Re: The new economy

[Michael Perelman <michael@xxxxxxxxxxxxxxxxx>]

Louis's point is very interesting.  The railroad industry relied heavily on the
bond market for its funds.  In the new economy with the high flying stock
market, companies such as Cisco purchase other companies using its inflated
stock.  Money that would go to pay executives comes from the stock options.

The question is, how would this economy respond to collapse in stock market
prices?

Louis Proyect wrote:

>
> Bill did not address a question which occurred to me after his talk. In the
> old days, boom and bust was very much related to the heavy capital
> expenditures of industries that formed the core of American industry. For
> example, the sharp countours of the business cycle of the late 19th century
> was very much related to rapid expansion of the railroad industry, which
> required heavy outlays for rolling stock, bridges, etc. In the 1930s the
> collapse of the German economy was very much related to its concentration
> in steel and machine tool production, both of which require heavy fixed
> capital outlays.
>
> In the new economy, very few such expenditures are required. It is mostly
> about gathering together highly skilled people and supplying them with
> computers. Microsoft and aol.com can expand rapidly by adding bodies. If
> there is a downturn, there is no need to pay off the huge debts associated
> with steam engines, foundries, etc. Just lay off excess bodies. Would this
> be a possible explanation for the USA's ability to weather the financial
> crisis of 2 years ago? Perhaps the vulnerability of South Korea, etc. can
> be explained in terms of its continuing dependence on smokestack industries.
>

--

Michael Perelman
Economics Department
California State University
michael@xxxxxxxxxxxxxxxxx
Chico, CA 95929
530-898-5321
fax 530-898-5901