The Fundamental Problems
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.
Two comments:
First, population growth is as much problem as solution. It gives more labor at the cost of more hungers. Per capita GDP is a better measurement of how rich a society is than raw GDP.
Second, speaking as a practicing scientist, I tend to think that the cause of slow growth has largely been one of diminishing returns in R&D. We’ve simply gotten to the point, innovation-wise, where the low-hanging fruit is pretty much gone in an ever-larger set of fields.
— Jay · Jul 25, 03:51 PM · #
You might want to take out your parenthetical about exports, because it’s so wrong that it distracts from the rest of the post. Exports have plenty to do with growth—GDP=C+I+G+(X-M)
— Dan Miller · Jul 25, 05:09 PM · #
Agreeing with Dan – the bit about exports is so flat out stupid that it discredits the rest of the essay.
Which, frankly, doesn’t have that much to recommend it. Speaking as one of the “engineers” you seem to distain, I can assure you that flying cars and other really cool tech derives directly from materials innovation, which comes directly from the PhDs in lab coats whose validity you question. Hybrid cars, for example, didn’t come about because some clever guy was tinkering in his garage as a hobby and (Heinlein suggested the idea in one of his books decades ago, and it was probably obvious to hundreds of others well before that), but because careful, patient research drove battery performance to a level where it became feasible to store the energy from a braking wheel, and reapply it to an engine.
I’ve lost a great deal of respect for the Douthat/Salam/American Scene “brand” over the past few years, and essays like this are frankly a big part of the reason why. Your preference for decentralized solutions seems to have become a dogma, where you talk them up even at the expense of ignoring actual facts – whether that’s Pascal’s remarks about exports above or Reihan’s talking up superior decentralized health care approaches, ignoring the fact that he’s shackled himself to a party that clearly doesn’t give a flying leap about health care outcomes so much as it cares about trashing Democrats and killing the New Deal.
— chris · Jul 25, 10:32 PM · #
trashing Democrats and killing the New Deal.
I’m pretty much on board with that. Looking forward to it. A good outcome would be trashed Democrats and a dead New Deal.
— jd · Jul 26, 12:34 PM · #
Witness the small-scale entrepreneurship of the fashion knockoff industry (advertising innovation!)
— Kenb · Jul 27, 03:36 AM · #
“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.”
So in other words, we just need heteros to fuck more and further explode the population so they have to buy a lot of shit and use up our already depleting resource supply.
Best. Economic. Policy. Ever.
— JB · Jul 28, 01:12 AM · #
“So in other words, we just need heteros to fuck more and further explode the population so they have to buy a lot of shit and use up our already depleting resource supply.”
The natural order of life is grow or die. Well, grow and then die is more accurate. In this case, a human population capable of living in harmony with the Earth would not only need a die off of several billion people but would require all of us, including JB, to live a lifestyle radically different than what we would prefer and set humanity on course to stagnate and disappear.
Mike
— MBunge · Jul 28, 03:54 PM · #
Mike, after the big “die off” + radical lifestyle changes, which is it? Live in “harmony” with the Earth or “stagnate and disappear?” Because, the one can’t be compatible with the other, right? Weirdly, your remark implies that efforts by mankind to make its mark on the planet benevolent— if not entirely harmless— would end in extinction. Explain, please.
— Deb · Jul 29, 02:09 AM · #
“Live in “harmony” with the Earth or “stagnate and disappear?” Because, the one can’t be compatible with the other, right?”
Actually, they’re one and the same. Since there are no external factors that limit human population growth as with other animals, living in “harmony” with nature would require Mankind to impose rather draconian limitations on himself. Even after a few billion people were gotten rid of, measures would need to be taken to ensure men and women simply didn’t get started on their replacements. Not only would that entail severe restrictions on human behavior and economic activity, I suspect it would also necessitate strict prohibitions on certain intellectual and scientific thinking. After all, once you have the capacity to do something, it’s almost impossible to resist doing that thing.
A society organized around those lines would not only be a crappy place to live, it would be a fragile and unhealthy civilization that I can’t imagine sustaining itself generation after generation.
Mike
— MBunge · Jul 29, 02:43 PM · #
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— naccy51 · Aug 2, 02:52 PM · #
Well, that’s just moronic. Humans have the same external factor that limits their growth as any other organism – nutrition. You know, the same thing that has limited human population growth for our entire history.
Takes a biologist, I guess. Here’s the problem – you can’t maintain a positive population growth rate. So by definition an economy predicated on a positive population growth rate is a transitory phenomenon. And what does it look like when that period is over? That’s the part where conservatives have no answers.
— Ch3t · Aug 2, 04:45 PM · #
And while I agree that
is exactly what we need in the West, it’s abundantly clear that the best way to achieve that is by expanding access to health care by means of centralized, universal single-payer systems; an extensive safety net for those individuals whose productivity is not extensive or is not yet monetized; strong protections for labor from their wealthy malefactors; robust protection of “the commons”, including air, water, food, and other aspects of the environment; and the rejection of “intellectual property” rent-seeking and over-general process patents.
After all, who is going to take the risk of being a “venturesome entrepreneur” when the likely result of that is a multi-million-dollar patent shakedown and an early death from untreated type 2 diabetes? Independent initiative and craftsmanship are rewarded only in the liberal, progressive social democracies. What people do in the kind of society PEG would have us create is put their heads down, forget their dreams and creativity, and concentrate on producing exactly what their bosses want from them so that they don’t lose their health insurance.
— Ch3t · Aug 2, 04:53 PM · #