Innovation Is Slowing Down

It's not often when a billionaire libertarian sociopath does my homework for me, but such is the case with Peter Thiel, who has a standard rap about how progress has slowed down in the late twentieth century. His presentation is so good and well-researched, it makes a lot of my points for me. Broken clocks and all, I guess. Take it away, Petey! (all emphasis mine):

"Look at the Forbes list of the 92 people who are worth ten billion dollars or more in 2012. Where do they make money? 11 of them made it in technology, and all 11 were in computers. You’ve heard of all of them: It’s Bill Gates, it’s Larry Ellison, Jeff Bezos, Mark Zuckerberg, on and on. There are 25 people who made it in mining natural resources. You probably haven’t heard their names. And these are basically cases of technological failure, because commodities are inelastic goods, and farmers make a fortune when there’s a famine. People will pay way more for food if there’s not enough. 25 people in the last 40 years made their fortunes because of the lack of innovation; 11 people made them because of innovation."

Yes, consistent with Neofeudalism, money is made by ownership of the the things we all need rather than making things better for everyone. Note that this is as much of an indictment of the capitalist economic order as it is of a lack of inventiveness. After all, none of these people actually put those natural resources in the ground, did they?

"Real oil prices today exceed those of the Carter catastrophe of 1979–80. Nixon’s 1974 call for full energy independence by 1980 has given way to Obama’s 2011 call for one-third oil independence by 2020. “Clean tech” has become a euphemism for “energy too expensive to afford,” and in Silicon Valley it has also become an increasingly toxic term for near-certain ways to lose money."

Is Thiel aware of Peak Oil? Does he care? Does he realize this also undermines the eternal-growth paradigm implicit in the economic doctrines he worships? One wonders. Also, note the swipe at Carter, who took Peak Oil seriously. Unfortunately, the 1980's Oil Glut had the unfortunate side of effect of (incorrectly) providing a a justification for Reagonomics, even though it has been subsequently failing for decades. Fracking has failed to have the same effect outside of a few boom (and soon to be bust) towns. And also note that the "Carter catastrophe" was really caused by the Arab Oil Embargo, which ultimately derived from political chaos in the Middle East. But after all, it's not like the Middle East is politically chaotic nowadays, right? Right?

"One of the smartest investors in the world is considered to be Warren Buffett. His single biggest investment is in the railroad industry, which I think is a bet against technological progress, both in transportation and energy. Most of what gets transported on railroads is coal, and Buffett is essentially betting that after the 21st century, we’ll look more like the 19th rather than the 20th century. We’ll go back to rail, and back to coal; we’re going to run out of oil, and clean-tech is going to fail."

So the "Sage of Omaha" is betting against technological progress, eh? He's even smarter than I thought. Perhaps he read Profit From the Peak. Maybe he's been listening to Chris Martenson or Jeremy Grantham or Robert Gordon. Maybe Thiel should try doing that sometime. Maybe then Thiel will stop thinking "innovation" is a substitute for real resources like fossil fuels, arable land, fresh water, ores and minerals.

"There was a famous bet in the between Julian Simon, an economist, and Paul Ehrlich in 1980 about whether a basket of commodity prices will go down in price over the next decade. Simon famously won this bet and this was sort of taken as evidence that we have tremendous technological progress and things are steadily getting better. But if you had to re-run the Simon-Ehrlich bet on a rolling decade basis then Paul Ehrlich has been winning the bet every year since 1994 when the price of this basket of goods has been getting more expensive on a decade-by-decade basis."

This is an excellent admission, since the Simon-Erlich wager is usually trotted out by Cornicopians to justify the "innovation/technology will save us" rap. Thiel correctly points out that in the longer run Erlich (who wrote The Population bomb) was basically right. And what's Erlich saying today? Hmmmm...

"Consider the most literal instance of non-acceleration: We are no longer moving faster. The centuries-long acceleration of travel speeds — from ever-faster sailing ships in the 16th through 18th centuries, to the advent of ever-faster railroads in the 19th century, and ever-faster cars and airplanes in the 20th century — reversed with the decommissioning of the Concorde in 2003, to say nothing of the nightmarish delays caused by strikingly low-tech post-9/11 airport-security systems."

This would be a good time to point out that trains run slower today than they did the 1920s. Oh, and by the way, the world's largest cargo ships are travelling at lower speeds today than sailing clippers such as the Cutty Sark did more than 130 years ago (although this guy disagrees). Not only that, just one of these massive tanker ships gives off as much pollution as fifty million automobiles. In fact, sixteen cargo ships emit as much pollution as all of the world's automobiles. So it's even worse than Thiel talks about, since that pollution is not accounted for in the economic calculus, but the results from increased asthma rates to climate change are paid for by all of us.

As he points out, the space shuttle has been mothballed as has the Concorde. Economics is a bitch. The fastest humans have ever moved was the Apollo spaceflights of the 1970's. Manned missions to Mars and warp drives remain pipe dreams.

The record for the greatest distance from Earth has stood for more than four decades. In April 1970, the crew of NASA's Apollo 13 mission swung around the far side of the moon at an altitude of 158 miles (254 km), putting them 248,655 miles (400,171 km) away from Earth. It's the farthest our species has ever been from our home planet.

The crew of NASA's Apollo 10 moon mission reached a top speed of 24,791 mph (39,897 kph) relative to Earth as they rocketed back to our planet on May 26, 1969. That's the fastest any human beings have ever traveled.

The Most Extreme Human Spaceflight Records (Space.com)

And even automobile miles per gallon is slowing down:

In the end, it looks like the "peak mileage" of the late 1990s is the real one. In the future, the a combination of factors which led to the peak will never return. Oil depletion is destined to make oil less and less affordable, even though market oscillations may hide this phenomenon. Wages are unlikely to grow in real terms after having been static for the past 40 years. And technological miracles are unlikely. Even the Toyota Prius, technological marvel of our times, can only bring us back to where we were 15 years ago in terms of mileage per hour worked. As long as we remain within the paradigm of "road vehicle powered by a combustion engine" we have reached the limit of what we can do.

Peak mileage and the diminishing returns of technology (Resource Crisis)

"The cruder measure of U.S. life expectancy continues to rise, but with some deceleration, from 67.1 years for men in 1970 to 71.8 years in 1990 to 75.6 years in 2010. We have one-third of the patents approved by the FDA as we have 20 years ago."

It's worse than that Pete (may I call you Pete?). We are actually running out of antibiotics, due to their abuse by private industry. It's so bad we're trolling the bottom of the ocean to find new ones. And drug companies don't like to develop antibiotics because they do not treat chronic conditions. You take antibiotics and they actually, well, cure you (although we are increasingly finding that they are having negative effects on our health), whereas drugs that treat chronic conditions like heart disease have to be taken for the rest of your life, which means more profit. And that tidbit about less patents is precious, since the economic calculus has drug companies investing in "me-too" drugs. Oh, and let's not mention how much government (which you hate, Pete) has footed the bill for biomedical innovations, yet reaped none of the profits that taxpayers paid for. No, instead taxpayers are mercilessly gouged thanks to patents for drugs - Americans pay hundreds of dollars for the pills that are keeping them alive.

[T]he respected Northwestern economist Robert Gordon reiterated the conventional view in a talk at the New School, saying that he was “extremely skeptical of government” as a source of innovation. “This is the role of individual entrepreneurs. Government had nothing to do with Bill Gates, Steve Jobs, Zuckerberg.”...Fortunately, a new book, The Entrepreneurial State, by the Sussex University economist Mariana Mazzucato, forcefully documents just how wrong these assertions are...Gordon called the National Institutes of Health a useful government “backstop” to the apparently far more important work done by pharmaceutical companies. But Mazzucato cites research to show that the NIH was responsible for some 75 percent of the major original breakthroughs known as new molecular entities between 1993 and 2004.

Innovation: The Government Was Crucial After All (NY Review of Books)

I've made this point before. The smallpox vaccine was made using eighteenth-century technology and reduced infant mortality dramatically. The discovery of the link between clean water and illness thanks to John Snow and the Broad Street Pump was another leap forward (and opposed by conservative business interests).

Today we spend six figures and deploy space-age technology to keep eighty-year-olds alive a few more months. Diminishing returns indeed. We also deploy millions of dollars and high technology to keep extremely unhealthy infants alive, ensuring that human health will only get worse in the future

Oh, and those life expectancy figures are only valid if we lump ordinary people like us in with billionaire oligarchs like you, Pete. In fact, for the poorest Americans, life expectancies are in decline. That is, our lifespans are getting shorter unless we're in the upper class making six or seven figures (which does not include most of us). So we're even less enamored with progress than you are. Let's move on.

"The reason that all the rocket scientists went to Wall Street was not only because they got paid more on Wall Street, but also because they were not allowed to build rockets and supersonic planes and so on down the line. Space has always been the iconic vision of the future. But a lot has gone wrong over the past couple of decades. Costs escalated rapidly. The Space Shuttle program was oddly Pareto inferior. It cost more, did less, and was more dangerous than a Saturn V rocket. It’s recent decommissioning felt like a close of a frontier."

Yes, the lack of space travel is a major retort to where we were supposed to be, as John Michael Greer has pointed out numerous times. Note that space travel was traditionally paid for by governments, the same governments who are cutting back social benefits and drowning in debt for bailing out investors like Mr. Thiel. Maybe that has an effect? Haven't people like Thiel and their ideological allies called for drowning the government in a bathtub?

Instead we get private "space tourism" from  billionaire oligarchs like Richard Branson (serving other billionaire oligarchs in an economic circle-jerk that the rest of us don't get to participate in). Branson's scheme is perennially years away as this post points out, and his schemes, while ostensibly "private" are of course dependent upon generous tax breaks and subsidies from our supposedly "broke" governments. Neoliberalism and space travel seem to be at odds with each other.

"The fading of the true Green Revolution — which increased grain yields by 126 percent from 1950 to 1980, but has improved them by only 47 percent in the years since, barely keeping pace with global population growth — has encouraged another, more highly publicized “green revolution” of a more political and less certain character. We may embellish the 2011 Arab Spring as the hopeful by-product of the information age, but we should not downplay the primary role of runaway food prices and of the many desperate people who became more hungry than scared."

Bravo, Mr. Thiel for pointing this out. The diminishing returns to the Green Revolution have been pointed out on this blog numerous times. Of course, you can only increase yields so far, and when you do, you face unintended consequences such as increased drawdown of aquifers, pollution dead zones and superweeds. Normal Borlaug himself warned against seeing his work as a magic "solution" that did more than buy time. Incidentally, at least part of that food price increase has been exacerbated by financial "innovation":

...[A]fter 1999 and 2000, when sections of the Glass-Steagall Act were repealed and President Bill Clinton signed the Commodity Futures Modernization Act into law, investment banks and other financial actors began to bet on commodities as speculation, not as insurance. “Where we used to see something like 12% of the market made up of financial players, since deregulation, this number has now jumped to over 60%,” says Heidi Chow of the World Development Movement, a U.K.-based campaigning organization.

The statistics are impressive: the German NGO Foodwatch points out that investment in food commodities has jumped from $65 billion to $126 billion in the past five years. Perhaps a more revealing statistic is that speculative investment in these commodities in 2011 amounted to 20 times more than the total spent on agricultural aid by all countries combined.

Betting on Hunger: Is Financial Speculation to Blame for High Food Prices? (Time)

Instead, we need to "innovate" by deploying sustainable, agricultural farming techniques. Too bad the people actually doing this are barely staying afloat or only selling to wealthy patrons thanks to the "bigger is better" models of innovation promoted by people like Thiel. Farms with a million cows pumped full of whatever antibiotics are left and milked by robots are the model for the future promoted by the progress cultists, along with insect ranching and meat grown in vats. Progress!

"Think about what happens when someone in Silicon Valley builds a successful company and sells it. What do the founders do with that money? Under indefinite optimism, it unfolds like this":

•     Founder doesn’t know what to do with the money. Gives it to large bank.
•     Bank doesn’t know what to do with the money. Gives it to portfolio of institutional investors in order to diversify.
•     Institutional investors don’t know what to do with money. Give it to portfolio of stocks in order to diversify.

"Companies are told that they are evaluated on whether they generate money. So they try to generate free cash flows. If and when they do, the money goes back to investor on the top. And so on. What’s odd about this dynamic is that, at all stages, no one ever knows what to do with the money."

"10-year bonds are yielding about 2%. The expected inflation over the next decade is 2.6%. So if you invest in bonds then in real terms you’re expecting to lose 0.6% a year for a decade. This shouldn’t be surprising, because there’s no one in the system who has any idea what to do with the money."

This is in may ways the most amusing part of the speech, since finance was thought to be the one place where "innovation" was rampant in the first decade of the twenty-first century. Of course, this pretty much impoverished everyone besides oligarchs like Mr. Thiel. And acknowledging that no one knows what to do with the money is interesting since we're constantly told that burdensome taxes are all that stands between us and prosperity. Corporations are constantly militating for lower (or even zero) taxes, and we are told to give the rich ever more money in the hopes that prosperity will trickle down to the rest of us (well, something is trickling down all over us...)

In fact, all that money goes into bubbles, which are constantly inflating and popping. It also goes to expenditure cascades meaning that the prices of things like cars and houses are so high that people can no longer afford them (since everyone is trying to maximize their profits by selling to a tiny sliver of insanely rich people)

Here's an idea for what to do with the money - rebuild our crumbling infrastructure and provide jobs for the unemployed. All this money is sloshing around the world and parked in tax havens even as we're told we can't afford Social Security.

"We have 100 times as many scientists as we did in 1920. If there’s less rapid progress now than in 1920 then the productivity per scientist is perhaps less than 1% of what it was in 1920."

"The Empire State Building was built in 15 months in 1932. It’s taken 12 years and counting to rebuild the World Trade Center."

"The Golden Gate Bridge was built in three-and-a-half years in the 1930s. It’s taken seven years to build an access road that costs more than the original bridge in real dollars."

"When people say that we need more engineers in the U.S., you have to start by acknowledging the fact that almost everybody who went into engineering did very badly in the last few decades with the exception of computer engineers. When I went to Stanford in the 1980s, it was a very bad idea for people to enter into mechanical engineering, chemical engineering, bioengineering, to say nothing of nuclear engineering, petroleum engineering, civil engineering, and aero/astro engineering."

Gee, maybe the low-hanging fruit has been harvested. Ya think? Notice how some of the largest symbols of innovation in America - the Hoover Dam and the Golden Gate Bridge (and the Tennessee Valley Authority and the Great Plains Shelterbelt and ...) were built during the Great Depression under the so-called "socialist" president Franklin Roosevelt, the most leftist administration we've ever had in this country to date. The moon shot was initiated under Democrat John Kennedy (back when the highest tax bracket was 50 percent).

Compare that to today when all government spending is bad. Remember how Tea Party governors killed high-speed rail, the stuff that every other developed country in the world has and that China just built to be the fastest in the world? Remember how a Republican governor and presidential candidate favorite killed an infrastructure project in order to extract political revenge? Corruption plays a role here, too. And besides, we can't even afford to maintain the infrastructure we have now, much less build new.

While Democrats and Republicans traded charges yesterday over Gov. Chris Christie's decision to cancel the Access to the Region's Core (ARC) rail tunnel that would have been the nation's largest public works project, the bottom line is clear: No new rail tunnel will be built under the Hudson River for at least a decade, and the new tunnel will end up costing a lot more money when it is finally built.

A report issued by the nonpartisan U.S. General Accounting Office yesterday revived the debate over whether Christie cancelled the ARC project because he was worried that New Jersey would have cover [sic] billions of dollars in potential cost overruns or because he could avoid raising the gas tax by using billions of dollars originally earmarked for the tunnel to refinance the state's Transportation Trust Fund, as he did three months later.

"This was the most important transportation project of our time," said U.S. Senator Frank Lautenberg (D-N.J.), who requested the GAO study. "New Jerseyans who commute into New York City already face near daily struggles with an overburdened rail system and jammed highways, bridges, and tunnels. We are at capacity, and our only hope for relief in this decade was ARC. Construction had already started and thousands of workers were about to be hired when the governor killed the project. The future of New Jersey's commuters was sacrificed for the short-term political needs of the governor."

Christie, whose refusal of $3 billion in federal funds for the ARC Tunnel helped make him a national Republican folk hero, spurred GOP gubernatorial candidates to promise to turn down federal money for rail projects in California, Florida, Ohio and Wisconsin. He was still taking political credit for the decision in a speech to the George W. Bush Institute in New York City yesterday.

Tunnel to Nowhere: New Rail Tunnel At Least a Decade Away (NJSpotlight)

Oh, and by the way, about that scientist statistic, see When Scientists Give Up (NPR)

Ian Glomski thought he was going to make a difference in the fight to protect people from deadly anthrax germs. He had done everything right — attended one top university, landed an assistant professorship at another. But Glomski ran head-on into an unpleasant reality: These days, the scramble for money to conduct research has become stultifying.

So, he's giving up on science.

And he's not alone. Federal funding for biomedical research has declined by more than 20 percent in the past decade. There are far more scientists competing for grants than there is money to support them. That crunch is forcing some people out of science altogether, either because they can't get research funding at all or, in Glomski's case, because the rat race has simply become too unpleasant.

Instead of helping society improve its defenses against deadly anthrax, he's starting a liquor distillery, Vitae Spirits. He's actually excited about that. It's a big challenge, and it allows him to pursue an idea with passion, rather than with resignation.

Meanwhile, Randen Patterson is not passionate about his post-science career as a grocery store proprietor...

And what of the lone bright spot of all of this stagnation, computers?

"Even if you look at the computer industry, there are some things that aren’t as healthy as you might think. On a number of measurements, you saw a deceleration in the last decade in the industry. If you look at labor employment: It went up 100% in the 1990s, and up 17% in the years since 2000. (If you ignore the recession, it’s gone up about 38% since 2003.) So it’s slower absolute growth, and much lower percentage growth."

"If you measured the market capitalizations of companies, Google and Amazon (the two big computer companies created in the late-nineties) are worth perhaps two or three times as all companies combined since the year 2000. If you look at it through labor or capital, there’s been some sort of strange deceleration."

"We have a large Computer Rust Belt that nobody likes to talk about. It’s companies like Cisco, Dell, Hewlett Packard, Oracle, and IBM. I think that the pattern will be to become commodities that no longer innovate. There are many companies that are on the cusp. Microsoft is probably close to the Computer Rust Belt. The company that’s shockingly and probably in the Computer Rust Belt is Apple. Is the iPhone 5, where you move the phone jack from the top of the phone to the bottom of the phone really something that should make us scream Hallelujah?"

This article is a good confirmation - Silicon Valley Has Officially Run Out Of Ideas. Apparently the most "disruptive" idea at this event was a bunch of Harvard Business School Grads with a business proposal to hire the rest of us technologically unemployed as butlers and servants for 99 bucks a month (dubbed "Alfred"). I swear I am not making this up. This is especially interesting since fancy widgets in phones has been used as the main counterpoint to declining living standards for the last forty years or so.

Notice how  the technological slowdown almost perfectly coincides with the rise of Neoliberalism and the subsequent decay of common social institutions, the gutting of the middle class, the bankrupting of governments, the financialization of the economy, and the rise of the corporate oligarchy.

Now, of course, Thiel (who has a new book coming out, of course) no doubt means to argue that all we need to do is get rid of burdens like government regulations and popular democracy (which he is openly hostile to), to unleash the god of innovation and all our problems will be solved.

But the alternative view - that there are diminishing marginal returns to technology and real resource limitations means that we need to seriously think about social arrangements and the fundamental underpinnings of our debt-based, highly unequal, eternal growth productivist economy. And that is something that powerful oligarchs like Thiel will do anything to make sure we don't think about, since if we do, people like Thiel and his ilk might find themselves bemoaning the lack of progress even as they are escorted onto the solar electric powered tumbrels.

Why Is Peter Thiel Pessimistic About Technological Innovation? (Dan Wang)