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25 of 31 people found the following review helpful:
2.0 out of 5 stars
Rational, it is not., May 11, 2004
This review is from: Rational Exuberance: Silencing the Enemies of Growth and Why the Future Is Better Than You Think (Hardcover)
In September of 2000, Mandel released his first book "The Coming Internet Depression." Then, he stated that the Dot.com stocks were going to take a beating. In fact, the NASDAQ had already imploded in the first quarter of 2000. Mandel thought this event would have dire economic consequences for decades. However, we never experienced a "Depression." Instead we experienced the mildest recession on record. In other words, Mandel's judgment at the time was way too "Depressed." This time around, Mandel's judgment is way too "Exuberant." Much of what Mandel says is correct. The U.S. economy remains the World's powerhouse of innovation. Our society is better at developing and implementing innovations. This is due to our being accepting of risk, our flexible labor markets, our entrepreneurship climate, and our capital markets for financing innovation being unparalleled. So far, Mandel is right. He continues his case along the "New Economy" theory, whereby our unprecedented level of innovation will have long lived benefit including superior labor productivity and economic growth for decades to come. This is correct, and is a truism by now. This theory is seventy years old, as first stated by Joseph Schumpeter, an Austrian economist who passed away in 1950. His brilliant concept was "creative destruction." This is where new technologies displace jobs, but replaces these by higher value added ones. Mandel also believes that our economic sustainable economic growth rate is much higher than we have historically thought. Well, Alan Greenspan has said the same thing for years, and has actually implemented his vision with his lacks monetary policy. Thus, in terms of technology and economic growth much of what Mandel says is true. But, there is no new material here. So, where does Mandel go astray? Mandel's analysis has overlooked the combination of demographic forces (the aging of the Baby boomers) and their staggering related fiscal costs (Social Security and Medicare). If you think of the Federal Government as an insurance company with predictable claims liabilities; this insurer is insolvent. The retirement benefit claims (Social Security and Medicare benefits) the elderly have against this insurer way exceed its premium earned (social security taxes) and its reserves (Social Security trust fund). This gap on a net present value basis, as disclosed in the Social Security and Medicare trustees' reports, amounts to $72 trillion! What are the implications of this $72 trillion? It means that a huge portion of capital will be necessary to support Social Security and Medicare benefits of U.S. citizen. This will cause:
a) A dwindling of capital available for more productive use such as financing R&D;
b)A huge rise in demand for money, which will increase its cost (rates). Thus, rates will go up. This will slow the rate of investment, capital formation, labor productivity, and economic growth.
c)An increase in the Government debt level to potentially unsustainable level. This is a huge issue Mandel has underestimated. The concept that technological innovation can bail us out of this fiscal crisis is utopic. Every serious economist of either side of the aisle knows that. Mandel, instead chooses to criticize them all for being pessimistic. By doing so, he looses all credibility. For excellent fiscal analysis, I recommend Laurence Kotlikoff's "The Coming Generational Storm" and Robert Stowe England "Global Aging and Financial Markets" and "The Fiscal Challenge of an Aging Industrial World." Also, Robert Rubin "In an Uncertain World" and Paul Krugman's "The Great Unraveling" are also very interesting on economic and fiscal issues. Joseph Stiglitz "The Roaring Nineties" is a good piece of economics revisionism. Finally, Roger Alcaly's "The New Economy" is a better analysis on the history and prospect of technological innovation.
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12 of 14 people found the following review helpful:
3.0 out of 5 stars
I found the arguments unconvincing, June 5, 2004
This review is from: Rational Exuberance: Silencing the Enemies of Growth and Why the Future Is Better Than You Think (Hardcover)
This is a book where I agree with the main premise, but dislike many of the conclusions as well as the delivery. The main premise is that the periods of great technological change are times of great economic growth, which is something that is very hard to disagree with. From this, the author argues that all policies should favor the development of new technologies and takes a few shots at the people he thinks are opposed to such policies. Unfortunately, his arguments are shallow and unclear. First and foremost, he neglects history. The onset of the industrial revolution was an era of great technological advancement and led to a dramatic increase in wealth. However, we cannot forget many of the consequences of this advancement. In England, it led to rapid loss of their forests and in the industrial regions, the air was so dirty from the smokestacks that people could barely see. I remember reading of an instance where a lengthy weather pattern that kept the pollution in an English city led to thousands of deaths. There is also a classic case in the United States where a river was so polluted that it actually caught fire. Therefore, some of those he classifies as enemies of growth are asking the very important questions that need to be asked concerning the consequences of technological improvements. Mandel also derides those who preach against MASSIVE federal budget deficits. He quotes former secretary of commerce Peter Peterson, who said in 2003 "When such deficits are incurred in order to fund a rising transfer from young to old, they also constitute an injustice against further generations." Mandel's next sentence is "This is the language of morality, rather than economics. From this perspective, taking on debt is wrong because it reflects profligacy and wastefulness, and shows that the government is out of control." It is immoral to saddle the next generation with an enormous debt, so Mandel's statement is inappropriate in that area. I have listened to Pete Peterson argue against massive budget deficits for two decades and his point has always been in opposition to massive deficits that require large expenditures for interest payments and take capital away from the free markets, where it would be the most efficiently utilized. Mandel then does a little bashing of former Senator William Proxmire, who regularly gave out Golden Fleece Awards for what he considered outrageous government spending. The classic example of the $600 toilet seat is mentioned. Mandel then states, "Unfortunately, this antiwaste, antidebt mind-set is inimical to innovation, which inevitably requires going down a lot of different dead-end roads before finding success. . . From the perspective of a deficit hawk, exuberant growth is intensely disturbing." This is simply not true, rapid economic growth does not disturb the deficit hawks, in fact they welcome it. What disturbs them is the unarguable fact that government spending is inherently wasteful. Mandel seems to believe that the only way new technologies develop is by throwing enormous amounts of money at them. The dot-com bubble and burst shows that this is nonsense. The Internet companies that survived the implosion were almost exclusively those that spent well within their means and were fairly conservative in their business plans. Also, many of the new technologies that are so highly praised in the book were developed on minimal budgets. This book is little more than a collection of arguments in favor of massive federal budget deficits, cloaked in a nebulous mantra of "exuberant growth." I found very few of the arguments convincing, in many cases they deal with peoples beliefs taken out of context and inaccurately. To sum them up, his point is that if we are courageous enough to accept the right amount of debt, then enough new technologies will be developed to grow the economy into surplus. Mandel presents no conclusive evidence in support of this thesis, and extraordinary claims require extraordinary evidence. I was also unimpressed with the subtitle of the book, as quite frankly he silences no one and while many people will raise legitimate concerns, few are really enemies of economic growth.
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1 of 1 people found the following review helpful:
3.0 out of 5 stars
Some fine points, argued well. However, I think unrealistic in the upside, February 11, 2006
The author anticipates his naysayers. He is, after all, urging a kind of attitude towards rapid and continued growth that goes beyond current expectations, models, and infrastructure. He sees the boom and bubble of the nineties as a good thing and something more than something that burst from corruption and accounting malfeasance.
He comes up with an idea he calls a pulsating market. Mandel thinks we out to embrace the booms and their busts and thinks that the downside can be minimized while more of the upside can be captured on a permanent basis. He spends much of the book talking about areas for economic expansion that might provide opportunities for innovation and rapid economic growth. These include bio-medical, space, energy, telecom, and nanotechnology. I say, GOOD LUCK!
I cannot buy into the author's premise that the possibility of a new boom means that all we need to do is correct our attitude to make it so. The real world is not a sick Tinkerbell waiting for us to believe. Yes, there is a component of attitude and mass psychology. But there is more to the story than he really explains in the book. The railroads did speed the continental expansion, but a great many people lost a great deal of money (and a few made fortunes).
However, I do agree with him that government is used by those who benefit from the current infrastructure in order to suppress change and competition. Politicians and interested parities argue against innovation in the name of protecting jobs, keeping prices stable, and so forth. So, we could do more to promote growth by freeing the economy more. Yes, there would be more "creative destruction" to accompany the creative growth. But the artificial stability we have tried to enforce for decades only results in larger shocks and collapses. I prefer the more fluid and incremental (but more frequent) changes in a vibrant economy.
Mandel is not saying that his views would be unalloyed happiness for all. He is saying that more growth is achievable and much of what is holding us back is our low level of expectation and fear. While I don't agree with the picture he paints of the upside, I do agree with him that we should step forward with confidence and let things run more freely.
And I do agree with him that we need to make drastic changes in our educational establishment so the Education Bubble we have enjoyed for decades can continue to thrive (I don't really think it is a bubble, though). Our education establishment not only shows signs of decay, but of contributing negative effects to the economy. This cannot be allowed to stand, not matter the political power of those who want things to continue down the current deadly path.
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