IT and the Business Cycle
There is a regular business cycle, which lasts for about 9 years. The cycle is characterised by a period of growth, then strong growth and then recession. Unfortunately, the cycle isn't exact and it isn't dependable, or else you could make money out of it, by gambling on it. Sometimes it lasts 7 years, sometimes 10 or 11.
In the later stages of the last business cycle some odd things were happening. Growth in the US economy was much higher than anyone expected and unemployment much lower. Productivity statistics from the US Government suggested that from 1996 productivity was improving at an average 2.2 percent per year, which was a dramatic improvement on the 1 percent average for the previous 25 years.
The point at which productivity turned up coincided with the point at which the Internet started to become visible. That may have been a coincidence, but there was another strange quirk in the figures. Investment by US companies since 1990 has been static in every area except in IT, where it rose dramatically by a factor of 14 over the decade. And to cap it all, the bulk of the productivity improvement in the US economy was confined to the IT industry itself.
In theory, IT should be counter-cyclical and it usually is. The benefit that IT is supposed to deliver is automation. It either cuts costs and/or improves productivity, accordingly. The figures from the US suggest that it was doing the latter in the glorious 90s and particularly in the later years. In the current part of the business cycle it will be cost cutting that matters. The heady days of optimism are over and the era of cautious IT investment has arrived. So what are the information technologies that will do well in this era?
Here's one thought. Consider the anomaly of Moore's Law. This suggests that CPU power will double every 18 months and it has done just that for over 30 years. Actually Moore's law doesn't just apply to CPUs, but also memory, disk, buses and just about every aspect of a computer or network. One would think then, that it would have brought down the cost of computing as a matter of course. However, it didn't have that effect until recently, because most of the accelerated capability was delivered to the PC where its contribution to productivity was minimal.
In conclusion, regardless of Macropoland’s current economic condition, it is fair to say that it is all part of the business cycle. The business cycle has three parts: peak, trough, and peak. The peak is the date that the recession starts. In Macropoland’s case, the peak would be at the beginning of 1973, its trough somewhere between 1973 and 1974, and then its peak again at 1974. In the second scenario, Macropoland is either at its trough, where it is about to head up again because of its low inflation rate, or it is at its expansion, on its way to heading to its next peak.
The United States has been through many recessions in its history, but I have chosen to focus on the recession of 2001. This recession only lasted from the months of March through November of 2001, but many things happened to our economy during these eight months of hardships, including one of the most traumatizing events in the United States of America’s history. “A recession is a significant decline in activity spread across the economy, lasting more than a few months, visible in industrial production, employment, real income, and wholesale-retail trade. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough.” (NBER) Not only did the United States experience a recession, but it was also the year our country went under an attack brought onto the World Trade Center, and this shook our nation up even more than an average event might. March 2001 ended a ten year expansion, and led to an eight month downfall of our economy, also known as the 2001 recession.
According to Reich, an economy’s stability is dependent on the prosperity of its middle class. The cause of the depression was the growing wages and money not being returned to the middle class. The Virtuous Cycle of a healthy economy occurs in 6 steps: productivity growth, wage increases, more jobs, tax revenues increase, government investments, and educated workers. A healthy economy is possible, but it is not our reality today. The two factors that led to flattening wages in the 1970s are globalization and technology.
During the 70?s the world entered a recession because ?the cost of economic growth of other industrialized nations began to rise rapidly?, the United States felt the effect. (AMSA, 2004, ¶ 14). With the development of other nations, came lose of industrial production for the United States of America. American Medical Student Association (2004) stated ?In 1950 we had 60% and by 1980 we only claimed 30% of the world production?, this brought higher prices as well as loses of jobs.
Not only did Carter and Reagan Administrations help cause the Recession, President Clinton helped. “Clinton then established official government poli...
During the last 40 years of the nineteenth century the United States became the worlds greatest economic power. The rapid rate of economic growth happened for a
According to the article on “Economic Recession” from Issues and Controversies, a panel of economists determined that the U.S. was in a recession from December 2007 to June 2009, making it the longest ...
...k in full production. This expanding industrial production reduced the unemployment rate to below its pre-Depression level, finally and officially ending the Great depression.
... job market for instance, think of the skills needed to hired in any business. A secretary needs to be familiar with the latest desktop computer software to write reports or files. A car mechanic almost needs to be an electronic engineer in order to fix a broken fuel injector. In the present work force, a person needs to understand and utilize current technology in order to survive. In the coming decades, acceptance and application of new technology could decide, like in Cyberpunk, if one floats like algae or swims like an Angel Fish.
This economic growth didn’t however continue for long, with the economy peaking just before the start of the year 2000 followed by a sharp downturn that resulted in a temporary recession occurring around the middle of the year. This erratic behavior, most pronounced in retail trade, can be explained by the effects of both the millennium bug and the introduction of a general consumption tax in the form of the GST. The millennium bug caused much panic and with it bought panic spending especially in the IT sector thereby over inflating an already close to booming economy and after the non-event that the millennium (or Y2K) bug caused spending slumped and then further slumped due to the holding back of consumer spending on big ticket items such as cars and houses until the introduction of the GST.
Brynjolfsson, E., & McAfee, A. (2011). Race Against the Machine: How Digital Revolution is Accelerating Innovation, Driving Productivity and Ireversibly Tranforming Employment and the Economy. Lexington, Massachusetts: Digital Frontier Press.
PC industry is affected by two opposite forces: technological advance that pushes the industry forward and the industry sensitivity to economical stagnation (if the economical situation is bad customers won't upgrade their computers).
... the economy saw noteworthy improvements for many years to come. Through the production of goods, loans, the stock market boom, and exports, the United States ' economy peaked during and after World War One. The growth was short lived as it was built upon the same conditions that brought about the Great Depression.
The increase in jobs improved the average American’s GDP by 5.9 percent. Whilst the GDP ...
Unemployment is everywhere in the U.S today. Whether it’s a small or big job people still are unable to find jobs. Then again some people file for unemployment if they are going through a tragedy and you just can’t seem to be able to work anymore. All of this, meaning unemployment has to do with the business cycle. There are four stages of the business cycle and they are recovery, peak, recession, trough. These are all stages whether the economy is at its highest point, lowest point, or just staying the same. The peak is the highest stage that the economy can possibly reach. Recession is where the economy becomes to struggle and start dropping off. The trough is the lowest point the economy can reach. Recovery is where we begin to build the economy back up after being in a trough. I believe that today our U.S economy is at its peak but beginning to recess.