This is going to be a fly-by-night post.
The thing that strikes me most about contemporary political debates is how much they arise because of an undiscussed underlying problem: GDP growth.
The main problems of contemporary Western economies is high debt (public and private) and unemployment. The best remedies for both are economic growth. Greece’s debt wouldn’t be a problem if it had high economic growth (or if investors believed it had that potential).
The disquieting rise of extremist politics in Europe would be much ameliorated if there were more jobs, and more growth. Etc.
And yet growth is very rarely discussed or, perhaps worse, only in the context of big government boondoggles like Barack Obama’s plan to boost US exports (what do exports have to do with growth?) or France’s “grand emprunt”.
Ok, so where does economic growth come from? Economics 101 says it comes from population growth and productivity growth. It’s almost a tautology: how much economic value you create comes from how many people you have and how many units of economic value each person create.
Population growth is underdiscussed because the debate about economic growth is dominated by economic policy folks who don’t like to talk about mushy things like that.
But I favor pro-family policies as outlined by e.g. Scene Archdukes Ross Douthat and Reihan Salam in their last book, as well as a “generous” immigration policy.
When it comes to productivity, I believe that the two single most important diagnoses of the problem are this National Affairs article by Scenester Jim Manzi and Tyler Cowen’s book The Great Stagnation (itself heavily inspired by Peter Thiel’s Optimistic Thought Experiment and subsequent pronouncements on the lack of breakthrough innovation).
Ok, so the West’s fundamental problem for the past 30 years has been low population and productivity growth. There are a couple things we can do for population. But productivity remains this mysterious thing.
Cowen/Thiel basically argue that low productivity growth comes from a lack of breakthrough innovation, which itself comes from, roughly, a lack of ambition and a lack of fundamental research.
I think that’s certainly part of it, but I have to say that when it comes to explanations for low productivity I turn to Matthew B. Crawford’s Shop Class As Soulcraft and Amar Bhidé’s Venturesome Economy.
Despite their seemingly very different subject matters, I believe those two actually are spotlights on different aspects of the same problem, which happens to be the key to higher productivity growth. And I would argue that the problem is a fundamental mismatch between raw ability and opportunity.
They both highlight the fundamental bankruptcy of the 30 year old Grand Strategy of the West in dealing with Globalization, which is the creation of a supposed Knowledge Economy of college-educated workers.
It turns out, this Knowledge Economy is really a 19th century industrial economy where physical widgets are replaced with “ideas.” The reason why the Grand Strategy is bankrupt is that most corporate white-collar work is actually more displaceable by outsourcing/technology than small-scale, global-reach entrepreneurship, whether it involves fixing motorcycles or building tables (Shop Class) or making yoga pants (Venturesome Economy).
We are taking raw material in the form of middle-class 18 year olds in Ohio, putting them in conveyor-belt colleges and conveyor-belt jobs like bank teller, travel agent, accountants, claims adjusters, “engineers” and so forth which can and will be done better, faster and cheaper by computers and/or eager Indians. The Knowledge Economy “works” (for how long?) for the Harvard-McKinsey conveyor belt who will, in any case, always land on their feet, whether through accumulated social capital or human capital. It does not, however, work for the Median Public University-Big Regional Company conveyor belt.
Peter Thiel’s venture capital firm Founders Fund is investing in breakthrough company SpaceX that wants to turn humanity into a spacefaring civilization. SpaceX is not doing this, however, by inventing breakthrough spaceship technology. It is doing this by using very well-understood, old technology — rockets — and making them much cheaper and usable. It is, in other words, not a scientific innovation company, but a process and business model innovation company. It is building Hondas in space , not The Phoenix . (And by the way, who is going to build the first useful flying car? A PhD in a lab coat or a passionate, shop-class type mechanic who will teach himself the requisite physics through Khan Academy (process innovation!) and fund himself through credit cards (financial innovation!)? I would bet on the latter.)
There is no lack of resources for fundamental research, which provides the open source toolkit for breakthrough innovation. But there is a serious mismatch between raw ability and skill and opportunity for building breakthrough innovation through process and business model and marketing innovation a la SpaceX.
So this is a roundabout way of saying that I think we would go a long way towards improving productivity growth by, first and foremost, building decentralized, talent-focused knowledge-signaling systems, and fostering an open, decentralized, entrepreneurial economy with more venturesome consumers and entrepreneurs, and more venturesome soulcrafters.
Of course it’s all easier said than done.
But I guess the crucial point here is that it’s too easy to believe we need a deus ex machina, like “breakthrough innovation” and flying cars to get ourselves from our rut. But the flying cars won’t come from a skygod, whether in the guise of Big Government, Big Science or Big John Galt.
We have the tools we need. The problem is that hundreds of millions of people have great latent talent which is not being recognized (even by themselves) and validated and met with opportunity. The problem, as always, is to let a thousand flowers bloom.