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Another Roaring Twenties May Be Ahead

Summary:
We seem to be living in unprecedented times. We always seem to be living in unprecedented times, according to conventional wisdom, mostly because we don’t spend enough time studying history. There’s certainly a precedent for our current times in the past, one that was truly unprecedented back then. World War I was followed by the Spanish Flu pandemic of 1918, which infected an estimated 500 million people and killed as many as 50 million. Given that the world population was 1.8 billion back then, that implied a 28% infection rate and nearly a 3% death rate. Both stats are currently significantly lower for the COVID-19 pandemic. Today, the global population is 7.5 billion. There have been 20 million cases and 735,000 deaths worldwide as of yesterday. The good news is that the bad news

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We seem to be living in unprecedented times. We always seem to be living in unprecedented times, according to conventional wisdom, mostly because we don’t spend enough time studying history. There’s certainly a precedent for our current times in the past, one that was truly unprecedented back then.

World War I was followed by the Spanish Flu pandemic of 1918, which infected an estimated 500 million people and killed as many as 50 million. Given that the world population was 1.8 billion back then, that implied a 28% infection rate and nearly a 3% death rate. Both stats are currently significantly lower for the COVID-19 pandemic. Today, the global population is 7.5 billion. There have been 20 million cases and 735,000 deaths worldwide as of yesterday.

The good news is that the bad news during the previous precedent was followed by the Roaring Twenties. So far, the 2020s has started with the pandemic, but there are plenty of years left for the prosperous 1920s to become a precedent for the current decade. If so, the driver of the coming boom will be technology-enhanced productivity, as it was during the 1920s.

Before we go there, let’s go back to the late 1700s and recall the grim forecasts of Thomas Malthus. He was the first economist, and he was a pessimist. In other words, he was the first Malthusian. During the late 1700s, he predicted that populations would grow faster than food production; the result would be a regular cycle of starvation and death. He was dead wrong. Agriculture was among the industries that benefited the most from the Industrial Revolution of the 1800s. Technological progress always confounds the pessimists by solving scarce-resource problems. It also fuels productivity and prosperity, as it did in the 1920s and could do again in the 2020s. Consider the following:

(1) Technology during the 1920s. In 1920, 51% of the US population lived in cities, up from 23% in 1870. This remarkable urbanization was enabled by innovations in electricity and plumbing. Electric grids provided clean, bright light without emitting smoke. Urban water networks supplied clean water, and sewer systems removed waste without the pungent odors of chamber pots and outhouses. Telephones allowed people to converse with distant friends.

Henry Ford’s Model T, built between 1908 and 1927, was the first car invented and helped people to live an easier life by making transportation easier and faster. In 1900, just 8,000 motorcars were registered in the US, but there were 9 million in 1920 and 23 million in 1929. Streetcars and subways, unheard of in 1870, were in all the major cities by 1920. Intercity trains were becoming steadily faster and more reliable. Detroit Police Officer William Potts came up with the idea of traffic lights, taking inspiration from railroad traffic signals. General Electric bought the idea for $40,000, and traffic lights soon were everywhere.

Ford’s assembly line innovation boosted productivity in many manufacturing industries, including the processed food industry. National food brands—including Heinz, Campbell’s, Quaker Oats, Jell-O, and Coca-Cola—began to fill cupboards. Refrigerated railroad cars and in-home iceboxes meant that vegetables were available in winter. Restaurants began to proliferate early in the 20th century. When people out and about in their Model Ts got hungry, their options were few, but the first fast-food chain opened its doors in 1919, an A&W (better known today for its root beer). White Castle hamburger stands opened in 1921, and the first Howard Johnson’s restaurant in 1925.

Increasingly, anything not available in a local store could be obtained by a mail-order catalog. The Montgomery Ward catalog was first issued in 1872, the Sears catalog in 1894. By 1900, Sears was fulfilling 100,000 orders a day, and its catalog featured fur coats, furnaces, furniture, and much more—including homes. Sears sold more than 70,000 mail-order homes between 1908 and 1940. The catalog business was helped along by Parcel Post, which arrived in 1913.

Penicillin is considered one of the most important inventions to come out of the 1920s. It was created by Sir Alexander Fleming, Professor of Bacteriology at St. Mary’s Hospital in London, after studying bacteria in 1928. The antibiotic kills or prevents the growth of bacteria.

The bulldozer—used today in all kinds of construction the world over—was invented in 1923 by James Cummings and J. Earl McLeod, originally to dig canals.

Another popular invention found in almost every home by the mid-1900s was the radio. Listening to the radio became a national pastime, and many families gathered in their living rooms to listen to sports news, concerts, sermons, and “Red Menace” news. The phonograph—invented in 1877 and widely used by the 1920s—offered another entertainment option: listening to professional-quality music at home, unheard-of in earlier generations. Outside the home, going to motion picture shows—which were silent until 1927—was a very affordable and popular pastime.

(2) Technology during the 2020s. Today’s doomsters could be confounded by biotechnological innovations that deliver not only a vaccine for COVID-19 but for all coronaviruses. Scientists are investigating a dizzying array of approaches to fight COVID-19. Hopefully, beyond finding a cure or a vaccine, one of beneficial outcomes of all this research will be that scientists learn many more ways to combat illnesses in general and viruses in particular. Typically, it takes roughly a decade for a new vaccine to go through the various stages of development and testing. However, the urgency of the pandemic has mobilized global medical resources as rarely seen in human history. Billions of dollars, provided by both the public and the private sectors, are funding the global campaign to develop tests, vaccines, and cures for the virus.

My colleague Jackie Doherty and I have been writing about disruptive technologies for some time, usually in our Thursday commentaries. (See our archive of Disruptive Technologies Briefings) The awesome range of futuristic “BRAIN” technological innovations includes biotechnology, robotics and automation, artificial intelligence, and nanotechnology. There are also significant innovations underway in 5G for cellular networks, 3-D manufacturing, electric vehicles, battery storage, blockchain, and quantum and edge computing.

As I wrote in my 2018 book Predicting the Markets:

“Economics is about using technology to increase everyone’s standard of living. Technological innovations are driven by the profits that can be earned by solving the problems posed by scarce resources. Free markets provide the profit incentives to motivate innovators to solve this problem. As they do so, consumer prices tend to fall, driven by their innovations. The market distributes the resulting benefits to all consumers. From my perspective, economics is about creating and spreading abundance, not about distributing scarcity.”

Now consider the follow stats on technology capital spending in the US: High-tech spending on IT equipment, software, and R&D rose to a record $1.32 trillion (saar) during Q2-2020 (Fig. 1). It jumped to a record 50.1% of total capital spending in nominal GDP during the quarter (Fig. 2). Equipment and software accounted for 31.1%, while R&D accounted for 19.1% of capital spending in nominal GDP (Fig. 3).

The 1920s ended with a stock market meltup followed by a meltdown. The 2020s may already be seeing a meltup, begun on March 23. We live in interesting, though not unprecedented, times. The Roaring 1920s could be a precedent for the Roaring 2020s. As Mark Twain observed: “History doesn’t repeat itself, but it often rhymes.”

Dr. Ed Yardeni
Dr. Ed Yardeni is the President and Chief Investment Strategist of Yardeni Research, Inc., a provider of independent investment strategy and economics research for institutional investors. In this blog, we highlight some of the more interesting relationships and developments that should be of interest to investors. Our premium research service is designed for institutional investors.

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