Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
China's Grand Plan to Take Over the World - 19th Nov 19
Interest Rates Heading Zero or Negative to Prop Up Debt Bubble - 19th Nov 19
Plethora of Potential Financial Crisis Triggers - 19th Nov 19
Trade News Still Relevant? - 19th Nov 19
Comments on Catena Media Q3 Report 2019 - 19th Nov 19
Venezuela’s Hyperinflation Drags On For A Near Record—36 Months - 18th Nov 19
Intellectual Property as the New Guild System - 18th Nov 19
Gold Mining Stocks Q3’ 2019 Fundamentals - 18th Nov 19
The Best Way To Play The Coming Gold Boom - 18th Nov 19
What ECB’s Tiering Means for Gold - 17th Nov 19
DOJ Asked to Examine New Systemic Risk in Gold & Silver Markets - 17th Nov 19
Dow Jones Stock Market Cycle Update and are we there yet? - 17th Nov 19
When the Crude Oil Price Collapses Below $40 What Happens? PART III - 17th Nov 19
If History Repeats, Gold is Headed to $8,000 - 17th Nov 19
All You Need To Know About Cryptocurrency - 17th Nov 19
What happens To The Global Economy If Oil Collapses Below $40 – Part II - 15th Nov 19
America’s Exceptionalism’s Non-intervention Slide to Conquest, Empire - and Socialism - 15th Nov 19
Five Gold Charts to Contemplate as We Prepare for the New Year - 15th Nov 19
Best Gaming CPU Nov 2019 - Budget, Mid and High End PC System Processors - 15th Nov 19
Lend Money Without A Credit Check — Is That Possible? - 15th Nov 19
Gold and Silver Capitulation Time - 14th Nov 19
The Case for a Silver Price Rally - 14th Nov 19
What Happens To The Global Economy If the Oil Price Collapses Below $40 - 14th Nov 19
7 days of Free FX + Crypto Forecasts -- Join in - 14th Nov 19
How to Use Price Cycles and Profit as a Swing Trader – SPX, Bonds, Gold, Nat Gas - 13th Nov 19
Morrisons Throwing Thousands of Bonus More Points at Big Spend Shoppers - JACKPOT! - 13th Nov 19
What to Do NOW in Case of a Future Banking System Breakdown - 13th Nov 19
Why China is likely to remain the ‘world’s factory’ for some time to come - 13th Nov 19
Gold Price Breaks Down, Waving Good-bye to the 2019 Rally - 12th Nov 19
Fed Can't See the Bubbles Through the Lather - 12th Nov 19
Double 11 Record Sales Signal Strength of Chinese Consumption - 12th Nov 19
Welcome to the Zombie-land Of Oil, Gold and Stocks Investing – Part II - 12th Nov 19
Gold Retest Coming - 12th Nov 19
New Evidence Futures Markets Are Built for Manipulation - 12th Nov 19
Next 5 Year Future Proof Gaming PC Build Spec November 2019 - Ryzen 9 3900x, RTX 2080Ti... - 12th Nov 19

Market Oracle FREE Newsletter

$4 Billion Golden Oppoerunity

The Aging of the Microchip Industry Is the Reason Behind This Economic Malaise

Stock-Markets / Technology Oct 26, 2016 - 05:31 PM GMT

By: John_Mauldin

Stock-Markets

BY GEORGE FRIEDMAN : Classical economics argues that as capitalism matures, competition causes both wages and profits to decline. Wages go down because the early successes of capitalism cause more workers to compete for jobs. Profits decline because more businesses enter markets, causing business failure.


Why hasn’t that happened?

Karl Marx gave the answer… but he didn’t see that it negated his theory. He argued that under capitalism, the means of production are constantly transformed. As some industries decline, others emerge.

Those new industries start with much higher wages and rates of return on capital. So there’s no revolution, just the constant ferment of innovation.

What makes this possible?

Improvements in technology are one cause. They trigger new methods of production, distribution, and organization that lead to increased productivity per worker. As productivity goes up, profit margins and wages do too.

That’s why this chart is so troubling.

Since the 2008 financial crisis, US productivity growth has diminished. This year, it will fall. According to The Conference Board, there is a worldwide decline in the rate of productivity growth.

The link between the microchip industry and productivity

I would argue that this crisis has a great deal to do with the aging of the microchip industry.

The introduction of the microchip into all parts of the economy had a massive effect, like that of electricity or the combustion engine. These technologies also had a range of unintended consequences that gave them a logarithmic effect on the economy.

Let’s take a look at the automobile. In 1910, Henry Ford’s production innovations introduced the automobile as a revolutionary technology. By 1950, his invention was a norm in industry. It had ceased to be transformative. It had transformed the culture.

From 1950 onward, the focus was less on improvements in performance than on design and marketing. Wages and returns remained high for about 20 more years, but it did not radically improve productivity in other industries. The innovation had been absorbed. And then, decline set in.

By the 1970s, the technologies spawned in World War II had reached maturation. A time of economic dysfunction set in. Then in the early 1980s until the early 2010s, the microchip helped to reverse that global stagnation.

IBM introduced the first PC in 1981. In 35 years, the microchip has transformed all aspects of life and business. But when the new iPhone was introduced, the focus was on the lack of a headphone jack.

It is reminiscent of the features introduced for cars in the 1950s. Consumers were still excited, and the auto companies made the best of it, but the heroic days of auto development were done.

Now, there are still new applications to be found in computing, but the heroic age is over. And the amount to which it can surge productivity is as well. It is now time to stop thinking of chip-based systems as cutting edge.

A period of economic malaise occurs between one socially transformative technology and the next. But there has always been an emergent new technology that revolutionizes society and economic performance.

War and Eurasia

Economic problems are compounding the instability in Eurasia. The aging of the microchip industry is critical because it has decreased productivity growth. That negative growth puts in place the decline in wages and pressure on profitability that classical economists predicted. In turn, that puts stress on a fragile region of the world.

The internal combustion engine was the basis of warfare in World War II. Since the 1980s, militaries around the world have shifted to microchip-based warfare… from precision-guided munitions to field hospitals.

The World War II model of war was made obsolete by the microchip. In the future, those nations that develop the next transformative technology will have an advantage in applying it to warfare. Since war is the most human of things, any transformative technology will transform this sphere. It always does.

Productivity and technology are foundations of the Eurasian crisis. Whatever comes next will be a foundation of war.

Watch George Friedman's Ground-breaking Documentary, Crisis & Chaos: Are We Moving Toward World War III?

Russian adventurism. An ailing EU. Devastation in the Middle East. These are just three symptoms of a systemic instability engulfing a region that’s home to 5 billion of the planet’s 7 billion people.

In this provocative documentary from Mauldin Economics and Geopolitical Futures, George Friedman uncovers the crises convulsing Europe, the Middle East, and Asia… and reveals the geopolitical chess moves that could trigger global conflict. Register to watch the documentary now.

John Mauldin Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules