The Optimists Have It Right

Sure, The 21st Century Economy gets a lot of hype. But breaking technological boundaries and sustaining high growth have been the rule throughout America's history

Once upon a time, Paul Cullen was a plumber, till he got tired of coming home with gunk on his hands. "I wanted to do something with my brain," he says. So off he went to community college, where new skills awaited. Two years later, he was a technical-support rep, working the kinks out of complex computer networks in Seattle.

This may be the feature of The 21st Century Economy that's easiest to fathom: The guy who unclogged your toilet now tends your local-area network. It's other changes that may take some getting used to.

To review: Tiny things called nanotubes, built atom by atom, someday will produce striking materials and self-replicating semiconductors. Genetic engineering somehow will double the yield of corn. Drugmakers, having "bar-coded" our DNA, will find a cure for cancer. And financial innovations, driven by unimaginably powerful computers, will parse risk into ever smaller bits. Soon, you may be able to buy an option that pays off if your home price doesn't keep up with the Joneses'.

There are vexing commonalities here. First, you can't see most of this stuff. O.K., maybe you'll turn up a nanotube with something called a scanning probe microscope--but the probe itself is so small you can't see that, either. Even more suspicious, these phenomena tend to be preceded by the words "radical" and "revolutionary" and followed by the phrase "new paradigm."

Then there's the conclusion. Revolutionary (that word!) technologies and rapid globalization will create a new paradigm (see?) for the economy. They will send productivity soaring, allowing faster growth with low inflation and modest unemployment. This dynamic could last for decades, bringing unimagined prosperity worldwide.

Uh-huh. Understandably, there's an urge to dismiss the whole notion. Many intelligent people do, in fact--respected economics gurus such as Paul Krugman and Robert M. Solow, the twin towers of the Massachusetts Institute of Technology, view the argument as extravagant optimism born of hopeless naivete. Fed Chairman Alan Greenspan bought in only recently--and then, only up to a point.

Here's the thing, though. So far, the numbers suggest it's for real. Gross domestic product keeps growing faster than anyone expects. Inflation is almost negligible. Unemployment, stuck below 5%, recalls the palmiest days of the so-called American Century. Incomes are up and the poor are gaining. Life is pretty good all around.

Here's another thing--and it's really the more important. Colossal technological bounds, global interdependence, and sustained high growth aren't exceptional. Through most of America's economic history, they've proved the rule. Since the 1890s, we've gone from one breakthrough to the next--the telephone, railroad, automobile, semiconductor, Internet. Iced latte. Each quantum leap has kicked up growth (all right--maybe not the latte) and raised living standards.

Mired as we are in more recent, less interesting history, it's easy to overlook this past. We've grown accustomed to incremental improvements and measured change, which is what most of the 1970s and 1980s were all about. We imagine the inevitability of inflation and glumly mouth the rich-get-richer, poor-get-poorer mantra.

It comes down to this, then. Were those 20-odd years an anomaly or indicative of some greater, bleaker truth? Has all the really cool stuff been done already? Or is technological and economic progress naturally defined by startling, dazzling leaps--bursts of brilliance that reflect humanity's imaginative capacity? Are we on the cusp of such dazzlement now?

As you might guess, we side with the leaps. And we think we're starting to get there. The change, wild and cacophonous, won't always be painless: Radical transformations create dislocation along with bounty. The highs will be higher, but the lows could be brutal. Asia's craziness, the recent stock market: get the picture? But ultimately, we're likely to be just fine. This vision of The 21st Century Economy certainly is optimistic--but not extravagantly or naively so. The changes are real, they're coming, and they're going to be a lot of fun. At least, most of the time.

Before it's here, it's on the Bloomberg Terminal.