Innovation and Bubbles: The Curious Case of the American Economy
The New York Times series on Apple and its supply chain is eye-opening, much discussed for its lens into the global and American economy through the story of one of our most innovative companies.
Here is what I take from it.
While America continues to set the bar in innovation, the mass of the manufacturing jobs created from that innovation are outside the US due to wage arbitrage and labor “flexibility” as well as skills shortages (although I doubt that skills training and eventual parity would bring the bulk of the jobs back because of the first two factors mentioned). So ironically, while the heart of a lot of innovation is in America, it only creates so many jobs as compared to the historical non-globalized economy, i.e., the historical manufacturing economy like the auto industry used to employ a lot more Americans in a non-globalized economy. It is what it is, and I am not sure what the solution is, but sadly from a macro-economic perspective, job creation-lite is a major reason for why we have become dependent on fueling and sustaining asset bubbles, particularly in housing. This is true for both jobs and wealth. In terms of jobs, construction jobs are some of the last decently skilled positions for folks with an average or no education. In terms of wealth, as wages have stagnated up and down the income ladder, the “wealth” from inflated asset values has also been the fuel for spending, replacing the missing wage growth.
Consequently, from a macro-perspective, large portions of the economy have been relying on the non-innovative parts of the economy for wages and wealth in order to enjoy the fruits of the innovation economy. That means that part of the solution in the near-term is going to be reinflating the asset bubble. And unfortunately, that’s not a great long-term solution to this paradox in our economy.