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Google Inc (GOOG), Wal-Mart Stores, Inc. (WMT): Don’t Read the Wrong Signs About Technology

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Google Inc (NASDAQ:GOOG)So this morning, I ran across a Forbes article that concluded that business is becoming deprived by technology. Now, the author of the Forbes article, John Wasik, more or less supports Jaron Lanier’s viewpoints. Jaron Lanier stated five points in his book Who Owns The Future, which I will mention in bullets:

1). Long-range impact of networked tools employed by “Siren Servers” move information but not income to those who are exploited by them. Our private information is being bought and sold without any compensation to us, the users.
2). Wal-Mart mastered its supply chain with servers, beat up vendors for low prices, then proceeded to gut local economies.
3). File-sharing services provided downloaded music for free, depriving musicians of income.
4). Things have become much cheaper or given away, but only the people owning the servers benefit. A much larger slice of profit is going to a handful of people, creating an even smaller group of techno-elites.
5). Wall Street exploits technology through networks and high-speed trading to gain spectacular advantages over Main Street investors, who get creamed in their 401(k)s when traders go wild. The mortgage crisis of 2007-2009 was as much an example of technological abuse as pure greed.

The classical economic argument is superior

So, clearly speaking, I cannot really agree with many of the points that were illustrated by Jaron Lanier. For example, Jaron Lanier states that the long-range impact of servers is that while it effectively moves information, it does not increase income. However, the problems with his viewpoints are two-fold.

First, no one fully understands the long-range impact of the networked economy, except for the fact that it decreases the cost of producing goods which, based on classical economic theory, would shift the supply curve to the right, therefore lowering prices and increasing total economic output. This viewpoint can be clearly supported by looking at the historical real GDP growth of the United States economy over the past twenty-years which is illustrated below.

Source: Ycharts

The above figure clearly illustrates that the total quantity of goods supplied has increased. Real GDP measures the total growth of the economy excluding inflation. The period analyzed includes the rapid adoption of the computer, internet, and software. The three combined have contributed significantly towards total real economic output.

Companies like Google and Wal-Mart do you a favor

Companies like Google Inc (NASDAQ:GOOG) and Wal-Mart Stores, Inc. (NYSE:WMT) contribute to the economic growth and prosperity of this country, contrary to what Jaron Lanier states in his book. Wal-Mart Stores, Inc. (NYSE:WMT), while ruthless at operating a low-cost retail chain, has freed up capital for its most optimal use. For example, all those people who could have been working at grocery markets ended up working at higher value jobs.

Wal-Mart Stores, Inc. (NYSE:WMT) has optimized its business operation to function with a smaller workforce. This also means paying workers a lower wage. Those who work at Wal-Mart Stores, Inc. (NYSE:WMT) that are employed are either younger-adults who live at home with their parents, or older adults who are looking to move themselves up the corporate ladder.

The remaining people who are left unemployed have to create their own work. Many of the work that has been created in the economy was due to changes in the technological environment. More and more labor is becoming self-employed. The self-employed work in sectors of the economy like technology, medical, entertainment, sales, marketing, and even finance. More self-employment has been created due to changes in the technological environment, which has led to increases in the level of skilled labor in the broader economy. This results in aggregate economic growth, or real GDP growth.

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