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 THE STAT 26Percentage of wireless customers who use their cell phones to take picturesMore Vitals
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MAY 25, 2004
A "Free Lunch" for the Economy [Page 3 of 3] The "Free Lunch" One of the surprising things about innovation is that it emphatically breaks the link between savings and growth. A country or a company that makes better use of a new technology can potentially leap far ahead of one that saves and invests more. Innovation is, as was said above, the economic equivalent of a free lunch. In some sense, this goes against the values drilled into us when we are young. Traditionally we respect people -- and countries -- who save more. Putting money away for the future and then reaping the benefits later on seems like an admirable thing to do, even if we don't save ourselves.
Since at least the Book of Proverbs -- "a wise man saves for the future, but a foolish man spends whatever he gets" -- saving has stood as a test of virtue. America looks to be flunking the test these days.... Moral fiber aside, persistent undersaving is a ticket to economic oblivion if a nation cannot invest in tomorrow's productive machinery and individuals cannot be sure of a good future.The same year, Senator Lloyd Bentsen, a Democrat and later treasury secretary in President Bill Clinton's first term, called the savings rate "a disgrace." In 1989, both Democrats and Republicans on the Joint Economic Committee of Congress agreed that the nation's chief economic problem was a low savings rate. But it turned out that having a high savings rate did not prevent Japan from its slowdown in the 1990s, and having a low savings rate did not stop the U.S. from having a boom in the 1990s. In fact, despite being mired in a long slump, Japan still had much higher savings and investment rates than the U.S. throughout the decade. From 1995 to 2000, the national savings rate in Japan averaged 29 percent of GDP, compared with 18 percent in the U.S. That's a slightly smaller gap than in the 1980s, but there's no doubt that the Japanese were still better savers than the Americans, even during the New Economy boom years. The free-lunch effect was stronger than the "virtue" of savings and investment. The U.S. leapt ahead because American companies and individuals were better able to apply the new innovations and ideas of the Information Revolution. In the end, bright ideas, risk-taking, and execution were more important than how much money we saved and invested. Part 2 of this book excerpt discusses how jobs, wages, and competitiveness could jump with exuberant growth. The foregoing is excerpted from Rational Exuberance: Silencing the Enemies of Growth and Why the Future Is Better Than You Think, by Michael Mandel. All rights reserved. No part of this book may be used or reproduced without written permission from HarperCollins Publishers, 10 East 53rd Street, New York, NY 10022 Imprint: HarperBusiness; ISBN: 0060580496; On Sale: 05/11/2004; Format: Hardcover; Trimsize: 6 x 9; Pages: 224; $24.95; $38.95 (CAN)  Mike Mandell is Chief Economist at BusinessWeek, responsible for formulating BusinessWeek's coverage of economic policy. Prior to this, he was economics editor and played a key role in defining and popularizing the notion of the New Economy. In 1998, Mandel won the Gerald R. Loeb Award, the most prestigious prize in business and financial journalism, for his coverage of the New Economy. Mandel's most recent book, The Coming Internet Depression (Basic Books), came out in September, 2000, and predicted the end of the tech-driven boom of the 1990s. His 1996 book, The High Risk Society, (Times Business/Random House) foreshadowed the New Economy by arguing that the coming decade would be marked by a combination of high growth and high volatility.
BW MALL
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