Economic Tectonics and the Crash of '08

Conventional wisdom says the focal point for the most critical story of our time - the Economic Collapse of '08 - is an overheated, over-levered, greed-riddled financial system. It's a common refrain during sharp contractions - a call for the heads of the perceived culprits who it's believed put us here.

And the consensus media narrative seems to be going even farther this time. This thread says that materialistic American consumers and money-mad Wall Streeters - with an assist from self-aggrandizing Washington politicians -- are responsible for a set of actions which collectively have brought the capitalist system to its knees. It's suggested that Americans are now concluding that something more "caring," more "community-focused," more "values-based" is needed, and that the animal spirits of capitalism are now menaces rather than tonics to our prosperity and well-being.

But I believe that conclusion to be fundamentally and directionally false.

It's not that there wasn't plenty of self-serving, money- and power-loving bad behavior going on. There was. Bankers, mortgage brokers, consumers, Congressmen, Presidents, Fed Chairmen, hedge fund managers...all these groups (and many others) were guilty of some combination of avarice, hubris, and short-sightedness.

But that's a sidebar to the story of the gigantic forces changing our economy - not the headline. Getting the headline right matters immensely, since the two elected branches of the United States government are now taking dead aim at the wrong people and the wrong problems.

So if it's not the speculative excesses of capitalism that put us here, what's going on?

A Complete Re-Ordering of the Global Economy

I believe what we witnessed last Fall, and are continuing to witness, is the visible result of a complete re-ordering and reorganization of every single facet of the global economy, and in fact the very substance of the lives of every human being on the planet, by the combined power of information technology and the Internet.

I believe this re-ordering is the fifth, and quite likely most impactful, technological change in the history of the human race -- following the development of language and writing, the development of agriculture, the invention of moveable type, and the rapid-fire creation and simultaneous deployment of the steam engine, the railroad and the telegraph.

The degree of change being wrought by this combined information ubiquity is stunning, and is occurring on a scale so large that it's confounding our ability to understand it. But a good analogy for what's happening is that our entire world is experiencing a massive earthquake, with a major tectonic fault line running between our former 20th century, pre-digital society, and our now totally connected, globally-instantaneous 21st century reality.

But our elected leaders and media commentators don't see or feel this earthquake.

Instead, they think we've simply relied on an inappropriately capitalistic societal design. "We cannot rebuild this economy on the same pile of sand," said President Obama recently, implying that nothing's happening that's not attributable to bad economic site selection.

Surely the financial system has taken a violent shaking in this earthquake, and outdated "building codes" for it have played a role in the severity of the damage it has sustained. But if our main response to this crisis is to pillory the institutions and individuals involved while our government creates an awkward, inflexible, belt, suspenders, and duct-taped new financial regulatory system, we will miss and under-exploit the real and powerful forces that are literally remaking our society and our economy.

The Great Restructuring

Can the degree of change now cascading through our world really be all that great? Yes. Like the other epic technological developments before it, the broad global availability of the Internet is a fundamental enabler for communication and interaction that changes human realities of proximity and productivity.

Imagine the degree of fundamental societal change wrought by each of these technological innovations:

• The development of language and writing allowed man to transmit thoughts and intentions to others quickly and accurately. The ability to describe a dangerous situation or a prodigious source of food accurately with words made humans increasingly successful as a species, and writing removed the need for the originator of a given thought or fact to be present for its retelling. It began to reduce inefficiencies of human effort and also allowed for the origins of trade and specialization by helping humans to work cooperatively, but with decreasing need for constant physical presence to transact.
• The development of agriculture turned man from a nomadic wanderer-gatherer to a being with a completely different mindset: Now rather than moving on when local food supplies ran low, people began to be anchored permanently in a specific geography, and began to turn their brainpower toward ways of improving their nascent farms and communities.
• The printing press launched the first information era, with original texts and philosophies being created for the first time since antiquity. The ability to project ideas broadly had profound impacts on the world order, especially in the areas of religion and governmental power.
• The development of the steam engine in the late 18th century, which in turn spawned the railroads a few decades later, and the sprouting of telegraph wires alongside many of the rails, unleashed a vast industrial revolution and dramatically increased the speed with which news and ideas spread. The rail lines offered tantalizingly rapid transportation of goods, which allowed further specialization of work, which created more efficiency and more prosperity. People came unanchored from the land on a broad scale for the first time in millennia.

Now, here in the early 21st century, comes the marriage of extremely efficient information technology and the near-globally omnipresent Internet. This union is changing our world completely. Again.

The governors that existed on the speed of the distribution of thought have been obliterated. In addition, the requirements for companies and organizations to maintain physical proximity to minimize costs and maximize communication have been ground down to a nearly insignificant nub.

Corporations and other institutions no longer need maintain great vertically integrated structures to thrive. The very idea of a "job" is called into question, and a set of rippling effects will inevitably be felt across our entire society. The nature and layout of cities will change. The reasons and ways consumers make decisions will change. The way information is distributed and received will change. The nature of politics and the function of governments will change.

But this isn't the kind of change for which President Obama campaigned. This is a tidal wave of change on a more profound and awesome scale than any one person could possibly bring on their own, and it's already cresting and pounding ashore in our society.

And as has happened throughout human history, this tsunami of innovation will both scour and re-order the known world.