Business Week magazine publishes two excerpts from Michael Mandel’s Rational Exuberance, where the author explores the economic cycles produced by invention and innovation. Part 1 – A Free Lunch for the Economy – discusses the concept of “free lunch” in the modern capitalist economy, which, as far as we know, is non-existant. However, things like electricity and air conditioning, while being not free, have led to much larger economic boosts that purely driving profits for the electric companies and air conditioner sellers. The whole region of Atlanta exists today due to the availability of air conditioning.
Part 2 – Fast Growth: Pain Now, Gain Later – deals with the issues of jobs in exuberant economy. Mandel suggests we use the unemployment metrics to track the economy cycles:
Interestingly enough, periods of innovation and exuberant growth also seem to be the periods of the lowest unemployment and the fastest job growth. In the 1960s, when productivity was growing very quickly, unemployment dropped below 4 percent. As innovation and productivity growth slowed in the 1970s and 1980s, unemployment rose. And then, as the economy went through another innovation and productivity spurt in the 1990s, unemployment dropped below 4 percent again.
