Tuesday, September 14, 2010

As we think, so goes the economy

Sometime around 1800, David Brooks writes in The New York Times, economic growth started to take off. Prior to that, the well-being and health of most people had changed little over thousands of years.

What happened, he writes, was a change in the way people thought.
Because of a series of cultural shifts, technicians started taking scientific knowledge and putting it to practical use. For example, entrepreneurs applied geological research to the businesses of mining and transportation. 
Brooks takes this thesis from a new book, The Enlightened Economy, by Joel Mokyr of Northwestern University. What does that have to do with me? you ask.
This history is relevant today because 65 percent of Americans believe their nation is now in decline, according to this week’s NBC/Wall Street Journal poll. And it is true: Today’s economic problems are structural, not cyclical. We are in the middle of yet another jobless recovery. Wages have been lagging for decades. Our labor market woes are deep and intractable.

The first lesson from the economic historians is that we should try to understand our situation by looking for shifts in ideas and values, not just material changes. Furthermore, most fundamental economic pivot points are poorly understood by people at the time.
Brooks says the U.S. has drifted away from the hardheaded practical mentality that built the nation’s wealth in the first place.
First, the elites. America’s brightest minds have been abandoning industry and technical enterprise in favor of more prestigious but less productive fields like law, finance, consulting and nonprofit activism.

Then there’s the middle class. The emergence of a service economy created a large population of junior and midlevel office workers. As these information workers tried to build lifestyles that fit their station, consumption and debt levels soared. The trade deficit exploded. The economy adjusted to meet their demand — underinvesting in manufacturing and tradable goods and overinvesting in retail and housing.

So it does have something to do with you. We have, Brooks writes, too many mortgage brokers and not enough mechanics.

Fine, but I don't see Brooks volunteering to work on a Detroit assembly line. Or come fix my plumbing. Indeed, baked into the economic miracle that started in 1800 is the move toward education and thinking jobs, with the older, hands-on jobs falling to those with less education. Ideas are the currency of our economy today. I don't see how you can change that. Or why you would want to. The efficiency of the capitalist system depends on this inexorable march.

David, something's wrong with my downstairs toilet. I'll be home all afternoon. Thanks.

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