Soros Peddles Doom as New Global Economy Booms
Billionaire financier George Soros made headlines again this week with his warning that the global “super boom” that drove the world economy since the Second World War is over. In a documentary that aired on the BBC, Soros asserted that the current malaise in the U.S. financial markets signals the end of the age of leverage, easy money, and rapid growth. The new danger, he worried, would be that growing protectionism would send the global economy into a recession, “or worse.”
Oddly, he went on to say to the makers of the aptly named documentary Super Rich: the Greed Game that the benefits of the super boom weren’t evenly distributed; in reality, relatively few people, like himself, benefited from the boom of the past 60 years. The implication: average folks have been fighting over table scraps for decades. Hardly makes one nostalgic for the good old super boom days.
Soros is right about one thing: the next global economy is going to be very different than the last one.
Consider this: 700,000 people around the world log onto the Internet for the first time every day. At that rate, by 2011 — a mere thousand days away — the number of Internet users will exceed 3.5 billion. At that point, more inhabitants of the planet will be online than off.
More significantly, those three billion people approximate the world’s entire labor force. That means for the first time in history, all the world’s workers will be connected in a single, seamless economic system — a system, remember, that encourages each of us to buy from, sell to, and trade with each other directly, unimpeded by middlemen, brokers, or even governments. After that “jump point,” the global economy will be bigger, flatter, more diverse, and more competitive than ever.
The one thing economists seem to agree on is that when you add more people to an economic system, you get more wealth. More people, more ideas, more innovations, more new markets.
Soros’ discomfort, however, is not unwarranted. Ours will no longer be the orderly market of classical and neoclassical theories, the “magnificent dynamics” espoused by Smith, Malthus, Mill, and Keynes. Instead, the emerging structure will likely be a chaotic amalgam of decentralized agents, nodes, and confederations, a market that will mimic viral forms found in biology, an environment characterized by rapid, unchecked growth, geometric progressions, and unpredictable combinations and permutations. I call it “pandenomics.”
Going forward, we will need a new understanding of economics for a networked world. We will need to better understand the theories of people like Stanford economist Paul Romer and his New Growth School of economics.
Unlike the old view which was defined by scarcity and limits, the new networked world offers unbounded opportunity: new ideas beget new products, new markets, and new wealth. Old Growth theories ask us to allocate scarce resources among alternative uses. New Growth says that neither resources nor alternatives are scarce. Since humans possess a nearly infinite capacity for new ideas and new ways to reconfigure physical objects, we live in a world of abundance.
But Romer understands why people like Soros and fellow billionaire Warren Buffett might be anxious.
“Every generation has perceived the limits to growth that finite resources and undesirable side effects would pose if no new recipes or ideas were discovered,” he has written. “And every generation has underestimated the potential for finding new recipes and ideas. We consistently fail to grasp how many ideas remain to be discovered. The difficulty is the same one we have with compounding. Possibilities do not add up. They multiply.”
Like an old general fighting the last war, maybe Soros really does despair for the world economy, or perhaps like an old lion, he has simply lost his stomach for the hunt.
Things look very different from where I sit in Silicon Valley.
Short-term disruptions aside, technology, culture, and economics are all coming together in just the right way to assemble the biggest, most dynamic wealth-creation network the world has ever known. The mass adoption of personal computers, the Internet, and mobile telephony, combined with the ready use of voice, data, video, and email communications, are forging a powerful, new global nexus. Since we have never experienced a market quite like this before, old yardsticks don’t do it justice. Neither does old nomenclature.
What comes after a “super” boom? How about a "googol” boom?
Tom Hayes is a Silicon Valley executive and the author of the new book, Jump Point: How Network Culture is Revolutionizing Business (McGraw-Hill). His blog is Tombomb.com and you can contact him at [email protected]