Monday, December 6, 2010

Schumpeter, Information, and the Great Recession

Mike Mandel ( Innovation and Growth) believes the information economy recession that started with the beginning of the current century and explains the depth of the “great recession”, is over now.


“Is the long information sector job drought finally over?

(…) our information industries have mostly been shrinking from 2000 until very recently. This was one of the great disappointments of the past decade, and one of the big reasons why the 2000s were an economic disaster. (…)

Here are the numbers: In 2000 the information sector employed 3.6 million workers. By 2007, just before the recession started, the number was down to 3 million, and in 2009, the information sector had shrunk to 2.8 million. That’s a 23% decline in 9 years. By comparison, the whole private sector is only down about 2% over the same stretch.”

My comment: I, too, believe that the unusual severity of the current recession results from the downside of the extraordinary innovation cycle (a Schumpeterian one) that started in the mid-1970s. The heated debate about the efficiency (or inefficiency) of macroeconomic policy (mostly in the US) is due to the fact that the marked slow down of information innovations and related investment opportunities, that sustained the remarkable growth of the 1980s and 1990s, precludes a vigorous pick up in investment and growth. Government deficits and money creation can damp down the recession but cannot by themselves generate a new expansion comparable to that of the previous two decades.

Growth in consequence will stay sluggish until the next innovation wave (that may be already be under way without our knowing it …). Most commentators have been focussing the analysis on the financial sector that indeed contributed to amplify the crisis, but financial excesses themselves had their origin in the perspective of unusual (and highly uncertain) real returns in the new technologies, just as in the booming 1920s. That's also why, following a similar path, we often find the present situation so similar to that of the 1930s.

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