Is technology the answer to global economic doldrums?


I’m beginning to think that political events, no matter how explosive, no longer have the power to affect the economy, financial markets, or even oil prices. Technology, while entertaining, seems to have lost its ability to create productivity gains. Structural reforms have become stuck in many economies, and needed infrastructure improvements just aren’t happening. Income inequality does not seem to be reversing anywhere, and so one wonders how global consumption can rebound. Automation has negatively impacted jobs and nothing seems likely to stop that momentum. Global risks to the environment, and to health, seem likely to increase. 

Where can we find optimism, and new leadership? As has been the case throughout human history, the answer could be technology rather than political leadership. My hometown of Chicago is the only top 20 city in the US that is losing population, in a state whose bonds are rated close to junk. However, like other cities in “flyover country” the Midwest might be in a state of transition that the bicoastal media has not yet understood—just like they misunderstood Trump. 

AOL founder Steve Case’s efforts (see article below) to push against the consolidation of innovation in Silicon Valley and the East Coast are at the forefront of a new movement. One of the strengths of the US economy has always been healthy geographic distribution. I’ll be in NYC next week to attend meetings at the Council on Foreign Relations, which will likely be sobering.  When I return I am excited to attend both TechWeek Chicago and Technori, a start-up showcase founded by one of our EconVue experts, Seth Kravitz. I believe events such as these are where hope can be found that will take us beyond the current stagnation.

Panel Discussion

Robert Madsen EXPERT

A couple of observations on your first paragraph.

First, politics can and will affect markets.  Recall Trump’s election and what happened to the US markets.  The key, subsequently, to the downside protection is monetary policy.  Political events can drive prices up but not very far down.  Which gives us reason to believe that the Fed won’t tighten anywhere nearly as quickly as Yellen and others wanted a year ago.

On technology and productivity, Japan’s experience tells us that technology leads to growth only when demand consistently and significantly exceeds supply.  In those circumstances technology relieves the supply-side constraint (increases productivity per unit of labor) and allows the economy to grow more rapidly.  If, conversely, supply is already plentiful then adding technology does not have the same effect because it doesn’t improve demand.  In short, supply-side improvements have their greatest impact on productivity and growth when supply is constrained not when demand is the limitation.

The disparity in the distribution of wealth is, as you note, a huge problem.  I think the political import, however, may be more significant than the implications for consumption, demand and GDP growth.  If the world produces more Trumps, slow GDP expansion will be the least of our problems.