A Patriots Manifest Date May 19 2008
William White
Up until the 1920s politicians were certain that they could predict the economic future forever. Economic policies based on these assumptions are a major part of why the Republicans are discredited and the Democrats will be under an Obama administration. And if close attention is not paid to the cause of these failures a constitutionalist /libertarian regime will also be discredited.
(Article Continues Below)
|
Remember the 8-track tape? How about the ever bigger centralized computer or the replacement of servers with ever better PCs? The audio cassette may have made its money back before going out of business the same may be true of cable TV. In case that last one threw you the switch to digital broadcast TV, better wireless connections, fiber-optic phone cable and/or reduced costs to geo-synch orbit is going to put many cable companies into bankruptcy. A public futil ity in a competitive market is in very deep trouble and usually the mandated time for recapture of capital is on the order of 30 years. Since state laws and the amount of time cable systems have been in operation vary so much averages which are available from many sources are meaningless. How meaningless is determined by the various debt covenants that financed all of the subsidiary cable systems owned by the major holding companies. The CEOs of major cable companies may not know their exposure to substitutes, I certainly don’t.
More than a century ago the French Economist Leon Juglar made the first scientific attempt to explain the product life cycle’s effects on the economy it didn’t work. Here is why it didn’t work:
Technologies are unbounded. Back in 1975 G. Harry Stine “In the Third Industrial Revolution” pointed out “That is 1642 followed by 50 zeros!” in referring to the number of combinations of then known industrial processes unique to space. Leav ing aside the facts that nanotechnology or biotech may make it possible to replicate many of those processes here on Earth and the very real possibility that 99+% of space unique industrial processes have yet to be discovered the universe will end before all of the combinations will be checked out. Space is just one engine of change there are unbounded numbers of other engines. The internal rate of return of computer memory per dollar of purchase still exceeds 41%.
Space travel is still gearing up as an engine of economic change but computers are geared up already and are no where close to saturation yet. The computer industry is taking over huge amounts of the economy such as automobile control systems, the phone industry‘s switching systems and inventory tracking. Billion dollar and up computer chip fabrication plants have useful lives of less than a decade. There have been at least 4 distinct major computer related booms: wireless, internet, gaming and high de finition TV; in just the past decade. Two of them became spectacular busts, so what is going on?
If the average pre-tax return on investment is say 15% and the cost of borrowed funds: interest and amortization plus covenants; is 12% an industry that generates 20% ROI is an elephant. It is not 1/3 larger than average, it is 8/3 larger 15-12=3; 20-12=8; 8 is 8/3 of 3. The standard free market or for that matter socialist economic model is based on slow changes in rates of return and small differences in rates of net return from different industries and most critically a predictable level of innovation and substitution. The free market model makes fewer assumptions about the predictability of the economy but unless all internal and external sources of innovation and substitution are accounted for, an impossibility, economic prediction is not going to be adequate to support stabilizing economic policies.
What is needed instead are economic policies that encour age the capitalization of expenses such as making mortgage amortization rather than interest deductible; prize money to innovate out of current messes as in indexing social security to life expectancy while offering voluntary buy outs from the system and offering prize money (financed by lottery) to innovations that improve health and life expectancy; and in general discouraging debt while encouraging autonomy. In sum getting the government out of the fortune telling business is a very high priority for a return to constitutional liberty. There are some other factors of the product life cycle that need to be covered in another column.
The views expressed by William White are his and his alone and may not be the views expressed by A Patriots Manifest. Thank you .... Michael Roller...