The Right-Brained Economy

Aldous Huxley once remarked that man made the automobile in his own image. But if humans ever created a machine in celebration of themselves, it was the computer.

The culture of market economies has always treasured the ability to analyze and process information. The second most popular books in the sixteenth century, after Bibles, were math textbooks that taught how to exchange currencies and extrapolate prices. A short generation ago, our economy's "best and brightest" were numbers crunchers: they were the "whiz kids" who first pioneered financial engineering and high-powered capital market theory, or brought modern management to Robert MacNamara’s Ford and Pentagon.

But today, thanks to technology, everybody's a whiz kid. Today, if you know one thing, you can talk to most of the population of the Earth: that thing is their phone number. And now, armed with one other thing, you can learn any fact, see any image, or gather any data – an internet address. There is now almost nothing that the computer on your desk cannot tell you.

This evolution in information technology is about to change our culture. As computers get cheap and the internet flourishes, we are becoming overloaded with data – data from markets, websites, spreadsheets, desktop publishing, powerpoint presentations. Anyone can now be a numbers cruncher, an analyst, a data producer. The people who prosper in this world won’t be those who add to – or are distracted by – the clutter. The Information Revolution is automating the left side of our brains – the side that analyzes and manipulates data. And as a result, a new and different set of skills and abilities is becoming more important –– judgment, intuition, creativity, and insight. In short, the Information Revolution is creating a new, right-brained economy.

The advent of this right-brained economy is challenging all of our institutions. How will business schools develop these traits in their charges, or recognize them in their applicants? How will companies identify and reward managers who demonstrate these skills, or build their organizations around them? How will the obsolete data-crunchers perilously positioned in the path of this technology adapt?

It was no less a seer than the late Timothy Leary who said, "Computers...will replace you only to the extent you think like a bureaucrat, a functionary, a manager... or a chess player.” Not long after Leary’s departure from the scene, IBM's chess program, Big Blue, beat international chess wizard Gary Kasparov, making Leary’s point.

And so, the ultimate paradox: the machines that compute and analyze will ultimately reward the artists, poets, and philosophers who know what to do once the machines are done computing and analyzing. They will be tomorrow's CEOs.

Rudolph the Red-Nosed Reindeer

Commentator Ev Ehrlich deconstructs the Christmas song, Rudolph the Red-Nosed Reindeer.

Listen here.

A Bang, Not a Whimper

The amazing U.S. economic expansion reached its 106th month in February, making it the longest-running uninterrupted period of growth in U.S. economic history, and setting in motion a debate over who gets credit for this prodigious nine-year-old's parentage.

There is no shortage of candidates, but President Clinton is first on the list. Upon election in 1993, he realized that lower interest rates borne of deficit reduction would prove a longer-lasting tonic than the deficit-expanding spending programs he originally championed. This act of fiscal apostasy was anointed with low interest rates by the expansion's second Titan, Fed Chairman Alan Greenspan, who has since allowed the economy to grow at rates that would have given his predecessors vertigo. And Greenspan has helped provide stability in times of crisis — in Mexico in 1995, Asia in 1997, Russia and Long Term Capital Management in 1998. No wonder John McCain wants to stuff him.

But just as Clinton and Greenspan deserve credit for the economy's success, so, too, do Presidents Carter and Reagan, who deregulated much of the economy, even if the latter's deficits were an unneeded burden. And two others should not go unnoticed: Robert Noyce and Jack Kilby, who separately in 1959 perfected the integrated circuit, from which flowed the microprocessor, the computer, and the Internet, all of which have transformed the economy as much as any economic policy could. To some, giving Clinton-Greenspan credit for the expansion triggered by the information revolution is like giving Moses credit for water flowing from the rock at Hebron: all Moses really had to do was smite the rock, and then stand back and let Providence do its stuff. There's some merit to this view, but absent the stage Clinton and Greenspan set, it's unlikely today's revolution would have proven so robust.

But the debate over the expansion's origins begs a more important question — how will it end? The economy has grown at a muscular four percent for the past four years, but as knowing Wall Streeters say, “trees don't grow to the sky.” Nothing goes on forever. For economies, the limits are set by balance: when economies falter, it is usually because some delicate balance within them has gone out of whack.

In recent memory, this has usually meant wage-price inflation: a tight labor market leads to higher wages, which leads to higher prices, which leads Fed Chairmen less lucky than Alan Greenspan to hobble their patient in order to cure his disease. Some economists — proponents of the “New Economy” — see this pattern as a remembrance of things past. After all, just about every American with an alarm clock and bus fare has a job today, but neither wages nor prices show any convincing sign of acceleration, thanks to galloping productivity gains, for which Noyce and Kilby's progeny deserve much credit. But sooner or later, as the old song says, something's got to give, and labor availability will constrain growth. The good news is that today's more responsive and alert economy might modulate itself without the overshooting that's led to past recessions, which is ultimately the reason why this expansion won't end the way previous ones have.

But there are still other imbalances brewing that could provide the spark that detonates our good thing. One is the astronomical value of stocks today: one hesitates to call it a bubble, since you never really know if something's a bubble until it pops. But were stocks to correct, the pinky-up word for it, the economy would feel a tremor. And not just consumers would be affected: with margin debt — the debt with which high-flying institutional and individual investors buy yet more stocks and other assets — burgeoning, a stock correction would take many of these high-flyers down to earth with a vengeance.

A second possible imbalance exists between the U.S. and the rest of the world, principally Europe and Japan. We're growing, they're not (although Europe, unlike Japan, has a pulse). As a result, we're running massive and escalating trade deficits with them, as we buy their goods and they don't have the means to return the favor. That's fine so long as they're willing to take the dollars they accumulate and invest them back in the U.S., which to date they've been willing to do. But should they lose their taste for U.S. assets, their growing piles of unwanted dollars will become a problem: a rapidly falling dollar usually means higher prices and higher interest rates, undoing two of the forces that have permitted this expansion to reach the outer limits of economic gerontology, and perhaps some financial institutions, again, in the soup.

These are the real risks we face. And notice that they're on the financial side of the economy, not the real side, the side that actually produces goods and services. In the real economy, things take time — inflation gradually creeps up, demand gradually slows down, unemployment gradually rises. If you catch these trends early enough, you can counter them: that's why the late economist Arthur Okun once said that economic downturns were like airplane crashes, not hurricanes, in that they were fundamentally preventable.

But a financial crisis occurs in hours, not months, and days, not quarters. Something lurches (stocks, bonds, the dollar), investors have a financial bad hair day, and suddenly panic takes over. Financial institutions go bust or grind to a halt, lending stops, and economic activity starts to implode. The world faced such a moment when Russia defaulted on its debt and Long Term Capital tanked in 1998 but averted a crisis through adept management. Yet the tinderbox aspects of the economy — escalating stock prices and margin debt — have only increased since then.

That doesn't say that such a crisis is in the works. But it does say that we're evermore vulnerable to one, and that's the part of the horizon we need to scan. And it argues that T. S. Eliot, in his poem The Hollow Men, was wrong. This time, when the world ends, it will be with a bang, not a whimper,