Politicians Are Wrong About The Economy

by: Dana Blankenhorn


Technology replaces people and concentrates wealth.

This process continues to accelerate, and will only accelerate further.

It's no one's fault, but how do we deal with it?

In seeking to explain how it is possible that seven years of prosperity can feel like garbage, politicians are seeking scapegoats.

  • Republicans blame government. Make government tiny and the economy will zoom, they say.
  • Democrats blame Wall Street. Take the power from New York, and prosperity will expand, they say.

Both sides are wrong. Government is not to be blamed for our problems. Neither is Wall Street.

Technology replaces people with machines. John Henry could not beat the steel pile driver. Math wizards can't beat even the most primitive computer. Technology frees people to do other things.

Thanks to Moore's Law, better and better keeps getting faster and faster. It's not just that chips improve exponentially, but so do all the components around them. Hard drives, wired and wireless networking, they're all driven forward at exponential rates.

This means that people, professions, and whole industries are being replaced, made obsolete, at increasing speed. In the 1970s, stevedores were replaced by bar codes and containers. In the 1980s, secretaries were replaced by PCs. Travel agents started disappearing in the 1990s, and middle managers during the last decade.

Now whole professions are being replaced by devices. We no longer need insurance agents. We no longer need people to manage sales channels or supply chains. It seems we no longer need journalists.

Change is only going to accelerate from here. Within a decade, truck drivers may become obsolete, and bus drivers, too. Car repair shops are going to close the way TV repair shops did a generation ago.

We can't go backward. If we try other countries will pass us by. What we have to do is adapt. We need to recycle the people whose skills are obsolete.

We also need to recycle wealth. Technology has a 90-9-1 rule. We have known about it for a century, ever since Tom Watson Sr. brought a bunch of small office machine companies together and renamed it IBM (NYSE:IBM), so he could beat his old employer, NCR (NYSE:NCR).

Technology wealth flows to the top. Each market moves quickly through its development, through the market, toward consolidation. Microsoft (NASDAQ:MSFT) and Intel (NASDAQ:INTC) won the PC era. Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) quickly won the Internet era. Amazon.com (NASDAQ:AMZN) dominates cloud infrastructure and Apple (NASDAQ:AAPL) dominates devices. These natural monopolies are not subject to government breakup. You can't change what people like.

But it means that the wealth of society is naturally concentrated in fewer and fewer hands. Seven tech entrepreneurs - Bill Gates, Larry Ellison, Mark Zuckerberg, Michael Bloomberg, Larry Page, Sergey Brin and Jeff Bezos - are now in the Forbes Top 10.

Their fortunes come to more than the GDP of Singapore, and you can't break them up. Their money is tied up in the companies they control; Microsoft, Oracle (NYSE:ORCL), Facebook (NASDAQ:FB), Bloomberg, Alphabet, and Amazon.com.

Technology creates an economy that can be long on wealth but short on income, abundant in supply but short on demand. This is our reality today. It's only going to become "worse" tomorrow.

The need to recycle people and recycle wealth is not, by itself, a bad problem to have. Recycling wealth through the economy creates more wealth, and creates demand for more interesting careers. Yoga instructors, life coaches, artisanal food purveyors, and dog walkers hardly existed a generation ago, because there wasn't much demand for them. Now they're all over the place.

We do have needs. There is a planet to save. Our infrastructure needs work. We're all getting older and will need support for our infirmities. There is a lot of potential demand. There is a lot of work to do.

So how do we create demand for that work? How do we recycle wealth so that work can get done? How do we deal with the economic byproducts of our technology age? Those should be our economic questions. Politicians are pointing fingers and talking around it.

Maybe it's time for investors, instead of letting politicians lead them on wild goose chases, to start asking the questions that need be answered.

Disclosure: I am/we are long AAPL, AMZN, GOOGL, INTC, MSFT.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.