The opening paragraph of my essay on post-industrial economics.
Over the past several decades, our economy has come to be driven less by tangible inputs and outputs and more by intangible factors. As workers and consumers, we have become much more specialized than was the case 150 years ago, when the conceptual framework of modern economics was developed. Yet most mainstream economists have not properly acknowledged this transformation, remaining committed to models and concepts that served to explain an economy that no longer exists. Understanding the world we now inhabit will require letting go of many established methods, and acknowledging the complexity of an economy that responds to new, and still evolving, strategies and incentives.
Magnificent. Congratulations. I wonder how much tax policy is driving this transformation? The US overtaxed producers of physical goods and made purveyors of intangibles tax-exempt. Individuals can exchange personal information for internet services and the transaction is completely untaxed. 35%+ of GDP goes to government and another 5% + is consumed by tax exempt entitities. The economics profession is the least of what has been living in an extinct past.
More specialized jobs tend to be jobs that come and go more quickly as technology changes. Perhaps the most important skill, then, is to be able to train oneself for the next job. Those of us in IT live in this world.
A strong finish but I felt your criticism of “economists” was too broad. It mostly applies to macro- and high theory like general equilibrium. Much that you say is new was around when I did Industrial Organization and antitrust fifty years ago. For example, you say, “For employees, we can no longer treat productivity and earnings potential as individual characteristics, because the context in which one works matters a great deal.” But the expression “firm-specific human capital” was understood by all.
Great article – I’ve been hoping for a summary of your thoughts on this point. Out of curiosity, what do you think of Ha-Joon Chang and some of the other European heterodox economists? I imagine politically you are quite far apart, but I hear you saying some similar things.
This is a very good article in terms of economic movement but I believe the greater question is the impact on society:
1) Agreeing with most of this article this reality makes me the future of society is every nation becomes their version of Japan or Singapore. (Euorpe is 20 years behind and the US 40 years behind.)
2) The surprise of the internet era has been the economic domination of urban centers. But these the diversity progressives/right center conservatives that are increasingly less religious that conservatives do not trust. How does religion fit in? And who teaches values outside of the church and family? I am seeing the union school teachers here.
3) How does the Trump/Nationalism fit in here and Trump needed his rallies against NAFTA and China to win 2016? They are fighting this with tariffs and only having modest success.
4) In term of post-industrial we are seeing a natural domination of specific firms as I technology makes it easier to create markets with continued falling marginal cost curves. (I believe this is the center of both Wal-Mart, Large banks, and Amazon successes the last 15 years.) So are you comfortable with this reality.
Terrific article, as expected. You mentioned the possibility of increasingly powerful price discrimination, and I’d like to point out one potential consequence.
In basic Micro, one sometimes learns that if a firm has a legal monopoly, it is not possible to compensate that firm for the elimination of the monopoly for lost (excess) profits by taxing the new gains in social welfare. (An example could be trying to compensate taxi medallion owners when a jurisdiction stops enforcing the rent.)
Now, that’s true, so long as everybody pays the same market-clearing price. But what if the new competitive system also adds very good price discrimination, such that most people are paying somewhere between that clearing price and their maximum price? In that case, a flat sales tax would be able to pay monopolists / license holders for their losses by taxing new sales and still increase net social welfare. And this follows the general framework of compensation out of tax revenue for a taking for public purposes.
Somehow not as good an essay as I hoped for, expected. A bit vague on what to do?
Yes, info creators need to be paid, but one of the ways the open source folk “pay” is with reputation, with fame.
It’s good that you’re pushing the focus more towards the intangible. USA is now a place where a Bernie Sanders Socialist can get elected despite socialist failure in Venezuela, and so often in history.
It might be that “intangible socialism” can succeed, where tangible socialism has always been a failure. From each according to their interest (like blog posts & comments), to each according to their desires – infotainment. It’s not clear to me why the Library of Congress/ gov’t can’t e-distribute, at a very very low cost, any book, movie, or music that is now digitally recorded.
Assuming this gov’t socialistic distribution, there are multiple paths of possible content creators getting paid, with various pros & cons.
I fully agree with you that current “neo-classical” econ has been a failure, and mostly because too little observation of actual micro econ actions by agents. There seems little recognition that “the market” is just human decision makers. As customers, deciding to buy or not. As producers, deciding what to produce, what price to offer the produce at, where. The free market is what free people do: in buying, selling, and making stuff or services.
Big Data will increasing allow economic drill down in more details — I think I was expecting a bit more of your views on some wilder ideas.