors of the economy will only be to make way for far bigger, better, more lucrative economic opportunities for everyone.

Only through widespread acceptance of these optimistic values can humanity overcome the challenges of unsustainable debt and an aging global population.

Cutting costs

One of the themes we have tried to emphasize in my writings on the proper role of unions in 21st century America, especially California, is that it’s not enough to reduce the levels of total compensation paid to unionized public sector employees. That is a necessary austerity measure, an essential step California’s cities and counties must take to avoid bankruptcy. But it offers no hope to those employees affected by these cuts. And by itself, it’s not enough to resolve the economic challenges facing America and the world.

The solution is not to simply lower the compensation of overcompensated government employees. The solution is to pursue economic policies that encourage competition, break up monopolies (corporate, union, and financial), in order to lower the cost-of-living for everyone.

Deflation

In the fourth installment of a five-part report on Bloomberg entitled “The Benefits of Chronic Deflation,” economist Gary Shilling makes the distinction between “good deflation” and “bad deflation.” Shilling writes:

“Good deflation is the result of new technologies that power productivity and output as the economy grows rapidly and as supply outpaces demand. The bad kind stems from financial crises and deep recessions, which increase unemployment and depress demand below the level of supply.”

When Shilling talks about deflation, he evokes an economic monster that emerges whenever society has indulged in a prolonged period of cheap credit, and the levels of accumulated debt have grown beyond the ability of debtors to pay interest, much less borrow more. Another economist, David Stockman, writing in the New York Times on March 30, issued a dire assessment of America’s debt-saturated economy in an article entitled, “State-Wrecked: The Corruption of Capitalism in America.”

Stockman and Shilling are talking about the same thing: America’s bipartisan descent, three decades in the making, from productive, competitive capitalism to a capricious and unproductive financially driven economy, dominated by big banks and big government — and their willing and well-compensated accomplices, public sector unions.

Innovation

The way out of this is to understand how “good deflation” can counter the impact of the inevitable bad deflation. Good deflation is the product of innovation. It is exemplified in what used to be the mantra of Silicon Valley, “Better, faster, cheaper.”

Good deflation was present in every wave of technological innovation that ever was, from the transportation revolution and the industrial revolution to the more recent information revolution. Good deflation resulted from the automation of agriculture a hundred years ago, and is a result of the automation of manufacturing today. Good deflation lowers the cost of living; it enables a higher standard of living for everyone.

Everything that can be invented has not been invented. But to more quickly realize the many spin-offs that accrue to the information revolution, we have to change our attitudes. There is abundant land in California, and abundant energy resources. California should have the most affordable housing and the cheapest electricity in the U.S., instead of the most expensive. Making this shift, recognizing and realizing this opportunity, will lower the cost of living, releasing capital to eliminate debt and invest in entirely new industries.

The only way an austerity agenda can be persuasive, much less implemented, is if it is accompanied by a prosperity agenda. And since additional debt formation is unsustainable, the austerity agenda is inevitable.

The challenge of our time is to overcome, with reasoned optimism and facts, the pessimism of Malthusians and Luddites whose beliefs, if not their words, condemn us to statist austerity and nothing more. The spin-off industries that are being ushered in by the information revolution are inspiring and wondrous; curing disease, extending life, restoring ecosystems, exploiting the resources of the asteroids, creating independent city-states on the open ocean; things we cannot imagine.

This is the prosperity agenda.

Ed Ring is the executive director of the California Public Policy Center.