One long range economic pattern used by some policy makers when they consider how to predict the economy is the Kondratieff cycle; more popularly known among investment professionals as the k-wave. Kondratieff was a Russian statistics expert who found fifty year cyclical patterns in capitalist countries’ price and commodity statistics. There has been a debate about what he found or didn’t find ever since, but fairly predictably economic activity has down turned about every fifty years for the last two hundred years.
There’s one set of U.S. statistics that are most representative of U.S. consumer prices and that’s The Federal Reserve Bank of Minneapolis’ Yearly Consumer Price Index (Estimate) 1800 to the present. If you use these statistics and remove the trend you find fairly regular fifty year cycles that follow the timing of Kondratieff’s original predictions. The economic outlook regularly moves up and down as it is reflected in these statistics.
What do current economic statistics, like the consumer price index, tell us about digital job opportunities? Let’s take a look. The United States is at the cutting edge of a global shift in social structure. It’s a huge shift – a shift from the industrial era to the digital era. Exactly what it means is not clear, but it’s happening more profoundly every year and the shift is picking up speed. We tend to see the economic outlook as an industrial process. Our unemployment statistics are about the industrial society that is now merging with the new digital society. Employment numbers don’t seem to make much sense as part of the economic outlook due to this shift from a purley industrial economy to a mixed digital and industrial economy. And, going forward, those numbers are likely to make less and less sense. Already in the 2014 economy the number of jobs and the types of jobs available seem inappropriate in comparison to previous economic recoveries. The question is, are we looking in the right places?
The New Economic Outlook
At this point, digital technology is changing many industries and often job loss is one of the most apparent results. But to evaluate the U.S. 2014 economy, we have to also look at how digital culture goes about producing jobs and employment opportunity. Digital society is different than industrial society and employment is likely to be quite different than what we have seen in previous decades. When industry predominated and lead employment, hiring was done by corporations. Now that is obviously slowing.
The newness of digital culture means everyone involved is a pioneer of one sort or another and that will continue for some time to come. There is however, an obvious entrepreneurial caste to these new digital networks. Individuals are being pressed towards creative risk taking. The statistics for entrepreneurial behavior in the United States are on the rise, but they won’t ever climb to the point where new digital-based businesses replace industrial jobs completely. The combination of entrepreneurial risk taking and expanding digital-based businesses are the way employment is headed. In time the economy will adjust to digital employment, which happens in new ways, like at hackathons and as the result of crowd funding.
So what do these new hiring methods have to do with the consumer price index? Let’s take a look at the numbers. In 2010 the consumer price index was 1.6 percent inflationary but in 2011 it was up to 3.2 percent, that’s a 1.6 percent year-on-year increase. To correct for the inflationary trend line, I look at the year-on-year differences. What is really becoming worrisome is what happens over the next three years. In 2012 the consumer index (remember, all of these numbers are coming from the U.S. Federal Reserve Bank of Minneapolis) went down to 2.1, which is a 1.1 percent deflationary falloff. In 2013 the consumer price index went down again, this time to 1.5, which is a .6 percent deflationary falloff. And, in 2014 the projected yearly consumer price index is 1.4 percent, which is a .1 percent deflationary falloff. Deflation is a big problem, so these deflationary consumer price index numbers are disconcerting.
What does it all mean? It means prices are very modestly going down, which sounds good, but can lead to a deflationary downward spiral that becomes a huge problem. So far, these numbers may not indicate anything bad, instead, they seem to be the result of shifts in the industrial economy. Fuel prices are changing in the United States as a result of new offshore drilling and the development of many natural gas sources. Housing prices are also moderating, which doesn’t directly play into the consumer price index, but has an indirect impact. So, it could be that adjustments in these major markets are causing falling prices that have spanned a three year period. But it is also possible they indicate a weakening industrial economy.
As the industrial-based economy falters, the digital-based economy continues to take hold. Online digital networks are still gaining size and complexity, which also means they are providing more commercial opportunities. Thus far, however, online activities don’t come close to adding as many jobs as are needed to re-energize the American economy. It’s expanding and that’s the positive news. If I were to say how to predict the economy, I’d say keep an eye on the consumer price index, looking for deflation or possibly a spurt of inflation, while also looking at digital growth. Unfortunately, the new growth isn’t aligned with the decline of the industrial economy. It will take a few more decades before the digital economy approaches a maturity level that produces jobs at a high enough pace to support the American middle-class as the industrial economy previously did.