FREE ESSAY ON CRITICAL REVIEW OF A TECHNOLOGY AND ECONOMICS ARTICLE

CRITICAL REVIEW OF A TECHNOLOGY AND ECONOMICS ARTICLE

The article Digital Technology and Institutional Change from the Gilded Age to Modern
Times: The Impact of the Telegraph and the Internet describes the difficulties that exist
when trying to create an accurate economic model showing responses to new, economy
changing, technologies. The author Ronnie Phillips mainly focuses on institutional
economics and, by showing the history of other technological advances, the need for
institutional analysis. He explains how the challenge is to explain societal change,
recognize what and how it happens, and create policies that will foster increased living
standards throughout the world.
The way that the author forms his article is by first giving a rather exhaustive history
of the telegraph, and reviews the impact that it had when it became a major form of fast
communication. He then goes over some factors that are essential to understanding the
evolution of society. One, that technology is of the nature of a joint stock of knowledge
for humankind; two, the role institutions and organizations (like the government) play in
the development of the technology; three, a so-called ceremonial encapsulation and path
dependency; and four, the unpredictability of technological change and it's impact on
society.
The last half of the article addresses institutional economics, while not very clearly,
he writes about the institutional changes that the internet has had on the economy, while
going into a short history of the growth of the internet.
The conclusion of the article involves an argument/discussion about whether or not the
arguments presented in the article substantiate a new institutional or old institutional
methodology versus whether or not they fall within neoclassical theory. Many questions
remain unanswered through the end, and even more are raised right in the last paragraph.
Although the author does raise some very interesting and provoking questions in the
beginning of the article, unfortunately, some of them are very difficult to answer, or
just can't be answered. While the article doesn't solve any problems, it does raise
awareness and creates some interesting connections with the present and the past. The
overall question the author wishes to answer is how can economists understand and explain
the nature of societal change?
The information is explained mostly through a narrative history with a short quantitative
analysis of the growth of the telegraph and the Internet. The numbers are interesting,
but don't show how the economy has changed because of the growth of the Internet. Also
absent is an explanation of institutional economics. Maybe it's assumed that the reader
already knows what institutional economics is, but I am unclear, and the rest of the
article is developed around the idea that with the analysis of the internet, it lies
outside mainstream economics and lies somewhere in institutional economics, but no
explanation of institutional.
The problem and the weak part of the article is that he spends much of the time
explaining the telegraph, how it came about, how it grew in use, how it changed the way
people behaved, etc. While this information is pretty interesting, such an in depth
history of it is unnecessary. He then compares this technology of the past with the
technology of today, the Internet. He lobbies for a change, or at least renewed vigor for
deciding if a new economy exists or not. 
One of the most important questions the author raises, well, rather hints at, is
expressed through a quote of Paul Romer, a leading new growth theorist. Mr. Romer said:
Once we admit that there is room for newness-that there are vastly more conceivable
possibilities than realized outcomes-we must confront the fact that there is no special
logic behind the world we inhabit, no particular justification for why things are the way
they are. Any number of arbitrarily small perturbations along the way could have made the
world as we know it turn out very differently... We are forced to admit that the world as
we know it is the result of a long string of chance outcomes [cited in Lewis 2000, 252].
The author says that this explanation is why economists have difficulty explaining the
economy, and deciding how it is going to behave, and whether or not there is a new
economy. So he begins with an almost apologetic approach, but then goes on to explain how
we may be able to take what we know about the past and apply this knowledge to both the
present and the future. 
He goes on to agree with an article put out in 1965 by Time magazine that claimed
economists at that time confess[ed] rather cheerily that they have just about reached
outer limits of economic knowledge. This statement was made because there was continued
expansion, low unemployment for an extended period of time. Economic models and theories
could not explain this phenomenon in 1965, although there have been improvements since
then. The author argues that we are once more at a point that significant changes in
economic theory must take place to explain the changes in the economy due to technology.

This type of discussion is important because economics is a study of peoples behavior. If
faster communication and new technology changes peoples behavior, thus changing the
economy, an accurate economic model should be found, or at least sought for. While there
are many current economic models, none of them accurately, at least in the authors view,
can explain or predict peoples behavior when it comes to a new technology.
This discussion is interesting to me personally because I see the way that technology,
especially the Internet, is affecting peoples behavior and peoples productivity. The ease
of how all these Internet startups are creating overnight millions is astounding. The
economy for a long time has been expanding consistently and quickly. (Apparently a little
too quick for the fed, as changing interest rates show). I think that the Internet has
leveled the playing field for a lot of people. 
What the author doesn't talk about that I think that is important to this discussion is
the ability of someone to create a service or product and market it over the internet
with little or no capital. There isn't a lot of analysis on how this new type of industry
affects the economy. This type of market has never existed before, and relying on past
models to predict how the economy is going to act does not work. While there are some
similarities of traditional types of commerce and this new so-called e-commerce, there
are also many glaring differences.
According to some industry experts, having a lot of capital on hand can be less of an
asset and more of a liability because of the fast depreciation of products that are
technologically advanced. There are also many intangibles besides the main aspects of
which the author speaks about. Where speed and availability of information does affect
productivity, there are other variables, some which are defined, some which may never be
defined. 
The questions the author leaves us with are the same that he started the article with,
which, as I explained earlier, never seem to get answered. While I understand that the
answer to the questions are not available and the whole point of the article was to point
out the shortcomings of current economic theory when it comes to information technology,
at least a conclusion or even a speculation would have been nice.
The questions left that are the most intriguing to me is how has this new information
technology affected productivity among other economic quantifications, as well as what is
going to happen to the economy because of the rapid expansion of this technology?