Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Has Next UK Financial Crisis Just Started? Bank Accounts Being Frozen - 21st July 19
Silver to Continue Lagging Gold, Will Struggle to Overcome $17 - 21st July 19
What’s With all the Weird Weather?  - 21st July 19
Halifax Stopping Customers Withdrawing Funds Online - UK Brexit Banking Crisis Starting? - 21st July 19
US House Prices Trend Forecast 2019 to 2021 - 20th July 19
MICROSOFT Cortana, Azure AI Platform Machine Intelligence Stock Investing Video - 20th July 19
Africa Rising – Population Explosion, Geopolitical and Economic Consquences - 20th July 19
Gold Mining Stocks Q2’19 Results Analysis - 20th July 19
This Is Your Last Chance to Dump Netflix Stock - 19th July 19
Gold and US Stock Mid Term Election and Decade Cycles - 19th July 19
Precious Metals Big Picture, as Silver Gets on its Horse - 19th July 19
This Technology Everyone Laughed Off Is Quietly Changing the World - 19th July 19
Green Tech Stocks To Watch - 19th July 19
Double Top In Transportation and Metals Breakout Are Key Stock Market Topping Signals - 18th July 19
AI Machine Learning PC Custom Build Specs for £2,500 - Scan Computers 3SX - 18th July 19
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

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