Purplevision

Remember all the hype in the 1990's about the information economy?

Repeat after me, class: For thousands of years there was an agricultural economy. Then it was replaced by the Industrial Revolution. Only to be replaced by the information economy.

But is an information economy sufficient to support a nation as large and diverse as the United States?

I have never really heard anyone discuss that question. My gut feeling over the past few years is that the answer is no.

The US is much more than Harvard-trained intellectual elitists who think shopping at wal-mart makes them "middle class". The US is also all those undereducated, high school drop outs, the homeless mentally ill, the middle-aged folks with obsolete skills, and the people born before the PC.

the manufacturing base
I recently learned that every major nation has a division of their national government devoted to supporting manufacturing. I also learned that the USA abandoned our division in the 1990's. After all, why would an information economy need a manufacturing base?

In the last 15 years or so, the vast majority of economic growth in our country has come from financial companies - banks, mortgage companies, hedge funds, investment firms, etc. If you were a bond trader or worked at a hedge fund, you did damn well. Not so much for the rest of America.

And now we are witnessing the results of our transition to that financial empire - two historic asset bubbles followed by historic meltdowns. The current housing/debt bubble dwarfing the dot-com madness.

There has been a lot of talk about how our information economy is built on fast and cheap communication. The Internets let US companies harness cheap, educated labor in India and China.

This is certainly true but it fails to recognize a second critical issue: cheap transportation (and its dependence an cheap energy).

We can shift jobs to the information economy and away from a manufacturing one because it is so cheap and easy to manufacture goods a world away and ship them to consumers here. Even the information economy goods, like computers, are built somewhere else.

If there is ever a shock to the energy that cheap transportation relies on, how will you feed yourself or buy those computers needed for an information economy?

The upside of an information economy are high-paying jobs that are cleaner and safer than manufacturing ones. The downside means a greater (perhaps total) dependence on other nations for our basic needs.

Oil is now a $120/barrel and some argue that it will all be gone in 2 decades anyway. What will we do then? And what about global warming? If we are the root cause of global destruction, wont we have to quickly abandon the cheap oil-buringin transportation we rely on? Keeping our suburbs alive by replacing gas-guzzlers with electric hybrids is great but how will we get the hybrids in the first place?

Big hairy questions. Questions that are made all the more relevant by Kevin Phillip's new book about our information cum financial economy.