White Collars Turn Blue
A note to readers: This was written for a special centennial issue of the NYT magazine. The instructions were to write it as if it were in an issue 100 years in the future, looking back at the past century.
When looking backward, one must always be prepared to make allowances: it is unfair to blame late 20th-century observers for their failure to foresee everything about the century to come. Long-term social forecasting is an inexact science even now, and in 1996 the founders of modern nonlinear socioeconomics were still obscure graduate students. Still, even then many people understood that the major forces driving economic change would be the continuing advance of digital technology, on one side, and the spread of economic development to previously backward nations, on the other; in that sense there were no big surprises. The puzzle is why the pundits of the time completely misjudged the consequences of those changes.
Perhaps the best way to describe the flawed vision of fin-de-siecle futurists is to say that, with few exceptions, they expected the coming of an "immaculate" economy -- an economy in which people would be largely emancipated from any grubby involvement with the physical world. The future, everyone insisted, would bring an "information economy", which would mainly produce intangibles; the good jobs would go to "symbolic analysts", who would push icons around on computer screens; and knowledge rather than traditionally important resources like oil or land would become the main source of wealth and power.
But even in 1996 it should have been obvious that this was silly. First, for all the talk of an information economy, ultimately an economy must serve consumers -- and consumers don't want information, they want tangible goods. In particular, the billions of Third World families who finally began to have some purchasing power as the 20th century ended did not want to watch pretty graphics on the Internet -- they wanted to live in nice houses, drive cars, and eat meat. Second, the Information Revolution of the late 20th century was -- as everyone should have realized -- a spectacular but only partial success. Simple information processing became faster and cheaper than anyone had imagined possible; but the once confident Artificial Intelligence movement went from defeat to defeat. As Marvin Minsky, one of the movement's founders, despairingly remarked, "What people vaguely call common sense is actually more intricate than most of the technical expertise we admire". And it takes common sense to deal with the physical world -- which is why, even at the end of the 21st century, there are still no robot plumbers.
Most important of all, the prophets of an "information economy" seem to have forgotten basic economics. When something becomes abundant, it also becomes cheap. A world awash in information will be a world in which information per se has very little market value. And in general when the economy becomes extremely good at doing something, that activity becomes less rather than more important. Late 20th-century America was supremely efficient at growing food; that was why it had hardly any farmers. Late 21st-century America is supremely efficient at processing routine information; that is why the traditional white-collar worker has virtually disappeared from the scene.
With these observations as background, then, let us turn to the five great economic trends that observers in 1996 should have expected but didn't.
Soaring resource prices. The first half of the 1990s was an era of extraordinarily low raw material prices. Yet it is hard to see why anyone thought this situation would continue. The Earth is, as a few lonely voices continued to insist, a finite planet; when 2 billion Asians began to aspire to Western levels of consumption, it was inevitable that they would set off a scramble for limited supplies of minerals, fossil fuels, and even food.
In fact, there were some warning signs as early as 1996. There was a temporary surge in gasoline prices during the spring of that year, due to an unusually cold winter and miscalculations about Middle East oil supplies. Although prices soon subsided, the episode should have reminded people that by the mid-90s the world=s industrial nations were once again as vulnerable to disruptions of oil supply as they had been in the early 1970s; but the warning was ignored.
Quite soon, however, it became clear that natural resources, far from becoming irrelevant, had become more crucial than ever before. In the 19th century great fortunes were made in industry; in the late 20th they were made in technology; but today's super-rich are, more often than not, those who own prime land or mineral rights.
The environment as property. In the 20th century people used some quaint expressions -- "free as air", "spending money like water" -- as if such things as air and water were were available in unlimited supply. But in a world where billions of people have enough money to buy cars, take vacations, and buy food in plastic packages, the limited carrying capacity of the environment has become perhaps the single most important constraint on the average standard of living.
By 1996 it was already clear that one way to cope with environmental limits was to use the market mechanism -- in effect to convert those limits into new forms of property rights. A first step in this direction was taken in the early 1990s, when the U.S. government began allowing electric utilities to buy and sell rights to emit certain kinds of pollution; the principle was extended in 1995 when the government began auctioning off rights to use the electromagnetic spectrum. Today, of course, practically every activity with an adverse impact on the environment carries a hefty price tag. It is hard to believe that as late as 1995 an ordinary family could fill up a Winnebago with dollar-a-gallon gasoline, then pay only $5 to drive it into Yosemite. Today such a trip would cost about 15 times as much even after adjusting for inflation.
The economic consequences of the conversion of environmental limits into property were unexpected. Once governments got serious about making people pay for the pollution and congestion they caused, the cost of environmental licenses became a major part of the cost of doing business. Today license fees account for more than 30 percent of GDP. And such fees have become the main source of government revenue; after repeated reductions, the Federal income tax was finally abolished in 2043.
The rebirth of the big city. During the second half of the 20th century, the traditional densely populated, high-rise city seemed to be in unstoppable decline. Modern telecommunications had eliminated much of the need for close physical proximity between routine office workers, leading more and more companies to shift their back-office operations from lower Manhattan and other central business districts to suburban office parks. It began to seem as if cities as we knew them would vanish, replaced with an endless low-rise sprawl punctuated by an occasional cluster of 10-story office towers.
But this proved to be a transitory phase. For one thing, high gasoline prices and the cost of environmental permits made a one-pers/P>
Paul Krugman is a (full-time) Professor of Economics at the Massachusetts Institute of Technology.