The Next Big Economic Challenge?

Alan Greenspan's book has garnered a lot of attention, naturally.

The most interesting thing I've read about the book so far is a review by Sebastian Mallaby that appeared in the Washington Post National Weekly Edition, October 8-14, 2007.

Mallaby writes,

"For the past dozen years or so, Greenspan writes, central bankers have had it easy. Economic forces have acted to hold prices down, so the Fed has not had tro raise interest rates aggressively to choke off inflation. But at some point this circumstance will change. The incorporation of information technology into business will have run its course, so cost-savings will be exhausted; the integration of China into the global economy will near completion, ending the second source of downward pressure on world prices. When those two things happen, central bankers will have to act tougher if they are going to rein in inflation. And if they get tough, they will also get unpopular. Alan Greenspan presided over a golden moment in economic history. He was good at his job. But he was also lucky."

This leads to a number of interesting questions, including one such as, "How soon will information technology be fully exploited?" Many computer industry people think that it will not happen for a long time. Jeff Bezos of Amazon, for example, has suggested that we are at the very beginning stages of the internet's development, equivalent to where the electricity industry was 100 years ago.

And what about social networking? Is there a business benefit to be gained, a productivity or learning payoff, or is it just another way to do advertising? So is Facebook really worth $15 billion?

Underlying all this will be the persistent pursuit of innovation. Indeed, innovation could be the central banker's best friend, for it is innovation that yields productivity improvements, and productivity improvements are the best antidote to inflation.