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The economist Robert Gordon opened a can of worms a year or so ago when he suggested that technology is having a limited impact upon the economy; that the computer revolution is not increasing wealth like the industrial revolution or the move towards mass production did in the early 20th century. In short the good days are behind us. But is that really right?

Other see it in terms of low hanging fruit. They say we have picked the fruit that can create economic growth the easy way. The growth period supported by carbon fuels may be approaching its end – or maybe the end will be delayed if the hype about shale gas is to be believed – and this era of growth is coming to an end. But is that really right?

Capital Economics pointed out that it took 60 years before the steam engine invented by James Watt in 1769 materially boosted productivity. If history teaches us one thing, it is that there is a time lag between innovation and growth.

Sometimes we even get economic depressions in-between, as happened between the innovation we call mass production and the post World War 2 economic boom.

So to say that the computer has not created growth and neither will it, does seem to be a bit hasty.

The thing about technology that economists often forget is Moore’s Law. Computers are getting more powerful all the time and, as this happens, their potential to influence growth rises. Sometimes technology can steadily increase in power, but we barely notice it until it passes a kind of breakthrough point. When that happens we start to notice it more and more.

Apple is a good example. Steve Jobs had a dream of combining design with technology. But this was only really viable once technology had passed a certain level; a level it may have passed in the early years of the 21st century. And then the company went from flirting with bankruptcy to the biggest in the world within just a few years.

Certain burgeoning technologies may suit the UK rather well.

Take biotech. The industry is on the verge of some seriously major breakthroughs. And in this industry, the UK is the world leader.

Or take 3D printing. Critics make the same mistakes economists often make when they forget about Moore’s Law. This is a burgeoning technology, which is set to become steadily more powerful and relevant. The 3D printer costing £699 and for sale in Maplin may help users to replace missing chess pieces or new cases for their phones, but future 3D printers will do an awful lot more. NASA is funding one project to make a printer than can create a pizza from powders. It may be only a matter of time before one can say to a printer: “Tea, Earl Grey, hot.”

But 3D printing may transform industry in a way that is just as radical as when mass production took off, but this time it may work in reverse. Manufacturing may return to local craftsmen; even to the High Street as it becomes possible to have bespoke clothes, furniture, even cars made without necessarily paying more money.
Debt matters, but it matters less if your income is growing. It matters even less if the percentage interest on debt is less than the percentage growth in income.

Many critics say we face a debt crisis, that the economy is about to implode. But they forget about technology. And their error may be dangerous. If we try to cut debt at a time of innovation, the result may be falling demand at a time of rising productivity.

The debt hawks may mean well, but their belief that we must suffer pain before we can see recovery may be both wrong and dangerous. If we try to cut debt, with a resulting fall in demand at a time of rising productivity, the result may be an economic depression of great severity. The arch bears may be right in prophesying doom, but they may be right for entirely the wrong reasons.

© Investment & Business News 2013

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