New Economy vs. Old Economy

March 16, 2000

The term "New Economy" has become firmly entrenched in the business lingo of America and is a concept that has been so widely embraced that it has come to be seen as an established fact, much like the law of gravity. It is now popular among the financial press to distinguish between the "Old Economy" and the "New Economy" in their coverage and commentaries of the financial realm. But in their zeal to embrace a popular (not to say dubious) economic concept, the adherents of the New Economy theory have overlooked several major tenets of economics. Moreover, several important questions have gone unasked and, consequently, have remained unanswered. Our purpose, then, in writing this analysis is to examines the concept of the New Economy—its meaning, its import, its desirability, and its likelihood of succeeding. Serious discourse on this subject has been entirely lacking in the mainstream media, and we hope we have provided here a filling of this vacuum.

To begin, what exactly is the "New Economy"? A formal definition of this economic concept has never been provided, thus we are left to presume what its actual meaning may be. By "New Economy," we understand this to mean a national financial and economic infrastructure characterized chiefly by the predominance of services and technology (i.e., intangible assets), and the abolition of the former infrastructure of physical manufacturing and industrialism (i.e., tangible assets). Hence, the "virtual" economy of computers and electronic commerce replaces the "old" labor-intensive economy involving manufacturing and the movement of physical commodities. Think of it as the ascendancy of the virtual over the real.

What does this concept of New Economy imply? The implications of manifold, and we have not time here to delineate them in their entirety. We will only concern ourselves with the most obvious implications. First and foremost, a workable New Economy (which is now supposedly in place) requires the complete subordination of industrialism to service-oriented modes of commerce. It entails that within the U.S. economy, the former industrial infrastructure has been disassembled and transplanted to Third World countries whose standard of living is considerably below ours (this tacitly assumes that industrialism is not worthy of a well-developed nation but instead should be relegated to ignorant and backward peoples who are treated as mere economic slaves of the industrial barons). It further implies that whatever industrialism, or physical economy, remains is run by the Corporate State (that insidious admixture of Big Business and Big Government) and has been removed from the hands of the individual. The New Economy is ubiquitous, monolithic, all-encompassing and unstoppable; thus, the lives of the entire citizenry are made dependent upon the success and continuation of the New Economy whether they like it or not.

Under the New Economy, even agricultural production, the staff of life in any country, has been transferred into the hands of the Corporate State to the exclusion of the independent farmer. Furthermore, foreign (often hostile to United States interests) are given preferred status in matters pertaining to trade and commerce (agricultural or otherwise) and are allowed liberal access to our markets, while we are greatly inhibited in our ability to access theirs. In trade disputes, foreign nations more often than not are allowed to prevail over U.S. interests.

This leads us to our next observation of the New Economy—it is global in nature. It is predicated upon the economic interdependence among nations, even those nations that are politically, religiously and ideologically antithetical to one another. In many ways, the New Economy represents a revival of the Tower of Babel, only instead of bricks and mortar, it is bound by a reticular web of technology and transportation. The subsistence and success of this brave new Tower of Babel (which P.Q. Wall styles the "Church of American Technology") depends on international cooperation, with the U.S. serving in the role of chief financial facilitator and political mediator among nations. It was created largely by the U.S. and is being held together almost entirely by the U.S. The United States is thus the epicenter of the global New Economy. For the first time in U.S. history, national prejudices and questions of sovereignty and national interest have been laid aside at the altar of mammon. Trade with virulently anti-U.S. nations such as China and the Former Soviet Union is allowed and even actively sought in the New Economy since the profit motive is the impelling force—concerns over political and ideological differences (including the murder of innocent civilians in the foreign nations we do business with) do not even merit consideration. In the New Economy, money is everything.

Since the New Economy assumes the dominance of the profit motive, it can be further assumed that the motives that used to govern men's actions, including religious, patriotic and moral considerations, have been cast aside in a state of desuetude. Every paradigm must have an internal appeal (i.e., spiritual anchor) and the religion of the New Economy is that of consumerism. The New Economy presumes that men are inherently economic animals who have no higher purpose in life than to seek happiness and satisfaction for their wants and needs in a purely material manner. The New Economy trumpets the triumph of free-market capitalism over communism, yet it has this much in common communism: that it is inherently materialistic and purely economic to the exclusion of all other considerations. In this sense, the "New Economy" really isn't new at all.

Another common feature that the New Economy shares with old-line communism is the predominance of the Corporate State above the individual and independent business enterprise. Under communism and its sister, socialism, the State was exalted above the individual, especially in matters dealing with production and finance. The New Economy, due to its vast size, is successful only insofar as it is able to achieve economies of scale. It attempts at catering to a worldwide mass consumer market and must therefore treat the peoples of the world as a gigantic lump, which they call a "mass." Old concepts such as niche markets and specialty markets are cast by the wayside since they can't possibly turn over a big enough profit to satisfy the voracious appetite for fast profit that a monolithic structure such as this possesses. Small, independent business is the backbone of the economic strength of the U.S. economy. It is what, from a financial point of view, made America great. And small business survived largely because of its willingness and ability to target small, regional and specialty markets. It did not cater to some nebulous mass whose tastes were uniform and therefore demanded mass manufacturing. It was not forced to cater to the lowest common denominator of consumer preference. It was free to target its own markets and at its own leisure. That is no longer the case under the New Economy. Small businesses are swept aside by the tentacles of the leviathan that is the Corporate State. This is achieved through such measures as onerous levels of taxation, superfluous regulations and laws governing business, super-saturation marketing (often funded with federal tax dollars) designed at encroaching on the markets of small business and eventually stealing them away, and a variety of other methods. It is nothing less than a concentrated effort on the part of the State/Big Business axis (which we will call the "New Axis") to annihilate all forms of independent enterprise and of making every living soul dependent upon the government and corporations which constitute the New Economy.

The money question itself is of paramount importance in our analysis of the New Economy. Free and unrestrained production of money (albeit, fiat money) is the established policy and backbone of the New Economy. Fluid liquidity is the very lifeblood of global commerce and the New Economy aims at facilitating this through a fiat money policy. Old Economy staples like gold are dismissed and even demonized as a "barbarous relic;" silver as an antiquated "industrial metal." Of course, such denunciations are made because they remove power out of the hands of the New Axis and place it into the hands of the individual. Thus, a gold standard and gold ownership are passionately discouraged (and even fought against) in the New Economy.

Yet another aspect of the New Economy is blurring of national and cultural. This is yet another attempt at resuming the task the builders of Babel left unfinished. Unification and concord at any cost is the mantra of the New Economy adherents. They freely gloss over any national, ethnic, economic and ideological boundaries that stand in the way of global commerce. This is one element of the immigration debate that has gone largely unnoticed. It has been suggested that one reason for the open immigration policy in the U.S. is to facilitate the movement of Third World peoples into America and to integrate them into the economic infrastructure. This is predicated on the belief that Third World peoples are more docile, less independent, less educated and less likely to question and rebel against the New Economic Establishment. In other words, Third World immigrants can be more easily controlled by the Corporate State; thus, Old Economy jobs are shipped overseas to them while at the same time many are invited to descend upon the U.S. in order to facilitate them into our economic infrastructure so that they can fill the servile capacities that remain.

On a more pernicious note, we observe that even the military is redefined under a global New Economy. Our forefathers created this great nation of ours in large part due to the military aspects of the tyranny of Great Britain. A strong, citizen-controlled military was always seen as the underlying safeguard of liberty and of protection from enemies both foreign and domestic (including the government itself). Military has historically served a patriotic obligation to its citizens; now that has given way—like virtually everything else—to financial considerations. The military of today has degenerated into the role of the official protector of Big Business. Consider the strategic placement of U.S. troops in various parts of the world—invariably they are placed only in those areas in which a significant U.S. economic interest must be safeguarded, not so much a human interest. The U.S. military skirmishes of the past decade, without exception, have been fought over an economic interest of some sort (whether oil, minerals, access to foreign markets, etc.). The U.S. military, like U.S. business itself, has been integrated with foreign interests, including those who are antipathetic to U.S. political and military interests (witness the merger of the U.S. military into the U.N. "peacekeeping" forces). So even the military has a role to serve in the New Economy, although it is a considerably altered role than the one it served in the Old Economy.

The New Economy concept assumes that the Old Economy has been firmly replaced and will eventually die off completely. But is this true, and if so, what will be the consequences? We have already established that the Old Economy is composed chiefly of physical manufacturing and industrialism. In this light, the New Economy is frequently presented as just another stage in the economic development of the U.S.—the agrarian economy of the early years gave rise to the Industrial Revolution, which in turn is in the process of being replaced by the New Economy. But is it possible to live in a post-industrial world and still retain the quality of life we have grown accustomed to? Can an intangible, electronically-based economy ever fully replace the bricks-and-mortar economy? Here are some serious questions the New Economy advocates should ponder before diving headlong into the sea of the great unknown: since the U.S. has relinquished her role as the chief industrial economy, for how long are we willing to rely on foreign economies for our physical subsistence? Who manufactures the clothes on our backs and what happens when they, for whatever reason, stop manufacturing them? It is a known fact that American textile manufacturing has largely gone the way of the dinosaur and most of our clothing comes from overseas. What of our food production? Are we willing to relinquish control of our all-important food supply to a monolithic Corporate State, and to be dependent upon the whims of foreign countries and their ability (or inability) to meet payment for our exports? What of our machine tools (the backbone of any capitalistic economy)? Who is making them now, and what guarantee do we have that we will always be able to have unfettered access to them at any time? What of our national borders? How can we be sure they will be duly protected in time of foreign aggression when our troops are integrated into the army of the New Axis? What of our financial systems? How can we safeguard our savings when the U.S. banking structure is tied inextricably to the banking and financial systems of a hundred other countries and economies, many varying greatly with ours? And what of off-shore money havens? What assurance do we have that they will always remain open and free under the New Economy? With the unification of global governments, it isn't too difficult to envision a scenario in which a safe-haven country like, say Switzerland, is persuaded to cooperate with the invasive schemes of another government, such as that of the U.S. These questions are only a handful of a panoply of possible questions that could, and should, be asked concerning the New Economy. We have only brushed the surface.

Of immediate concern to us in our examination of the New Economy is what is likely to happen this Fall when the U.S. stock market is expected to collapse under the combined forces of several major cycles due to turn down at that time. Of course, when the U.S. financial structure collapses, so too will the financial structures of most other major nations around the world; thus, we will get our first true test of the resiliency of the New Economy. The ultimate question remains, "What will happen when/if the New Economy fails to pass the test—what will take its place?" The answer may arrive sooner than we think.

 

Clif Droke

16 March 2000

Clif Droke is editor of the weekly Leading Indicators newsletter, covering the U.S. equities market outlook from a technical perspective as well as the general economic outlook. He is the author of the recently published book, Technical Analysis Simplified. For a free sample issue of Leading Indicators, send name and mailing address to cdroke9819@aol.com or mail to: Leading Indicators, 816 Easely St., #411, Silver Spring, MD 20910.

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Clif Droke is the editor of the three times weekly Momentum Strategies Report newsletter, published since 1997, which covers U.S. equity markets and various stock sectors, natural resources, money supply and bank credit trends, the dollar and the U.S. economy.  The forecasts are made using a unique proprietary blend of analytical methods involving cycles, internal momentum and moving average systems, as well as investor sentiment.  He is also the author of numerous books, including “2014: America’s Date With Destiny.” You can view all of Clif's books here. For more information visit www.clifdroke.com.

Gold is still being mined and refined at the rate of almost 2,600 tonnes per year.