The Knowledge Economy Ain't All It's Cracked Up to Be

Mark Zuckerberg says:

The economy of the last century was primarily based on natural resources, industrial machines and manual labor. Many of these resources were zero-sum and controlled by companies. If someone else had an oil field, then you did not. There were only so many oil fields, and only so much wealth could be created from them.

Today's economy is very different. It is based primarily on knowledge and ideas — resources that are renewable and available to everyone. Unlike oil fields, someone else knowing something doesn't prevent you from knowing it, too. In fact, the more people who know something, the better educated and trained we all are, the more productive we become, and the better off everyone in our nation can be.

This can change everything.

This is pretty much the conventional wisdom these days. All sorts of policy reforms—from immigration to finance to education to taxes—are recommended in the name of the knowledge economy.

But is it true? Like a lot of conventional wisdom, it's based on true things. There are a lot more people employed in knowledge professions than there were in the past. A lot of knowledge professionals make a lot more money than people in similar roles once did. People who can't perform well in knowledge professions have a much rougher time in our economy.

But we aren't really as far from the natural resource economy of the last century as Zuckerberg thinks. Take a look at this chart from Jeff Gundlach's presentation at the New York Yacht Club.

That's right. If you shorted the knowledge economy last year and went long "the economy of the last century," you would have made a killing.

Perhaps the knowledge part of the economy is a bit overrated.

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