1). Long-range impact of networked tools employed by “Siren Servers” move information but not income to those who are exploited by them. Our private information is being bought and sold without any compensation to us, the users.
2). Wal-Mart mastered its supply chain with servers, beat up vendors for low prices, then proceeded to gut local economies.
3). File-sharing services provided downloaded music for free, depriving musicians of income.
4). Things have become much cheaper or given away, but only the people owning the servers benefit. A much larger slice of profit is going to a handful of people, creating an even smaller group of techno-elites.
5). Wall Street exploits technology through networks and high-speed trading to gain spectacular advantages over Main Street investors, who get creamed in their 401(k)s when traders go wild. The mortgage crisis of 2007-2009 was as much an example of technological abuse as pure greed.
The classical economic argument is superior
So, clearly speaking, I cannot really agree with many of the points that were illustrated by Jaron Lanier. For example, Jaron Lanier states that the long-range impact of servers is that while it effectively moves information, it does not increase income. However, the problems with his viewpoints are two-fold.
First, no one fully understands the long-range impact of the networked economy, except for the fact that it decreases the cost of producing goods which, based on classical economic theory, would shift the supply curve to the right, therefore lowering prices and increasing total economic output. This viewpoint can be clearly supported by looking at the historical real GDP growth of the United States economy over the past twenty-years which is illustrated below.
Source: Ycharts
The above figure clearly illustrates that the total quantity of goods supplied has increased. Real GDP measures the total growth of the economy excluding inflation. The period analyzed includes the rapid adoption of the computer, internet, and software. The three combined have contributed significantly towards total real economic output.
Companies like Google and Wal-Mart do you a favor
Companies like Google Inc (NASDAQ:GOOG) and Wal-Mart Stores, Inc. (NYSE:WMT) contribute to the economic growth and prosperity of this country, contrary to what Jaron Lanier states in his book. Wal-Mart Stores, Inc. (NYSE:WMT), while ruthless at operating a low-cost retail chain, has freed up capital for its most optimal use. For example, all those people who could have been working at grocery markets ended up working at higher value jobs.
Wal-Mart Stores, Inc. (NYSE:WMT) has optimized its business operation to function with a smaller workforce. This also means paying workers a lower wage. Those who work at Wal-Mart Stores, Inc. (NYSE:WMT) that are employed are either younger-adults who live at home with their parents, or older adults who are looking to move themselves up the corporate ladder.
The remaining people who are left unemployed have to create their own work. Many of the work that has been created in the economy was due to changes in the technological environment. More and more labor is becoming self-employed. The self-employed work in sectors of the economy like technology, medical, entertainment, sales, marketing, and even finance. More self-employment has been created due to changes in the technological environment, which has led to increases in the level of skilled labor in the broader economy. This results in aggregate economic growth, or real GDP growth.
According to Atlanta Federal Reserve Bank economist, Stephan Goetz:
The economy has been adding self-employed workers rather than employees. Between 2000 through 2010, the number of self-employed increased from 25 million to 36 million workers, which was a 40% increase. In comparison, over that period the wage-and-salary job number, basically stagnated at around 137 million jobs. Within the next decade, if these trends continue, it will actually be one in every four workers (25% of the workforce).
This burgeoning work-force of independent micro-entrepreneurs is projected to increase even further. This is driven by changes in technology and more efficient retail practices that have conserved labor for its most optimal use. This conservation of labor has allowed for an emerging class of small business owners.
A more efficient work force is always a better work force. While the accusations of Wal-Mart Stores, Inc. (NYSE:WMT) closing small businesses is true, more businesses have opened. Technological gains shift the aggregate supply curve of an economy to the right. In economic theory, this decreases prices, increases consumption, increases barriers of entry, and forces labor to be re-employed at its most optimal use.
Owning servers couldn’t become that big of an industry
Some critics like Jaron Lanier also state that it’s the companies mining the data and running the server that earn all the money. But, I believe that’s not true. After thoroughly analyzing every single Dow Component stocks across all economic sectors, there is absolutely no way data-mining could become one of the largest industries in the world.
AT&T projects that the cloud will become a $210 billion industry. Companies in the cloud like Amazon.com, Inc. (NASDAQ:AMZN) and International Business Machines Corp. (NYSE:IBM) are likely to benefit from the favorable economic environment. A $210 billion industry while big, is not necessarily “big”; remember the global economy generates $70 trillion in economic output, according to the World Bank.
Cloud virtualization is both Amazon.com, Inc. (NASDAQ:AMZN) and IBM’s fastest growing business. Both companies are expanding the breadth and depth of their services. Amazon was able to report 47.3% year-over-year growth and International Business Machines Corp. (NYSE:IBM) was able to report 70% year-over-year growth in the same segment. Analysts remain optimistic on both companies and anticipate Amazon to grow its earnings by 37.15% on average over the next five years. Likewise, IBM is expected to grow earnings by 10.49% over the same period.
Big-data benefits the users more than it benefits the companies that sell big-data services like cloud virtualization. Companies who use Amazon and IBM cloud based services are likely to experience savings on unnecessary IT spending. While Jaron Lanier argues that the cloud causes a loss of jobs, on the other hand, it actually increases real GDP growth because it lowers the cost of production which, therefore, allows companies to hire more employees, open more stores, and save money. All three are good, and lead to positive trickle-down effects for the economy.
Google’s Adwords and Adsense are tools that support small-business owners. In fact, Adwords can be one of the strongest marketing tools for small and medium business owners. Google Inc (NASDAQ:GOOG)’s advertising services reduces the need to employ salespeople which increases the productivity of small business owners who want to write code, provide services, and sell intellectual property. In summary, Google Inc (NASDAQ:GOOG) saves money, as a result, business people are better able to invest money back into their businesses. Supply curve shifts to the right because of the lower cost of production, which increases real economic output, and the trickle-down effect continues to be felt.
Technology doesn’t make Wall Street that much better than the rest
The author argues that Wall Street is some casino that heavily favors the group that has the most money. Major Wall Street banks use technology like high-frequency-trading to make additional money from the stock market and launch an effective barrier of entry for the small-guy, according to Jaron Lanier. But if you look closely at Goldman Sachs Group, Inc. (NYSE:GS) latest earnings release. That is simply not true.
Upon closer examination of Goldman Sachs Group, Inc. (NYSE:GS), Goldman Sachs’ institutional client services reported a 10% decline in fixed income, currencies, and commodities trading on behalf of clients. The bank is full of talent, which includes these high frequency trading systems. The problem is that high-frequency-trading doesn’t really pad the banks’ bottom line. Over the first quarter of 2013, currency markets were extremely volatile, with the USD/JPY rallying by over 20%, the Gold market declining by 17.30%, and bond coupon values declining by 2%-3%.
Generally speaking, investment banks tend to benefit more in a bull-market rather than a bear-market. Trading in and out, going short, along with complex-hedging strategies clearly aren’t enough to stem the losses of a unfavorable trading environment, which clearly contradicts the blissful ignorance of Jaron Lanier and his version of Wall Street “high-frequency-trading.”
Conclusion
Technology is advantageous for the economy; it does more good than harm. Better technology will almost always benefit the economy.
The article Don’t Read the Wrong Signs About Technology originally appeared on Fool.com and is written by Alexander Cho.
Alexander is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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