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YOU DECIDE: How is the economy like a computer?

May 14, 2010

MEDIA CONTACT: Dr. Mike Walden, 919.515.4671 or michael_walden@ncsu.edu


Dr. Mike Walden
Media representatives:For a high-resolution version of this photo, call 919.513.3127 or e-mail dave_caldwell@ncsu.edu.

I suspect like most people, I am now totally dependent on computers. I have one at work and one at home, and I do all of my writing, emailing and reading of several newspapers daily on the computer. My wife, who is about the least technologically oriented person I know, also spends several hours a day on her computer. She even recently bought a smart phone that automatically forwards her computer email to her phone, meaning she's never out of touch with this form of communication.

One of the reasons computers are so useful is that they can do several tasks at once. For example, as I type this article, my computer is still receiving emails. Or sometimes, I'll have my computer set up to do some statistical work while I'm checking email or surfing the web for the latest economic and financial news.

Computer experts have a phrase for this kind of techno multi-tasking: "running in the background." My email program or statistical analysis can run in the background as I type an article or report. The background tasks are always there; they may just not be the computer user's focus of attention when other work is being done.

I think an analogy can be made to the economy. Just like the computer, there can be several "programs" running in the economy at once. Some are in the foreground - which draw most of our attention - while others are in the background. Changes to the foreground programs don't necessarily imply the same changes to the background programs.

Here's what I mean. The foreground program in the economy during the last two years has been the recession. The recession has grabbed everyone's attention and for good reason. Losses in jobs, wealth and production have been much worse than in recent recessions. Virtually every industry, household and level of government has been impacted by this recession. Homeownership - perhaps the core of the American Dream - has been rocked by record foreclosures and large price declines in homes.

Now, however, many economists say the economy has hit bottom and has begun to improve. Indeed, most of the economic indicators have shown improvement in recent months, and this has given optimism to both job seekers and business operators. While improvement isn't as fast as many would like, many analysts say the economy is finally moving in a positive direction.

Yet at the same time, it's easy to find many lingering issues with the economy. Among these are the budget and trade deficits, the large income gap between rich and poor, the disappearance of manufacturing jobs, unequal growth rates between regions of the state and questions about the future of retirement programs like Social Security.

So with so many economic questions still unanswered, how can anyone say the economy is improving? This is where my computer analogy comes in. The answer is that while the economic program in the foreground may be improving, the economic programs in the background are still there. That is, when we close the foreground program, up pops the background program to remind us it's still there.

Economists call the program tracking the ups (expansions) and downs (recessions) of business the "cyclical economy." There have been 11 of these cycles since World War II, and we'll likely always have them. Whenever we're in the down part of the cycle - the recession - this is the economic program that gets our attention; it's the program running on our screen.

But during both the ups and downs of the economic cycle, there are always the broader issues in the economy. We call this the "structural economy" because these issues are based on the fundamental structure, or foundation, of our economy. These are the big issues related to what we produce, where people work, who's getting ahead and who's not and which regions are growing and which aren't. These issues are always there; it's just that during recessions they often get overshadowed (and overlooked) because everyone's concerned with moving the economy from recession to expansion.

So as the recession is coming to an end and the economy is beginning to expand again, the cyclical economy program is gradually being closed. However, rather than bright sunshine and smiling faces being revealed, the structural economy program emerges from the background to the forefront. Or to use another tech analogy, the structural economy program is going from being minimized to being maximized.

Does this make sense? Have I been helpful in aiding your understanding the different sets of issues in the economy? You'll have to decide. But maybe, for better or worse, you'll never look at your computer in the same way!

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Dr. Mike Walden is a William Neal Reynolds Professor and North Carolina Cooperative Extension economist in the Department of Agricultural and Resource Economics of N.C. State University's College of Agriculture and Life Sciences. He teaches and writes on personal finance, economic outlook and public policy. The Department of Communication Services provides his You Decide column every two weeks. Earlier You Decide columns are at http://www.cals.ncsu.edu/agcomm/writing/walden/decide.htm

Related audio files are at http://www.ncsu.edu/waldenradio/

Posted by Dave at May 14, 2010 08:44 AM