Category: Economics

Science and the Modern World

The history of the modern world is the story of how science has altered human culture. You can date the beginning of the modern world in many different ways. Perhaps it started in 1439 when Gutenberg developed movable type and the printing revolution began. The printed word allows people to store knowledge, and Gutenberg’s invention allowed that knowledge to be distributed widely and relatively cheaply. Or you might say it began in 1765 when James Watt perfected a steam piston and made pumps effective, which then allowed him to modify the piston into an actual steam engine in 1776. That’s an important year: the American Declaration of Independence was signed and Adam Smith’s Wealth of Nations was published. The steam engine powered trains and ships, and led to industrial manufacturing and a whole new world.

There are many other turning points when science changed society: Darwin’s publication of Origin of Species, Pasture’s development of germ theory, the Wright Brother’s first flight, Marconi’s wireless, Farnsworth’s television, the first digital computer (ENIAC), and the first nuclear explosion.

From this short list it should be fairly obvious that the world we now live in is the product of scientific advances. It’s a fairly direct line from Watt’s steam engine to steam locomotives to steam driven horseless carriages to Daimler’s petrol powered internal combustion engine to Henry Ford and the mass production of automobiles. The cell phone is the end product of the telegraph (invented by Pavel Schilling but made usable by Samuel Morse’s code), the telephone (invented contemporaneously by Alexander Graham Bell and Elisha Grey) and Marconi’s wireless telegraph. As another example, the compute I type this on relies, in part, on theories of quantum physics developed by Niels Bohr, and the mathematical theories of Kurt Gödel.

Despite the fact that virtually every aspect of the modern world was created by science, large segments of society are highly skeptical of science. Part of the reason for this is that each scientific advance has challenged deeply held beliefs. Copernicus’ heliocentric model set off a fire storm in the Christian church. William Herschel began his astronomical career looking for men on the moon (really) but the increasingly powerful telescopes he built allowed him to see stars billions of miles from the earth. This observation made it obvious that the universe was far older than described in the Bible, which set off a wave of skepticism of all forms of religious teaching.

Cars changed traditional living patters, planes changed international relations, television allowed us to see how other people lived, which changed our understanding of the world and the people in it. And modern biology changed agriculture and medicine, and the lives we lead. Modern medicine vastly improved our lives, but challenged the long held view that disease is God’s will.

The modern economy is a direct product of science. Many of the scientific advances noted above eventually led to the creation of vast new industries. Electricity not only lighted houses, but led to the development of a vast array of electronic appliances from air conditioners to vacuum cleaners and everything in between.

Despite the fundamental importance of science in the modern economy, we have politicians who are ignorant of, or hostile to, science. State Senator Mike Wilson (R. Bowling Green), the Chair of the Senate Committee on Education, recently said: “My concern is our students are indoctrinated into one way of thinking without any sort of intellectual freedom. The evidence doesn’t support evolution.”

Medical research is a multi-trillion dollar industry, and is one of the fastest growing fields in the new world economy. Yet we have politicians who want to prevent the teaching of basic evolutionary science, thereby limiting the ability of Kentucky’s students to work in this field.

The modern economy depends on science. In order to improve our economy, we need politicians who understand this, and are willing to support science, even when it challenges traditional ideas. If Kentucky is to fully participate in the Twenty-First Century economy, we need to train a new generation of students who understand this new world and can work in it. But we won’t be able to do that with politicians who are stuck in the past.

Andy Barr on the Deficit

In his most recent news letter, Representative Andy Barr proudly announces the birth of his new daughter (congratulations). But he doesn’t let this joyous news get in the way of a good political rant, and notes that she will be burdened with a huge public debt.

He says that:

“My top priority as your representative in Congress is to reduce our rapidly growing national debt that is choking our economy and which, if left unchecked, will cripple the futures of our children and grandchildren.”

Actually, funny story, but the deficit is actually shrinking. Don’t believe me?

Forbes Magazine ran an article with this headline:

The Best Kept Secret In American Politics-Federal Budget Deficits Are Actually Shrinking!

[http://www.forbes.com/sites/rickungar/2013/02/27/the-best-kept-secret-in-american-politics-federal-budget-deficits-are-actually-shrinking/]

According to the Non-Partisan Congressional Budget Office:

“Compared to the size of the economy, the deficit in 2013 is much lower than in 2009, when Obama took office. The deficit will be 5.3 percent of gross domestic product this year, nearly half the 10.1 percent of GDP in 2009.”

According to a report from Goldman Sachs:

The federal budget deficit is shrinking rapidly. …[I]n the 12 months through March 2013, the deficit totaled $911 billion, or 5.7% of GDP. In the first three months of calendar 2013–that is, since the increase in payroll and income tax rates took effect on January 1–we estimate that the deficit has averaged just 4.5% of GDP on a seasonally adjusted basis. This is less than half the peak annual deficit of 10.1% of GDP in fiscal 2009.

I was not able to find the full report on line, but found a good summary at the Calculated Risk Blog [http://www.calculatedriskblog.com/2013/04/the-rapidly-shrinking-federal-deficit.html]

Here’s a story from the Investors Business Daily, hardly a liberal source. http://news.investors.com/blogs-capital-hill/021213-644063-chart-should-embarrass-deficit-hawks.htm

The reason the deficit is shrinking, according to the Goldman Sachs report, is the combination of three things: (1) reduced spending, (2) increased taxes, and (3) growing economy. Interesting. Number two didn’t impact number three. I thought that was why conservatives oppose tax increases.

All Recoveries are not Created Equal

According to a new Pew Research report, during the first two years of the (tepid) recover the “upper 7 percent of American households saw their average net worth increase 28 percent, while the wealth of the other 93 percent declined.”

Here’s an analysis from the Washington Post: In recovery the rich get richer

And here is a link to the Pew Report: Rise in Wealth for the Wealthy

This is not necessarily a bad thing in the abstract, but we don’t live in Abstractistan, we live in the real world. In the real world wealth disparity leads to social and political unrest. It is also well documented that when the wealthy control most of the money, there is less in the pockets of average consumers, and hence less economic activity. Do both sound familiar?

 

Manufacturing Jobs Returning to the US

There have been a number of news stories recently about manufacturing jobs returning to the United States.

This was the cover story on Time Magazine a few weeks ago. Here’s a link, but it the full article is only available to paid subscribers: U.S. Manufacturing is staging a Comeback

And GE recently announced that it will expand production of appliances in the Appliance Park in Louisville. Here’s a link to the Lane Report article.

These articles note that manufacturing is returning to the US for a number of reasons, but all are based on the economics of production in the US. There are two major reasons for the move. The first is that this allows production to be much closer to product design, which allows the designers to quickly modify the product based on manufacturing experience, and also allows the manufacturers to work more closely with the designers to improve both the manufacturing process and the design of the product. The other major reason for the move is that the increase in shipping costs, particularly for large and heavy products, has greatly reduces the competitive advantage of producing in low wage countries like China.

This is extraordinarily good news for the American economy and for American workers. But one point that bears mentioning is that this seems to throw cold water on the idea often offered by conservative politicians that manufacturing left the US because of overly burdensome regulations. If anything, according to conservatives, regulation during the Obama years has only increased. [This is not really true, but is not the point of this post.] Despite this, manufacturing is returning to the US. If conservatives were right and production left because of burdensome regulation, how is it returning now, when regulation has only increased? Could it be that they were wrong?

It is worth noting that none of these articles mentioned the regulatory burden as a reason for leaving, or a reason for returning.

Reinhart & Rogoff Part 2

Here are two more articles on the problems and fall-out from the Reinhart Rogoff paper.

From Salon: How to Prevent Future Reinhart – Rogoff Meltdowns

From Jared Bernstein: The Reinhart/Rogoff Mistake

By the way, for future reference, Jared Bernstein’s blog is a wealth of good economic information. It is at http://jaredbernsteinblog.com

Also for future reference, the Political Economy Research Institute is also a good source of economic information.  http://www.peri.umass.edu/

Is the Internet Making us Poor?

Here’s an outstanding article on the new world economy and its impact on our lives.

The title is: How the Internet is Making us poor

Actually it is making a few people fabulously wealthy, but the rest of us? Not so much.

Here the link:

http://qz.com/67323/how-the-internet-made-us-poor/

It is actually part of a series on the impact of technology on the economy, and the article contains links to the other articles.

It is my impression that the political instability we are experiencing both at home and around the world is the product of the changing world economy. These articles summarize some of those economic changes.

The New World Economy

The world economy is in the midst of dramatic changes, driven largely by technology. Automation is replacing industrial workers, and now computer technology is starting to replace many office workers.

This will have a dramatic impact on the world and the American economy, and on the lives and opportunities of many Americans.

Politicians argue about debt limits and tax rates, but those will only have a small impact on the economy. The real impact is technology.

The Associate Press is running a series of articles on the impact of technology on the world’s economy. A link can be found here: Recession, Tech Kill Middle-Class Jobs.

The link is to a Windstream news feed and I can’t guarantee its usefulness.

Here are three key quotes that neatly sum up the report:

  • For more than three decades, technology has reduced the number of jobs in manufacturing. Robots and other machines controlled by computer programs work faster and make fewer mistakes than humans. Now, that same efficiency is being unleashed in the service economy, which employs more than two-thirds of the workforce in developed countries. Technology is eliminating jobs in office buildings, retail establishments and other businesses consumers deal with every day.
  •  Thanks to technology, companies in the Standard & Poor’s 500 stock index reported one-third more profit the past year than they earned the year before the Great Recession. They’ve also expanded their businesses, but total employment, at 21.1 million, has declined by a half-million.
  • Technology is replacing workers in developed countries regardless of their politics, policies and laws. Union rules and labor laws may slow the dismissal of employees, but no country is attempting to prohibit organizations from using technology that allows them to operate more efficiently — and with fewer employees.