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What Have We Learned a Year After NASDAQ Hit 5,000?
Permanent link to this article: http://www.kurzweilai.net/meme/frame.html?main=/articles/art0379.html
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What Have We Learned a Year After NASDAQ Hit 5,000?
The current recession reflects failure to develop realistic models of the pace at which new information-based technologies emerge and the overall acceleration of the flow of information. But in the longer-range view, recessions and recoveries reflect a relatively minor variability compared to the far more important trend of the underlying exponential growth of the economy.
Originally published on KurzweilAI.net January 21, 2002.
Although the Internet revolution is real and continues (e.g., continued exponential growth of e-commerce, the number of web hosts, the volume of Internet data, and many other measures of the power of the Internet), this does not change a fundamental requirement for business success: vertical market expertise. Most companies use the telephone, but we don't define them as telephone-centric companies. Your local dry cleaner is likely to have a web site today, so the web has become about as ubiquitous as the phone, but we still want a cleaner that knows something about cleaning clothes.
The real Internet revolution has been the adoption of decentralized Internet-based communication by traditional companies to redefine their internal work flow processes and to communicate up and down the supply chain including end users. However, the proper definition of an Internet company is one that makes distinctive use of the power of the network. A company like eBay, for example, would not be possible in the brick and mortar world and makes unique use of its ability to match buyers and sellers.
We also learned that although a new technology may ultimately be destined to profoundly affect our civilization, there are nonetheless well-defined limits at specific points in time to its varied requirements. On the order of a trillion dollars of lost market capitalization in telecommunications resulted from absurd over investment in some aspects of the technology (e.g., the extreme glut of fiber) before other enabling technologies (e.g., the "last mile" of user connectivity) were ready.
Because of improvements in communication between buyers and sellers, this recession is not about excessive inventory. It resulted instead from a failure to develop realistic models of the pace at which new information-based technologies emerge.
It is also the case that the pendulum is swinging more quickly now, which reflects the overall acceleration of the flow of information. We went from almost anything goes a year ago to almost nothing goes four months ago to signs today of a renewed willingness to invest in new ideas by the angel, venture capital and IPO communities.
An important phenomenon I've noted from the recessions of the twentieth century (including the Great Depression) is that the recessions and recoveries reflect a relatively minor variability compared to the far more important trend of the underlying exponential growth of the economy. It is interesting to note that as each recession ended, the economy ended up exactly where it would have been (in terms of the underlying exponential growth) had the recession never occurred in the first place, as one can see in the following chart.
Chart Graphics by Brett Rampata/Digital Organism
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Mind·X Discussion About This Article:
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Wht HveWeLearnedYrAftrNaz5000
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The graph and the comments of Dr. Kurzweil are fascinating, but do not address the issue that jumps out of what he says, to wit: How can business people earn a return on their investments when the rate of change is increasing, and new technologies are becoming obsolete at an ever faster rate? The asymtotic growth rate certainly does point toward his notion of "The Singularity".
The cycle time of boom and bust seems to be compressed, yet governments are no where near scientists and business people in adjusting to these newer changes. The lags of both fiscal and monetary policy are becoming more, rather than less, likely to exacerbate short term problems of economic adjustment, and the marginal return on investment will increasingly move toward Zero over time. The social dislocations are also likely to become greater, not less, over time too, with any increasing gulf between the haves (typically highly educated) and the have-nots (the older, infirm, under educated).
So what to do? Thoughts, anyone?
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Re: What Have We Learned
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Wbboomer
>>How can business people earn a return on their investments when the rate of change is increasing, and new technologies are becoming obsolete at an ever faster rate?<<
I don't think this is necessarily the case. All technology and production requires capital investment, so there will always be opportunities to invest, and the same case will hold, where the more correct entrepreneurs will make more profits. Just because technologies are becoming obsolete quicker doesn't mean an end to this. Entrepreneurs might become choosier in investing, perhaps looking specifically for projects that have a longer term life. You are right that there MAY be an end to this eventually however, if Kurzweil is correct in his predictions.
>>The lags of both fiscal and monetary policy are becoming more, rather than less, likely to exacerbate short term problems of economic adjustment<<
This is very true.
>>the marginal return on investment will increasingly move toward Zero over time<<
Can you explain this? Are you referring to a time when there are no more productive investments left? That could happen, but by the time it did I don't think it'd be something to worry about. In the meantime, I think the entrepreneurs will just adjust accordingly. They will focus more and more on the BIG new processes and advancements and discount the smaller ones, they will have an even longer term outlook.
>>The social dislocations are also likely to become greater, not less, over time too, with any increasing gulf between the haves (typically highly educated) and the have-nots (the older, infirm, under educated).<<
I think technology and progress will cause these gulfs to shrink actually. As technology progresses, don't you think it will be easier and cheaper to become educated? Isn't MIT already providing stuff on the internet for free? A rising tide raises all ships. That's just my guess. There is potential for problems though, to be sure.
Solomon
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