ECONOMICS: A Technological Tsunami
Wesbury, Brian S.
ECONOMICS BRIAN S. WESBURY A Technological Tsunami FIRST BEGAN TO SPEAK AND WRITE about a "New Era Economy" in 1996. By 1998, the Chicago Tribune had called me "Chicago's most prominent New Era...
...Second, the Internet can create global markets where none existed before...
...In addition, the machine has much greater capacity than the firm needs...
...Checks no longer need to be physically presented for clearing, but instead digital copies of a check will suffice...
...These people, and many others, have 32 THE AMERICAN SPECTATOR NOVEMBER 2004 soured on the idea of a New Era economy...
...Technology, especially the use of broadband Internet capabilities, is forcing the decentralization of production processes...
...Companies and individuals that cling to the past, closing their eyes to these forces, will fall behind...
...Customers can schedule trips online in order to double-up with others who have the same travel plans...
...Aircraft prices are falling due to advances in composite material and engine technology, and the Internet is allowing planes to be used more efficiently...
...As a result, the economy could grow faster, with less inflation (possibly deflation), than it had in the past...
...These jobs will not be traditional jobs...
...As entire industries are turned on their heads, jobs will be lost...
...Stocks would climb and bond yields would remain low...
...A fellow Chicago-based analyst pithily changed "New Era" to "New Error...
...In other words, the capital gains tax is a wall between old and new investment...
...But the gains in productivity and efficiency will boost incomes on average and create tremendous wealth...
...Senator John Edwards, the Democratic candidate for vice president, ridiculed this idea by comparing these jobs to lemonade stands and bake sales...
...But this creates opportunity...
...Competition is national, not local...
...Other simple technology is upending entire industries...
...The New Era is for real...
...Many derided this thesis...
...The upheaval is equal to, or greater than, that of the Industrial Revolution...
...It now leases an $800,000 Xerox six-color iGen digital printing press to bring the printing in-house...
...Equipment that was once only within the reach of large companies is now within the reach of small companies and individuals...
...Ignore it at your own risk...
...But at the same time, new jobs and markets will be created...
...In effect the customer is now competing against the airline...
...N ADDITION, OUR ELECTED POLITICAL representatives must adjust fiscal policies to hasten the transformation, not hinder it...
...First, technology is reducing production costs, while lifting quality...
...A combination of technology, globalization, good fiscal policy, and stable monetary policy was boosting productivity dramatically...
...The 2003 Bush tax cut was a very important development because it freed up capital to move toward new technologies and businesses...
...High capital gains tax rates force many investors to keep assets longer than they should...
...For every business that is seeing its lights dim, another is lit up like a Christmas tree...
...New York City banks now must compete with banks a fraction of their size, anywhere in the country...
...By 1998, the Chicago Tribune had called me "Chicago's most prominent New Era economist...
...Those that try to preserve the status quo should be buried...
...But Edwards went further...
...Old-line airlines (United, American, Delta) are not just under attack from low-cost alternatives, but their high-end customers as well...
...Entrepreneurs can compete from virtually anywhere on the planet...
...The Apple iPod, with its 40 GB hard drive, high-quality sound, and 99-cent songs, is changing the music business in a profound manner...
...Vice President Cheney recently attempted to explain job growth in this New Era by highlighting the 430,000 people who make their living on eBay...
...The fractional-jet-ownership marketplace is BRIAN S . WESBURY growing rapidly...
...The world of banking has become both seamless and real-time across state borders...
...was in a virtuous circle of wealth creation...
...Tax cuts, especially on investment, help...
...Two factors are at work in each of these marketplaces...
...Last year, a rapidly growing Midwestern manufacturing firm, with which I am intimately knowledgeable, spent $2 million annually on printing...
...Robert Gordon, a prominent economics professor at my alma mater, Northwestern University, wrote extensively in 1999 and 2000 that there was no New Economy...
...High dividend tax rates force companies to hold on to cash, when they should be distributing it to shareholders so that new investments can be funded...
...As a result, a business in New York City could accept a handwritten check from a customer, scan and e-mail the image to a bank in Wyoming, and have access to the funds the same day...
...But nothing could be farther from the truth...
...For example, on October 28, 2004, the Check Clearing for the 21st Century Act (Check 21) went into effect...
...In many cases, small banks, which may once have been customers of large banks, are now becoming competitors...
...Sticking our head in the sand is a losing strategy...
...High-end customers, who have traditionally paid full-fare for first or business class seats, are now drifting toward private jets...
...In fact, the combined impact of technology and globalization is a transformational tsunami...
...The opportunities are immense, but the pitfalls are just as large...
...As the numbers using these online services continue to grow, the existing fleet of lower-cost planes will be used more efficiently...
...Everywhere, technology is causing a massive transformation in the way business, the economy, and even society is organized...
...The iGen press will save the company millions in the next few years...
...But my book on the subject, The New Era of Wealth, was not published until October 1999, just before the stock market peaked...
...How, you may ask...
...NOVEMBER 2004 THE AMERICAN SPECTATOR 33 The New Era lives...
...In effect, this Midwest manufacturer is now in direct competition with its former supplier...
...Government policy in the New Era should be focused on increasing the flexibility of both capital and labor...
...Businesses that thought they were insulated from out-of-town competition are finding that they must think in a broader geographic fashion...
...Online booking also allows passengers to take advantage of any plane that would normally fly an empty-leg return trip...
...Cheney is right, Edwards is out of touch...
...My thesis, which may sound trite today, suggested that the U.S...
...i,, Brian S. Wesbury is chief economist at Griffin, Kubik, Stephen & Thompson, Inc., a Chicago-based investment bank, and The American Spectator's economics editor...
...Policies which reduce the cost of moving assets and skills across geographic, technological, or industry-related barriers should be encouraged...
...And some, who invested in technology near the top after reading my book, still curse my name...
...The New Era lives...
...The firm can use a Montana-based dot.com (www.printingforless.com) or a network developed by Xerox, to sell the excess capacity...
...The static model just won't work anymore...
...The stock market crash of 2000-2001 seemed to prove the pessimists correct...
...The winners will be agile individuals, companies, communities, and nations that embrace these changes...
...Artists and record labels are still profiting, but distributors and retailers are going bankrupt...
...Check 21 creates a brand new negotiable instrument called a "substitute check"—an electronic image of an actual check...
...In the vice-presidential debate on October 5th, he said that America's economic lights are "flickering"—suggesting a brownout is about to consume our nation...
...The impact of this trend can be seen in industry after industry...
...The technological tsunami is boosting productivity rapidly, and forcing a reorganization of our economy...
...This is unfortunate and misguided...
...In fact, the combined impact of technology and globalization is a transformational tsunami...
Vol. 37 • November 2004 • No. 9
