Warning: Technology’s star is dropping out of orbit, falling, burning. Why? Cumulative innovation misfires? No. The world is poised at a historic turning point, a paradigm shift, launching a new world order. Why? Silicon Valley’s famed “disruptive innovation” mantra is backfiring.
Yes, Silicon Valley’s reboot of Joseph Schumpeter’s famous “Creative Destruction” economic theory from his 1942 classic Capitalism, Socialism, and Democracy is igniting new fears that today’s mega-glitches in technology are not just economy-killers but warnings that our world is transitioning into a new order, painfully reinforcing economist Robert Gordon’s prediction that America’s economic growth will collapse to under 1% in this century, do in a large part to the nearsightedness of Silicon Valley’s culture.
The end of technology’s long run as capitalism’s designated “solution to all problems” is here, now. Check out the power in the current wave of explosive failures … stocks hit hard, a market “rout” said the Wall Street Journal … “tech stocks scrape bottom,” warned USA Today … “optimism ebbs … Alibaba, Qualcomm, Intel, AMD hit lowest prices in year.” … Worse, China’s once-hot IPO market lost a third of its value in a month even as its government tried to stop the hemorrhaging … now China “looks awfully like 1929, 2000.”
More tech backfires: Exchange trading imploded as the longest NYSE closure in history was set off by a technology malfunction … same day a technology glitch forced United Airlines to ground thousands of flights … and as if a dark conspiracy were afoot, the Journal’s technology overloaded, choked … recall the FBI’s recent report that millions of government employee background records had been hacked … and punctuating the scary drama, last month right after launch, we watched the spectacular explosion of hi-tech guru Elon Musk’s SpaceX Rocket.
America Will Repeat 1929, 2008, Thank Silicon Valley!
Plus it’s no secret that the economy is historically weak and the stock market is way overdue for a major correction, as in 2000, again in 2008. With tech stars dropping out of the sky. China’s IPO winners fading. United Air grounded. NYSE dead in the water. The bad news is just piling up for technology. Yes, something’s wrong, technology’s at a historic turning point. With more bad news ahead.
Get it? Technology is looking “awfully like 1929, 2000,” for everything, everywhere, the global economy, world stock exchanges, our portfolios. So, yes, this drama goes far deeper than a random hodgepodge of unrelated tech glitches. They’re also not an attack of cyber-warriors from the future, Terminator robots returning to take over human civilization, the kind of drama AI futurist Ray Kurzweil predicted in The Singularity is Near. Nor is all this drama just temporary collateral of competing Chinese neo-capitalists vs. Silicon Valley’s techno-capitalists, Jack Ma vs. Marc Andreessen.
Remember, today’s six-year bull market, long propped up by the Fed’s destructive cheap money policies, may be making a final push to the peak, before rolling back down, like Sisyphus’ gigantic boulder crashing into our economy.
You are in a classic sequel of the soap opera of 2000 … first a long exciting bull … big bubble … record peaks … then pop goes the weasels … a costly collapse … later repeating the great market drama preceding the historic 2008 presidential election … where technology won for Obama, defeated the McCain-Palin ticket, then a another sequel and defeat of the GOP’s Romney-Ryan ticket in 2012. And now technology’s ticking time bomb looks ready to do it again in 2016.
GDP Will Collapse Below 1%, To Pre-Industrial Revolution 1750
What’s really happening is far more important than all the political bickering, even the pope’s sideshow. Silicon Valley is fighting a no-win battle against six fatal headwinds — cultural, political and ideological megatrends now hard-wired deep in America’s collective conscience.
These headwinds are making it virtually impossible even for our best and brightest technology and science geniuses to save America from becoming a second-rate superpower in the no-growth economy that we ourselves are creating with our rigid capitalist ideology.
The reason? High-tech solutions are insufficient to prevent America’s economic growth collapsing from a peak near 3.4% GDP, a cycle that began around 1750 with the Industrial Revolution and ended a generation ago with Reagan. Truth is, America’s GDP is collapsing, predicted to sink into a no-growth 0.2% GDP this century—the ancient level common across the planet for centuries prior to 1750.
Yes, that’s the clear message in economist Robert Gordon’s must-read National Bureau of Economic Research paper, “Is U.S. Economic Growth Over?” His paper is guaranteed to push investors into total denial if not cardiac arrest, especially hard-core Silicon Valley fans who are absolutely convinced that American technology is the miracle worker that can solve all problems and is destined to save the world.
Gordon’s challenge is a warning: “There was virtually no growth before 1750, and thus there is no guarantee that growth will continue indefinitely.” Rather he says “the rapid progress made over the past 250 years could well turn out to be a unique episode in human history,” a collection of “one-time-only inventions.” Get it? Silicon Valley cannot create a new Industrial Revolution, GDP will drop significantly. Yes, sell signal for investors.
Reread that warning: Gordon is clear, the Industrial Revolution Era is dead and gone, never to be repeated. No paradigm-shifting technologies to ignite an agricultural revolution and feed the 10 billion people on Planet Earth in 2050. Instead, just more video games, virtual reality, chat groups, digital watches and updated versions of consumer toys and consumer products, till scarce resources, buying power and food supplies disappear.
6 Reasons Silicon Valley Can’t Stop America’s Economic Collapse
In his NBER forecast of America’s future GDP growth, Gordon admits starting with a couple major biases that favored a positive, optimistic outcome: First, he admits he’s “pretending that the financial crisis did not happen.” Second, he admits he’s making a “heroic assumption that another invention with the same productivity impact of the Internet revolution is about to appear on the near-term horizon. Thus our starting point is quite optimistic.”
Gordon’s economic forecast begins with America’s average GDP growth rate at 1.8% from 1987-2007. From there, Gordon’s work is an “exercise in subtraction” with each of the following six headwinds reducing America’s future GDP growth by percentage points, ultimately driving America’s future GDP growth from 1.8% down to 0.2% by the end of the century.
Yes, that’s right back to where our growth rate was before 1750, before the Industrial Revolution. Gordon’s NBER paper is a must-read. Here is a summary of the six headwinds from Bloomberg Markets:
DEMOGRAPHICS. “As more and more U.S. baby boomers retire, the number of hours worked per person declines, and so does the growth in GDP per capita. (Drop down from 1.8% to 1.6%)
STAGNANT EDUCATIONAL ATTAINMENT. “The U.S Lags behind other advanced industrial economies in reading, math and science. (GDP growth drops more, to 1.4%)
RISING INCOME INEQUALITY. “From 1993 to 2008, the wealthiest 1% captured 52% of inflation-adjusted income gains.” (GDP falls more, to 0.9%
GLOBALIZATION & INFORMATION TECHNOLOGY. “More and more skilled jobs in the U.S. are being automated or are shifting to low-wage countries. (Drops down to 0.7% GDP)
ENERGY AND ENVIRONMENT. “Possible U.S. efforts to combat global warming, such as a carbon tax, act as a drag on economic growth. (America’s GDP now falls further to 0.5%)
MASSIVE HOUSEHOLD & GOVERNMENT DEBT.“Spending money on debt repayments in the U.S. reduces funds available for productive economic activity. (GDP falls deep, to 0.2%)
Robert Gordon’s closes his NBER challenge on a lighter note: “There are more than enough provocative ideas in this article, but I conclude with another. My guess is that a Canadian or Swedish economist looking at the past and future of his or her country would not be nearly so alarmed.
Why not? What are the differences in environment, resources, legacy history, policies, and culture that create their relative optimism? Experts on other countries are welcome to contribute their own reactions to this diagnosis of the successful ‘American century’ and the possibility that future economic growth may gradually sputter out.”