# 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.

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!

This post originally appeared at A Dash of Insight and is posted with permission.

### 2 Responses to "Progress, Technology, and Economic Fundamentals"

1.   July 6, 2012 at 11:11 am

One currency, two currencies, too much monetarism. The European economy needs fiscal stimulus and releasing all the obstacles, that prevent competition to happen and chance for fair employment from the new generation to be economically active. Let the young enter the economic circle and you will see the results immediately. 50% unemployment among the youth is more than any society can bear. At the end they will crucify us the veterans and justly.
As to fiscal stimulus i have a proposition;
Finally it started to be understand, that economic growth needs additional demand. Since the growth in demand from the rest of the world is rather sluggish, or at least not strong enough to compensate for the reduction in the demand of the G.I.P.S.I. countries, this additional demand has to be created within the European Union. It has to come from the countries with relatively low debt and potentially high perspective of economic growth. Clearly the best candidates are the Eastern European countries, with about same population as the G.I.P.S.I. countries. These countries have relatively low public dept, mostly bellow 50%, (except of Hungary), on the other hand relatively low standard of living and big deficit in infrastructure. If to start to create demand it should be in these countries, namely Poland, Romania, Czech Republic, Slovakia and Bulgaria. It is time to allocate financial resources within the EU, to where they are mostly needed and where they will create the highest yields and effect. A very good example for infrastructure project is the railways in these countries. While in France and Germany the trains are running at speed of 300 Km/hour and more, in Czech Republic at average it is 80 km/hour, (This is if they keep the schedule, what to my personal experience they don't). This is why there is no reasonable train connection between Berlin to Wiena, distanced about 700 km, that takes today 10 hours with train, or Berlin to Budapest, distanced about 900, that takes 12 hours. Even Berlin to Prague that is about 400 kilometer takes 5 hours. Just try to calculate the economic contribution of a train with double or triple speed could have. Berlin – Wien for 3 hours and Berlin – Budapest 4 hours, what a relive and increased efficiency it would be to the traffic between these cities. And the same can be said about Berlin – Warsaw, Warsaw Prague, etc. I know in all this post communistic countries the railways remained in the state of art and management systems of the previous regime. Here is a challenge, that Brussels could cope with, financing the project and encouraging structural changes in the railway companies. Buy the way it could be implemented in whole EU. Trains are environmentally less harming than airplanes, and for this distances less time demanding. By the way, the Chinese had done just this in the last 5 years and even for bigger distances. Let's learn for once from them.