Will the American economy usher in a long-term prosperity?

This article is transferred from the author | Chen Daotian

The significance of computer software to economic cycle changes may be underestimated. The epidemic and the Russian-Ukrainian war may both be minor disturbances, and the United States may experience a long boom cycle.

From product innovation to service innovation

Most of the major technological innovations in history are concentrated in the product field, including innovations in new machinery, new materials and new products, such as breakthroughs in papermaking, steam engines, trains and ships, steel, electric energy and petrochemical technology. The innovation in computer field includes both product innovation (hardware) and service innovation (computer program or software), and the market of software is greater than that of hardware. Historically, service innovation is not easy. Some major product innovations will bring about a leap in services, such as telephone and telegraph to communication services, trains, cars and planes to transportation services. However, the efficiency of the service itself basically depends on the hardware products. And computer software completely subverts this logic. Computer software is the service itself, and the innovation of software is the innovation of service. This phenomenon is unprecedented in my opinion.

From intermittent major innovation to stable and continuous micro-innovation.

Technological progress is usually not smooth and linear, and many major technological innovations are intermittent. For example, the above-mentioned major technological breakthroughs only occur once every few decades, leading to a leap in the economy. Their invention and popularization bring about staged prosperity of the economy, and staged stagnation of innovation will bring about a relative decline in economic growth.

However, the technological progress of the computer industry follows a completely different model. In short, computer programs have brought about stable and unlimited technological progress. The technological progress of computer industry in hardware can be summarized by Moore's Law. Recently, however, I have gained some new knowledge about computer software, and I want to discuss the significance of software here. I believe that the development of software has brought revolutionary changes to the way of technological progress.

Social production is composed of countless processes. Everyone has their own process, the team has a process, the enterprise has a process, the government has a process, and the processes are interrelated and cross, resulting in new processes. Software is to automate, rationalize and repair these processes. For example, to solve an equation, a computer program can automate the process of manual calculation, thus improving efficiency. In our organization and cooperation, management software can record information and processes and contribute to better process management. Chinese translates programs into programs, which is very appropriate and vivid.

Programmers modify software, which represents technical progress; Connecting the two softwares is also a technological progress. Moreover, as long as we put in manpower to modify the test, we can get better procedures, thus improving work efficiency. This is amazing. Inventions and creations are all carried out by outstanding figures in history, and they need leap-forward creative thinking. Now a programmer who has been trained by standards can stably produce new programs, that is, new technologies. There may be tens of millions of programmers all over the world, who are steadily creating new technologies and new knowledge. Imagine that a software can be updated in a month or even weeks, while traditional manufacturing industries, such as automobiles, can only be updated once a year. The threshold of technological innovation is lowered, the number of participants is greatly increased, and new knowledge can be generated stably, which is unprecedented in the history of technological innovation.

Another feature of software may be equally important, that is, the space for technical progress of software is almost infinite. As mentioned earlier, software serves the process. There are so many people and organizations in the world that they have to carry out endless processes. In this way, the places where the process system can be improved or established are infinite, so the space for software improvement is also infinite. This probably explains that after 60 years of great prosperity, the number of employees in the computer industry is still growing rapidly. This phenomenon has never happened in any industry in history.

The great promotion of software to other service departments

Software itself is a big service industry, and software itself can also promote the great progress of other service industries. In industrial production, the results of labor are in kind, and its quantity and quality are easier to measure, so production activities are easier to manage and supervise. The management of service industry is not easy, because the quality and efficiency of service are difficult to measure. The use of software in workflow has brought fundamental changes to the service industry. Computer programs leave more information records in the process of service production, which can evaluate the quality and progress of service work more accurately and timely. The natural matching between computer programs and service processes makes the use of software in service industry natural. The progress of software technology not only improves the efficiency of traditional service industry, but also promotes the emergence of many new services. For example, online music lessons, online retail, online concerts and so on.

Traditionally, large service enterprises have appeared in banking, retail, communications and other industries. The widespread use of computer programs has promoted the emergence of innovative large-scale service enterprises. Emerging service companies, such as Amazon, Microsoft and Apple, have100000 employees. Accenture, a consulting firm, has 700,000 employees. The emergence of these innovative and knowledge-intensive large-scale service enterprises represents an unprecedented improvement in organizational capacity.

Rising proportion of service industry and economic cycle

The direct consequence of computer software's promotion and empowerment of service production is that the proportion of service industry in the economy continues to increase, while the proportion of commodity production sector decreases obviously. In the United States, the proportion of commodity production sector in non-agricultural employment has dropped from 18 in 2000 to 13% in 2020, a decrease of nearly one third. The decline in this range may have an important impact on the economic cycle. The current commodity production needs to match the future demand. This kind of time mismatch is difficult to overlap expectations, which leads to great fluctuations in many economic activities, such as inventory and fixed asset investment. However, services are completely different, and the production and consumption of services match instantly, which greatly reduces the volatility of production activities.

The proportion of service industry employment in non-agricultural employment in the United States reaches 87%, which is the highest among the world's major economies.

Effective demand becomes more stable, so the fluctuation of the economy is lower. At present, economists generally predict that the long-term growth potential of the United States is between 2% and 3%. As the proportion of commodity production sector is getting lower and lower, if we want to cause recession in an economy with a potential growth rate of 2%, we need the commodity production sector (accounting for nearly 20% of US GDP) to drop by more than 8% in a quarter (the annual decline is close to 30%), thus dragging the whole economy into recession. This kind of fluctuation is rare in history.

Besides, the current construction industry looks healthy. The manufacturing industry is so small that it seems impossible to suffer a big impact.

Moreover, high-tech manufacturing like Tesla is booming and has the potential to create 300,000-500,000 jobs in the United States for a long time. We must know that the manufacturing employment in the United States is only120,000.

Based on the above reasons, I think the economic stability of the United States has been greatly improved, and it is likely to continue to grow in the future.

The effect of inflation

Inflation is a risk factor at present. In June 2022, the year-on-year growth rate of CPI in 5438+ 10 reached 7%, the highest level since the early 1980s. Faced with inflationary pressure, the Federal Reserve began to raise interest rates in 2002112 and withdrew from quantitative easing. The question now is, is inflation temporary or persistent?

This paper holds that inflation is temporary. During the epidemic period, the consumption and savings behavior of American residents has several remarkable characteristics. One is that a large number of unemployment benefits issued by the American government have led to an increase in residents' income instead of falling. Another feature is that service consumption is greatly restricted by social isolation, and residents spend a lot of income on commodity consumption. This has led to a sharp rise in demand for commodities due to structural factors, and at the same time, due to the poor global supply chain, the supply cannot keep up, which eventually leads to a rapid rise in prices. I believe that this structural factor will not become a lasting trend. When the surplus cash in residents' hands is exhausted, the demand will return to the trend level, and the supply chain will be gradually improved, which will eventually lead to the price increase returning to the historical trend level.

Stagflation in the 1970s was caused by many factors, and I don't think there are conditions to trigger the wage-inflation spiral at present.

The world is always disturbing. Before the Sino-US trade war ended, COVID-19 broke out, and recently there was a Russian-Ukrainian war. However, I think these are all minor disturbances. If what I have discussed above is reasonable, then the technological progress with computer software as the core will make the global economy continue to prosper, and the era of world economic peace is coming soon.

I was really relieved when I came to such an optimistic conclusion. Yes, when I wanted to do research, it was a bit like a teenager who didn't know the taste of trouble, insisting on the taste of trouble in order to assign new words. Looking back now, I was moved by the simple spirit of exploration and ashamed of my limited knowledge. If it weren't for the COVID-19 epidemic in the past two years, I didn't have time to study the world's leading information technology companies, I might not have made this discovery. And if you don't have a sense of process and system in Kang Mangsi, you won't have so many ideas about technological innovation and macroeconomics after seeing technology companies. This is an accidental and wonderful journey of thought.

In this long-term wave of technological innovation centered on software, American enterprises have made outstanding contributions. In the post-industrial era, the advantages of the systematic, transparent, rational and stable institutional environment in the United States (these elements are very important and will not be discussed here) will continue to be reflected in computer software and wider service industries. Software and Internet will link the global economy more closely. I believe that technology-driven global economic integration will inevitably deepen, and the United States will create a long-term economic expansion and at the same time drive the sustained prosperity of the global economy.

Fukuyama, an American political scholar, wrote the book The End of History when he was very young, which made him famous and became an academic star. In recent years, Fukuyama has become a bit pessimistic, which seems to have shaken the optimistic idea in his early years. Politics is difficult, but in the economic field, I think history is over.