Technology & The Economy

One of my former students emailed me and asked the following question: “what role do you think that our technology has on our current economic situation?” Being a professor, I cannot resist answering such questions.

The easy and obvious answer is that our economy rests heavily on technology (everything from the technology of the fry cooker to the web server) so it plays a huge role. Of course, this sort of answer is not particularly helpful.

One aspect worth considering is information technology: tv, web, newspapers and such. Since how people think and feel about the economic situation has an impact on the economy, it would follow that the use of such technology has an impact on the current economic situation. Since the news we get is mixed, the impact of the technology is mixed.

The information technology also impact the economy because of the use of online trading and other financial uses of technology. This allows for the rapid buying and selling of stocks and bonds as well as the exchange of financial information. This entails that more people influence the financial systems directly and that change takes place quite rapidly.

Since people can get information so quickly and react to it directly, this can result in amplified feedback. For example, if bad news comes up, people can lose confidence and start trying to dump stocks and bonds. This will serve to further weaken the economy, leading to more bad news and more weakening. Of course, there is the question of how much the individual traders impact the economy relative to the big players.

Speaking of information technology, it can be argued that the .com bubble paved the way to the latest bubble. In both cases, people tried to make money in ways that were not solidly grounded. Since technology was a key part of the previous bubble, it could be seen as indirectly setting a model for our current woes. And, if we push things, houses are technology and much of our woes arose from housing problems.

Depending on how technology is defined, it can be seen as quite instrumental in the economic situation. To be specific, if we consider complex financial constructs to be items of technology, then they had a huge impact.

One way to argue that these constructs are technology is to draw an analogy to computer software. While an application is not a physical object in the usual sense, it is still technology. likewise, the various financial constructs can be seen as economic technology. In fact, the analogy to software works out nicely: both can crash badly.

Looking to the future, some hope that technology will provide us with a way out the woes. The current big promise is that green technology will save us from global warming and the crisis. In any case, I’m sure it will save Al Gore from any financial crisis he might be experiencing.