# Progress, Technology, and Economic Fundamentals

There is a popular idea that economic growth only comes from stimulus. Wrong!

This mistaken view of economics can be costly to the average investor. The US economy, and others that follow a free market approach, grow through population increases and productivity gains. Normal trend growth in the US, allowing for inflation, is a bit over 3%. Even in the absence of any stimulus, we would eventually get there as various factors reverted to mean levels.

This is difficult to explain without a full course in economics, so today I will offer an alternative approach. Any reasonable person can see the changes in societal well being, but it is easy to forget.but there is a thriving industry claiming that traditional economic statistics overstate the economy.

Let us consider a simple example that we can easily understand as a starting point.

A Simple Example

I was already thinking about this subject last week because of a promotional item that I received in the mail. It reminded me of an interesting theme of progress — the calculator.

When I was a college student, we used slide rules for calculation. I was a student engineer at Union Carbide. They had a few mechanical calculators that did rudimentary functions (with a lot of noise). The calculators were perched between two desks, shared by the engineers on either side to save on costs.

A few years later I was a quant guy in the Michigan PhD program, hoping for my own calculator. They now had electronic versions, and some could perform the basic math functions and even store a value in memory. That was my minimum spec, and I wanted one for less than \$100. That would be the equivalent of over \$500 today. The price point was finally met with a device about the size of a paperback book, requiring a few C batteries to power it.

Both of these devices were major improvements, increasing user productivity tremendously. Before that, we wrote down columns of figures and did the math by hand.

The same engineer could do much more work because of the improvement in technology – – a simple concept.

My alert readers have already guessed the conclusion of this little story. The promotional item in the mail was a featherweight calculator, superior in function to the model depicted above. It has a small battery that will last forever. Best of all, it was free.

And this theme does not even explore the added value of the spreadsheet or computer programs that combined the required calculations.

And Now …. Add the Internet

Thanks to Al Gore (!!) we now have a new dimension of productivity. I am astounded to discover that there are more iPhones sold each day than babies born, and I don’t suppose that the 15 minutes of porn watching adds to productivity, but those are just the sidelights.

I can do work in minutes that would have taken days in a library a few years ago. Take a look at these interesting facts from MBAOnline.com and I’ll provide an investment idea in the conclusion.

Created by: MBAOnline.com

All of this would have been unthinkable a few years ago — an explosion in communications and information access.

So many businesses are embracing revolutionary software that can streamline their operations too. For example, if you rely on a customer relationship management platform, it is now possible to complete a google contacts sync so that your databases are compiled in a way that makes them easy to access and use for a variety of purposes. The possibile benefits of business technology and software solutions truly are tremendous. Some businesses find that when they take on more technology to improve their operations they require additional support to help them use it all to its full potential and so ensure that people with specific expertise can help to maintain systems, develop custom software, and uphold security remotely. Therefore, outsourced it support could be ideal for many businesses looking to adopt more technologies into the way they do business.

Investment Themes

There are several important ideas to think about.

• Economic growth is fueled by technological progress.
• Every major corporation has improved business with improved robotics, communication, planning, customer acquisition and service, logistics, supply chain, and I’m just getting started.
• These elements are part of the explanation for high profit margins, and also for the recent success of some companies in bringing jobs back from offshore.
• While it is easy to forget, the quality of life is better through progress — better in agriculture, motor vehicles, clothing, health care.

Those with offbeat theories of economics need to explain this progress. The rest of us can enjoy investing in companies that participate in economic growth and the technology companies that help to create it.

My current tech favorites are Apple (AAPL), Oracle (ORCL), and Microsoft (MSFT), but I also like innovative companies in medical devices.

I invite readers to weigh in with their own favorites!

### You may also like

#### Investing for the Long Term: Time to be Wary

• Proteus July 5, 2012

You didn’t get to use a Wang calculator (mid to late 1960’s)? Our high school bought one around 1967, \$4000 as I recall, and I was in absolute heaven. A big monstrosity, but it had sines and logs.
The last time I used a slide rule for real was in 1996. The two engineers I was working with had calculators that died, so a technician jokingly pulled out a slide rule. I was the only person that knew how to use it, so the morning was spent in giving slide rule lessons. Lots of fun.
Hard to believe we ever accomplished anything without computers, but we did.

• John July 5, 2012

Great post Jeff!
I recently stumbled upon an interesting technological improvement in textile industry. You can check it out here:
I think that’s one good example of what you are trying to say here.

• Curtis July 5, 2012

Jeff: I think that you are correct and I would like to tell you how this will all manifest. The Revolutions have been:
1. Industrial 1700’s
2. Steam, railroads and steel 1800’s
3. Oil: Early 1900’s
4. Computers and internet: 1970’s to 2000, etc.
5. Alternative and Abundant Energy: 2012 till? Fracking (they will soon be doing it without water!), solar power, natural gas power, electric and natural gas cars/trucks, high speed rail powered by alternative energy, ocean power, wind power, etc.
We are experiencing the first steps of this process now. Look at the cost of natural gas compared to oil, the cost of solar compared to 20 years ago, the coming use of wind and ocean power which is clean and endlessly cheap! The availability for the world to have cheap power will drive the world economy out of this recession/depression.
To get the economy going we need DEMAND. There is pent up demand for cheap energy for manufacturing, transportation, the chemical industries, etc. This is the next technological wave and will eventually pull us out. Curtis

• oldprof July 5, 2012

Curtis — Nice analysis of the various eras and the pointer to current issues.
Thanks for joining in!
Jeff

• oldprof July 5, 2012

Proteus — Great story!
I was aware of the Wang but never got to use one.
This article might have been more effective if every reader was stripped of technology for a day and had to do things the “old way.”
Jeff