Tuesday, June 17, 2014

The Growth Debate Continues

Last year I wrote some posts about contrasting views about future growth between Robert Gordon and Joel Mokyr. 

Today, The Wall Street Journal did a story on the contrasting views of these two men that summarizes the debate in a nutshell. I don't think it's any secret which view I subscribe to. Hopefully the article is available (if not, do what I did and Google those two names):
If anything, [Robert Gordon's] family should have made him an optimist. Mr. Gordon's father grew up grindingly poor, at one point supporting three younger brothers after his own father died; his eventual success mirrored the larger transformation of the U.S. into the world's richest country.

"His generation saw the move from crowded tenements in the 1920s to suburbia in the 1950s—with everyone having a yard and a car," Mr. Gordon said, a leap showing how much progress has since slowed.

Mr. Gordon sees a hobbled U.S. economy ahead. Americans are getting older, leaving too few workers to support the aging population. The problem is even worse in other Western economies.

An aging citizenry is among a list of troubles, including the declining share of working-age men with jobs; stagnant rates of Americans earning college degrees; jobs lost abroad and high government debt. The biggest obstacle, he said, is growing income inequality.

To compensate, Mr. Gordon said, economies need technological advances. The problem is that the biggest breakthroughs—like electrification or the discovery of antibiotics—are behind us. Electricity changed how people lived and worked, and it spawned hundreds of new industries. The technology that allowed people to communicate instantly or travel quickly over long distances were 19th- and 20th-century innovations.

More recent inventions—including the Internet—won't pack the same punch, he said: "The rapid progress made over the past 250 years could well turn out to be a unique episode in human history."

Cellphones, he said, are just a refinement of the telephone. "Look at what an ideal kitchen looked like in 1955—it's not that different than today," Mr. Gordon said. "It's nothing like moving from clothes lines to clothes dryers."

Cars also illustrate how rapid advances have petered out in recent decades. A century ago, the Ford Model T, with its 20-horse-power engine, reached a top speed of 45 miles an hour. By the mid-1950s, Mr. Gordon said, his father had a Chevrolet station wagon that was five times as powerful. More than 50 years later, Mr. Gordon said, he has a Subaru station wagon that is comparable with his father's Chevy in size, speed and cargo capacity.

"Everyone has looked for a big overarching factor to explain this," he said. "But it occurred to me, it could be as simple as that we'd run out of the great inventions."

Mr. Gordon said his ideas evolved from there. In 2000, he published a paper saying that computer technology, hailed as the driver of the "new economy," was far less impressive than earlier big inventions. He generated more controversy with a 2012 academic paper titled "Is U.S. Economic Growth Over?"

The paper included a dire prediction: The economy will grow less than half as fast as the remarkable 2% average it notched between 1870 and 2007. "Americans got used to their standard of living doubling from that of their parents. No more," he told investment managers in Germany this year:

If he is right, the standard of living for the average American—measured in per capita income—will in the future take 78 years to double, compared with the 35 years it took between 1972 and 2007. The wealthiest 1%, on the other hand, could double their standard of living in as little as 23 years, he said.
Can I interject here? Can someone explain to me what it means for the American standard of living to “double”? What does that even mean? Do I own twice as much stuff? Most people have to rent storage units to keep all their crap and have rummage sales to get rid of it all right now. Does it mean I have twice as many cars? I can only drive one at a time, and they take up a lot of space. Does it mean I make twice as much money? If so, what do I buy with it? Is my food twice as good? Our overall food quality is lower now thanks to the industrialized food system than it was a hundred years ago. Do I live twice as long? Unlikely – human lifespans have not increased much since ancient times (rather sources of mortality have decreased). Do I just spend twice as much on the same things? Or does it mean I work half as many hours for those things? Somehow I doubt the latter, although that would make the greatest impact on my standard of living. Anyway, back to the article:
Other economists have voiced worries about stagnating growth, but none quite as sweeping. Tyler Cowen of George Mason University in a 2011 book described a technological plateau that slowed U.S. growth. Mr. Cowen has softened his stance lately, noting that such developments as the shale gas boom have improved the long-term outlook.
So Mr. Cowen got suckered in by the shale gas "boom" eh? Sad.
Larry Summers, former chief economic adviser to President Obama, told a gathering of the International Monetary Fund last year that the U.S. and other advanced economies faced a prolonged period of extremely slow growth known as secular stagnation.

But in an interview, Mr. Summers said he didn't share Mr. Gordon's belief that innovation has stalled. He agreed, however, that the benefits of meager economic growth "will not be hugely felt by the middle class."

Other experts side with Mr. Mokyr. Timothy Taylor, an economist at Macalester College and editor of the Journal of Economic Perspectives, said, "People like Bob Gordon are making an argument that's been heard repeatedly for the last 150 years."

Mr. Gordon countered that many of the innovations Mr. Mokyr anticipates—such as new technology to clean air and water pollution—will solve problems created by past economic growth. Those shouldn't be counted the same way as breakthroughs that add to output, he said.

"Maybe the problem is that we didn't measure growth in the past correctly," Mr. Mokyr retorted, "because we didn't account for the costs."
Economists Duel Over Idea That Technology Will Save the World (WSJ)

As I've said before, a self-driving car isn't as fundamental an invention as the internal combustion engine, a thermostat hooked up to the Internet is not as important as safe, reliable indoor heating, a $4000 refrigerator that cools your beverage in 5 minutes is not as fundamental as discovering the heat pump principle, and flying from New York to London in an hour less time is not as fundamental as the ability of human flight. What is so hard to understand about this?

One thing Mr. Mokyr does get right is that the benefits of certain inventions to our lives is not always accurately measured in economic growth or GDP. The examples he often cites are Wikipedia, which is tremendously useful but does not add to the stock market or GDP, and anesthetics, which contribute far more to human well being than their dollar value would suggest.

But I would remind Mr. Mokyr that this cuts both ways. A lot of things that have created much of the economic growth over the past thirty years or so have little to no effect on human happiness, whether new brands of candy, soda, or detergent; to monetizing services we used to do for ourselves; to digital distractions like Facebook, not to mention all the imaginary debt money floating around. Their effect on economic growth has been far in excess of what they contribute to human well-being. As Gordon says, would you rather give up indoor heat or Facebook?

This article also makes the same debating points. This time, it's between writers at The Week Magazine: John Aziz and Sean McElwee:
...Aziz argues that "those who predict stagnant [economic] growth today due to falling population growth are overlooking the changing technological dynamics of our time." Aziz forecasts that revolutions in robotics and renewable energy will fuel the economy of the future, even as population (and thus the labor force) remains static. I really do hope that Aziz is right. But the realist in me is skeptical. I do not believe that we will be able to continue to enjoy rocket-ship levels of post-war growth, largely because of environmental constraints. And I do not believe robots are as revolutionary as Aziz thinks.

Aziz argues that "while the human population may level off, we are swiftly moving toward a world where humans are not the only productive agents." This is already true, and has been for millennia. Even before the industrial revolution, animals and simple tools have been used by humans to increase their economic output. Indeed, one of the more confusing aspects of the "robot" debate is how utterly banal robots are. Back in 1891 Oscar Wilde noted, "One man owns a machine which does the work of five hundred men." The question now, just as it was back then, is how these benefits are distributed. Wilde writes, "The one man secures the produce of the machine and keeps it, and has five hundred times as much as he should have, and probably, which is of much more importance, a great deal more than he really wants."

This, sadly, is the case now, too. Productivity increases due to technological gains have increasingly accrued to the wealthiest. In fact, the only time that Wilde's observation was not true was in the immediate post-war era, when rapid economic growth, diminished capital stocks, wartime solidarity, massive investment in education and infrastructure, and a powerful left combined to create rapid growth and lowering inequality.

Robots will certainly increase human productivity, supplant much human labor, and perform numerous important tasks. But I still struggle to imagine a world in which they replicate the massive improvements from our first two industrial revolutions: steam, railroads, electricity, internal combustion engine, running water, indoor toilets, communications, entertainment, chemicals, and petroleum. Even if they do, it seems unlikely that these benefits will be broadly shared, given the demise of an organized left and capital's increasingly globalized nature. The robot revolution may well be, like the recovery, one of rabid progress for a small few.

Today, Big Finance has deprived the real economy of much-needed investment. Public infrastructure is in decay, government investment in research and development is reaching historic lows, and state education budgets are being cut. The Financial Times reports that "public investment in the U.S. has hit its lowest level since demobilization" after World War II. Given that many of the most important inventions have been subsidized by either monopolistic companies (Bell Labs) or the government (Human Genome Project, the internet), this low spending is not a harbinger of rapid growth in emerging technologies like robotics and renewables.
The limits of techno-optimism (The Week)

While Gordon gets a lot of attention, his argument has been made before. Richard Heinberg in The End of Growth cited a similar view in a book by a Swedish economist named Mats Larsson:
A remarkable book appeared in 2004 to almost no fanfare and little critical notice. The author was Mats Larsson, a Swedish business consultant, and his book was titled The Limits of Business Development and Economic Growth.[1]Unlike the thousands of business books published each year that promise to help managers become more effective, or that hint at new opportunities for profit, Larsson’s conveyed a sobering message—one that the business community evidently didn’t want to hear: Our human ability to invent genuinely new activities is probably limited, and most recent inventions have consisted merely of finding ways to speed up activities that humans have been performing for a very long time—communicating, transporting themselves and their goods, trading, and manufacturing. These processes can only be taken to the limits where things can be done at almost no time and at a very low cost, and we are fast approaching those limits.

“Through centuries and millennia,” Larsson writes, “humans have struggled to simplify production and make tools and products less expensive and easier to manufacture.” Possible examples are legion from virtually every industry—from telecommunications to air travel. “Now we are finally in a situation where many things can be done in close to no time and at a very low cost.” He goes on:

[A]t close scrutiny we do not seem to have done anything except gradually automate activities that human beings have been performing for a few hundred, and sometimes thousand, years already. The development of a large number of different technologies that help us to automate these tasks has driven economic development and business proliferation in the past. Now, technological progress is at the stage where a number of these technologies and products have been developed to a point where we cannot realistically expect them to develop much further. And, despite widespread belief of the opposite, we cannot be certain that there are enough new products or technologies left to be developed for companies to be able to make use of the resources that are going to be freed from existing industries.
For the skeptical reader such sweeping statements bring to mind the reputed pronouncement by IBM former president Tom Watson in 1943, “I think there is a world market for maybe five computers.” Fortunes continue to be made from new products and business ideas like the iPad, Facebook, 3D television, Blu Ray DVD, cloud computing, biotech, and nanotech; soon we’ll have computer-controlled 3D printing. However, Larsson would argue that these are in most cases essentially extensions of existing products and processes. He explicitly cautions that he is not saying that further improvements in technology and business are no longer possible—rather that, taken together, they will tend to yield diminishing returns for the economy as a whole as compared to innovations and improvements years or decades ago.
Business Development: The cavalry’s on the way (Resilience.org)

Next time, we'll make an analogy between our beliefs in technological "innovation" and the Cargo Cults of the South Pacific.

BONUS: Also from the WSJ:  Has the wave of innovation that transformed the world over the past century fizzled out?...One of the more unusual books on the subject is “The American Technological Challenge” by Jan Vijg, a Dutch-born molecular geneticist at the Albert Einstein College of Medicine in New York.

“I wrote this more out of frustration than anything else,” says Mr. Vijg, who emphasizes that he is not an economist. He was inspired by an airplane trip in 2006—when he noticed that the plane to Amsterdam wasn’t much different from the one that brought him to the U.S. for the first time in 1984. “I just asked myself, how is this possible?” he says.

In his book, Mr. Vijg compiled a list of more than 300 “macro-inventions” that were made between 500 BC and 2010. A macro-invention is a major breakthrough—like the invention of the windmill—that opens the way for other refinements. In the case of windmills, for instance, that would include modern wind turbines. Mr. Vijg says he borrowed the concept from Northwestern economist Joel Mokyr, subject of a story in today’s Wall Street Journal.

Mr. Vijg found inventions accumulated rapidly in the last century. But tellingly, the uptrend stopped and turned downward around 1970 and hasn’t recovered yet. “What we’re seeing is not technological decline—it’s deceleration,” he says.

2 comments:

  1. These poor fools have evidently forgotten about warfare and big-time natural disasters (effectively, war with mother nature). In an all-out war, there is infinite scope for technological growth. Faced with extermination by a powerful enemy, the wealthy will open their pocketbooks wide for defense spending (those wealthy who resist war spending will be neutralized by their peers with a stronger survival instinct). Such spending/growth on war perhaps won't make people happy, but it sure as hell will keep the scientists, engineers and highly skilled technicians busy (the lower-echelons are doomed).

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  2. The big inventions needed are not in the area of technology. They are... elsewhere.

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