Episode 62: The New Economy

060409.2122

The economy is messed up. Really bad. And it is never going to come back – at least back to the way it was pre-recession. The jobs that were lost in all likelihood won’t be coming back anytime soon at best, or more likely, never again.

In order to fix this problem, we have to approach the economy like a business would, by simplifying and diversifying. How do we do this… first we have to put our American ego aside for a bit. I love America as much as the next guy, and think our country is the greatest country since sliced bread. But we can’t do it all. It costs way too much money to do it all. I agree with conservative opinion when they say programs like healthcare and education are exorbitantly expensive. And while I 100% agree with Obama’s vision, I cannot logically deduce how we can make it happen, at least within his timeframe. With the lack of debate on Capitol Hill, my biggest fear about progressivism is coming to light – without true conservative dissention and debate, progressive thought is like a runaway train. The last major progressive movement, the civil rights movement, took 10 years and three presidents to be realized. What most progressives fail to realize is you have to give a little to get a lot. Giving a little, when it means asking people to sacrifice what they don’t have (from Obama’s speech regarding GM) while noble, and the absolutely right thing to do, is a wholly unrealistic proposition. Here’s a plan to get ourselves back on track, using Ideas borrowed from a great book I read by Daniel Pink called “A Whole New Mind.”

We Need To Simplify Our Economy

I believe an economy is built upon three parts: developers, builders, and distributers. America is the world leader in developing the most innovative technologies we have. Over the years we have deemphasized on building – aka. The manufacturing sector – and are pouring billions into bailing out that industry. Finally, we are the leaders of getting that technology and innovation to the people because our Constitution is arguably the least restrictive with personal freedoms and freedom to access. However, trying to take the lead on all three factors is incredibly expensive, especially considering how complicated the modern economy is. I argue that America should play a more cooperative role in the global economy. Rather than lead the world economy poorly, we should instead focus on one aspect, development.

In Pink’s book, he argues that the next revolution will be the information revolution, and that it is innovation, not manufacturing that will bring us the jobs of the future. I whole-heartedly agree. The new economy is going to consist of innovators and entrepreneurs. Private enterprise is the key to revitalizing our recessed (depressed) economy. Thus the government’s role should not be to endlessly prop up old businesses, but provide funds for new business. We need to get our best minds out in the forefront, creating the enterprises that the rest of the world will use. However, we will not be the primary makers of this technology in the new economy.

In the new economy, we will defer manufacturing responsibilities to developing nations like China and India. They have the manpower (both with over a billion citizens) and drive to become global leaders. However a manufacturing based economy loses money over a course of time, because as the manufacturing process becomes more efficient, and technology becomes smaller and faster, it becomes cheaper to produce. Idea – intellectual property - - has incredibly high value. Consider Apple Inc. The iPhone itself is not what makes Apple its huge profits, it is the intellectual property. It is the smooth touch screen interface, the app store, and the innovate architecture that makes its profits. Before the iPhone, there was no product of its kind in existence. The actual manufacturing of the iPhone is pretty cheap. China makes a knockoff iPhone that is nearly identical to the original that costs only $50 brand new without a contract!

How does this simplify our economy? We pour in resources one aspect of the economy, and save money by outsourcing the rest, while at the same time, dramatically increasing our revenue. What does it do to people in manufacturing now? Well, naturally, they will lose their jobs, the way they are now. Thus instead of endlessly propping up old businesses, the government should focus on helping these displaced workers retrain to perform the jobs of tomorrow. Instead of manufacturing, which I consider the mass production of goods and services, the blue collar working class of yesterday becomes tomorrow’s engineers, specializing in the development of new technologies. Thus the old assembly line worker is now specializing in building prototypes which require a specialized knowledge. Because there would be a high demand for the specialists, these jobs would pay higher wages.

Over the long term, I’m calling for the shrinking of the working class. Of course there would be some room for the working class as it is today, but under my plan, there would be a massive expansion of the middle class. The ultimate result is the average American could legitimately live the American dream without having to resort to subprime mortgages to emulate a lifestyle they could not sustain. All the while we are creating brand new industries, and improving existing ones at breakneck pace. This leads to part two of the new economy, Diversity.

Diversity Ends “Too Big to Fail”

With increased emphasis on development, there will be a lot of competition for the best idea. I am a firm believer that American competition is the single most important reason we have the #1 economy in the world. When someone in America has a great idea, our version of capitalism rewards one for it with a huge bankroll. When other companies vie for the best version of that great idea through competition, the consumer wins and the industry wins.

What is missing from the economy today is diversity in competition. AIG was pretty much the only insurance company performing the tasks it performed, so in failing, they would single-handedly bring down the economy with them. With an emphasis in development, there is inherently many players in the game who are finding ways to things better, faster, and cheaper, while still maintaining high quality. Thus is should be the responsibility of the government to legislate and enforce tough regulation to ensure that there is an equal chance for every company to succeed. One government department I think does a good job with good regulation is the FCC.

In the Digital Millennium Copyright Act for example, the DMCA “issued six exemptions to the DMCA last year, one of which allows consumers to unlock their cell phones "for the sole purpose of lawfully connecting to a wireless telephone communication network." (source: http://www.engadget.com/2007/08/24/know-your-rights-is-it-illegal-to-unlock-my-iphone/). Though the legislation is kind of open to interpretation, the idea is that so long as one unlocks their phone (modifying a phone to allow it to access multiple compatible networks) for the sole purpose of connecting to a wireless communication network, they are protected under the DMCA because it promotes competition. This is precisely what regulation should do: stay out of the way enough to let businesses grow, yet create rules to promote fair competition and just punishments for breaking the rules. With the big field of entrepreneurs and regulation that promotes competition and diversity, a “too big to fail” scenario cannot exist. Though corporate Darwinism will be alive and well, the constant flurry of new ideas will protect us from another AIG meltdown.

In order to simplify and diversify our economy, the single most important the government can make is in education. We NEED to completely overhaul out education system for this plan to work. Without an academic class, none of this can happen. I fear if we keep on our current course, we will be stuck between eras, and it will only be a matter of time when we are overtaken by Asia, namely China, who is already positioning themselves to capitalize on our economic catastrophe.

Love him or hate him, Obama is well aware of this notion of the new global economy (though I suspect he’d disagree with my thought on manufacturing to some extent). Conservatives may call him fool hearty, and there is much debate on whether he’s doing the right things in the right order, but don’t think for a second that Obama isn’t preparing America for the long term plan.

The next few episodes will consist of a series of posts I call “Road to the 21 Century. In these posts I will outline what I believe America needs to do fix the economy, and secure our lead as the #1 economy in the country, starting with education, which will be part two of “Education.edu.” Grab some popcorn and bring all your friends to these debates because I think as a blogosphere we can do what politicians are not doing: debating the hell out of these issues and perhaps we can find a way to get our middle ground consensus to Washington. Lofty? Maybe, but I enjoy a good challenge!