Has knowledge capital been depreciating more rapidly?

by on December 15, 2010 at 11:23 am in Economics | Permalink

The excellent Michael Mandel writes:

Over the past 10-15 years, the strengthening of information flows into developing countries meant that knowledge capital was being distributed much more quickly around the world.  As a result, the normal process of knowledge capital depreciation greatly accelerated in the U.S. and Europe–beneath the radar screen, because no statistical agency constructs a set of knowledge capital accounts.  

I agree with the conclusion but I am not sure that globalization was the mechanism.  I sometimes think of an imaginary economy with two sectors: music and bathtubs.  I believe that my bathtub is over thirty years old, yet for me it works fine and I have no desire to buy a new one.  When it comes to music, most people want to listen to what is new and hot, not Bach's B Minor Mass.  Furthermore, even within the music sector, acts seem to have declining longevity, in part due to the decline of the iconic album, the rise of the iTunes single, the fall of entry barriers, and the proliferation of genres.  The Rolling Stones are still around, or U2, but more rapid turnover is the trend. 

A while ago I read a good article about how few people on Netflix rent or stream the indie movies from the 1980s or 90s.

The more that your economy "looks like" the music sector, the more rapid the rate of depreciation for production capital and knowledge capital.  This means we may be overestimating our national wealth.

Here is Michael on our aging capital stock.

babar December 15, 2010 at 7:52 am

huh? ever been in a restaurant or bar? all you'll hear is oldies, oldies, oldies, music from the last half of the 60s through the end of the 80s. you might even hear 20s or 30s or 40s jazz — you'd never hear that when out even in the 80s or 90s. and none other than the rolling stones one of the big acts these days.

Norman Pfyster December 15, 2010 at 8:02 am

You are going to have to walk through that argument again. Doesn't it confuse capital with consumption? Unlike ordinary goods, knowledge does not decline in value through use or distribution; in fact, it arguably increases. Thus, as knowledge proliferates more rapidly, wouldn't that increase wealth rather than decreasing it?

Richard Ebeling December 15, 2010 at 8:40 am

I guess I'm an "old stick in the mud," Tyler.

I prefer to listen to the "old music" rather than "new stuff," and would more likely buy a new bathtub than anything that passes for music nowadays — but not to my ears.

What old music? "Beat me, daddy, eight to the bar." Where is Glenn Miller and Benny Goodman when you need them? And music lyrics today are not, well, lyrics when the benchmark is the wit and humor of Cole Porter.

Richard Ebeling

Philo December 15, 2010 at 9:54 am

"A while ago I read a good article about how few people on Netflix rent or stream the indie movies from the 1980s or 90s." Why pick on indie movies? Which non-indie movies from the 1980s or 90s (or the 60s or 70s) do people rent or stream? Of course, movies are quite evanescent cultural products, like TV series, comic books, popular novels, pop psychology books, etc. But even would-be serious–i.e., academic–material has a short shelf-life. Which academic treatises from forty or fifty years ago (the process of obsolescence is a bit slower in academe) are still read today? But, after all, which are *worth* reading?

Doc Merlin December 15, 2010 at 10:17 am

If it has, then by a Solow growth model, won't economic growth slow?

Andrew December 15, 2010 at 12:47 pm

We are also paying to educate foreigners from the countries we owe money to in our graduate schools.

"Has knowledge capital been depreciating more rapidly?"

That's one way of saying it. Another might be: we is sum dumb fux.

Andrew December 15, 2010 at 1:05 pm

I assume he means the competitiveness of the knowledge capital. You are correct, and that's exactly why the competitiveness edge is diminishing.

The sane part of Keynesianism in my mind is that you want the economy active because it is intramural trade. It's on-the-job-training for everyone. But that's not what we had borrowing money from China to build their factories. We had the opposite.

RM December 15, 2010 at 2:34 pm

If you are a Bollywood fan you will find yourself going back to the classics from the 1960s to the 1980s (song and dance and all). Or, maybe that just says something about my generation.

Richard Ebeling December 15, 2010 at 5:51 pm

In reply to Alex about my music tastes, above.

Sorry to disappoint you, but I'm not old enough to have been young when Glenn Miller and Benny Goodman's swing bands were all the rage. In fact, I was not born, yet!

But from the time I was a kid, my mother would play that music, and I just got "hooked" on it from an early age. To assure you that I'm not that much of a "fuddy-duddy," I do like the music of the 1960s and 1970s — which was the music when I was young.

Richard Ebeling

Ricardo December 15, 2010 at 8:42 pm

I don't know whether this is true or not, but I read somewhere that NASA is now realizing they are in danger of losing some of the technology they used for the moon landings. Some of the work was contracted out and many of the engineers are getting old or dying off without having ever written down exactly how they did things. Some of the equipment has been also been scrapped or is in such bad shape that it can't be reverse-engineered later. NASA could no doubt do another manned mission to the moon if it wanted but it might have to reinvent the wheel to some extent.

mulp December 16, 2010 at 4:13 pm

More depreciating knowledge capital:

"One Chinese supplier here became so adept at making a 10-ton steel frame that keeps a wind turbine’s gearbox and generator aligned even under gale-force conditions, and making it so cheaply, that the Spanish company now ships the Chinese frame halfway around the world for turbines that Gamesa assembles at its American plant in Fairless Hills, Pa. Mr. Calvet said the American manufacturing sector had been so weakened in recent decades that for some components there were no American machinery companies readily available."

New factories are built all the time in China, and non-Chinese firm employees train the Chinese in the jobs.

But in the US, the shift of work to Asia has resulted in limited knowledge in the US on how to build factories and train workers, doing what factories in the US once led the world doing.

- December 16, 2010 at 10:27 pm

mulp has this right.
The only full technical "career ladder" remaining in the USA is for "products" that can't be moved, e.g., road and building engineering. but some huge difficult to move items come from korea, etc. so, job ads in the USA ask mostly for experienced designers, while most work experience is available outside of the USA.
One solution: US-born 'techs' get experience working overseas a number of years. But this doesn't seem to happen. So instead either: more advanced work also goes overseas, or the advanced engr/designers are imported.

- December 16, 2010 at 10:54 pm

corrected title: hobo humpin slobo babe http://www.youtube.com/watch?v=Fa5SiU2U5_k
and it 1993, not the 80's…

uh, so,
Enjoy the Silence, that's 1990.

80's:
Trans-X "Living On Video"

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