Acemoglu and Robinson on the great stagnation

by on February 5, 2013 at 1:29 pm in Economics, History | Permalink

Two things are absent in this debate, however.

First, much evidence shows that what determines technological innovations isn’t some sort of “exogenous innovation capacity,” but incentives…

Schmookler illustrated these ideas vividly with the example of the horseshoe. He documented that there was a very high rate of innovation leading to improvements in the horseshoe throughout the late 19th and early 20th centuries because the increased demand for transport meant increased demand for better and cheaper horseshoes. It didn’t look like there was any sort of limit to the improvements or any evidence of an “exogenous innovation capacity” in this ancient technology, which had been around since 2nd century BC. Then suddenly, innovations came to an end, but this had nothing to do with running out of low hanging fruit. Instead, as Schmookler put it (p. 93), it was because the incentives to innovate in this technology disappeared because “the steam traction engine and, later, internal combustion engine began to displace the horse… “

Their full post is here.

I have changed my mind on this issue quite a bit over the last four to five years.  Yes incentives matter, but outside of extreme environments are changes in incentives explaining the changes in what we observe?  I now think it is of critical importance where a sector or economy is on “the innovation curve.”  It was easier to innovate in game theory in the 1980s than it is today, even though the salaries of top economists have risen significantly.  The pharmaceuticals market is larger than ever before, and yet the pipeline is largely dry.  We are simply at a point where further breakthroughs are hard (and it is not obvious that FDA innovation taxes are getting worse over this period of change.)  Weren’t so many inventors of the 19th century largely “yahoos,” with no fancy degrees, relatively low pay, little or no peer review, not at the peak of the Flynn effect, and so on, and yet they were on a fruitful part of the innovation curve and performed wonders.

I think in terms of general purpose technologies and platform-like breakthroughs.  Once you get them, innovation runs wild, otherwise it is tough sledding, with incentives still accounting for some of the variation within a particular place on the innovation curve.

Hazel Meade February 5, 2013 at 1:40 pm

This comes closer to my opinion. I think that innovation in things like transportation, manufacturing, energy, and food production are being disincentivized, mostly by environmental regulation that drives up the cost and applies a “precautionary principle” to new technologies. Everything is assumed to be suspect until proven safe, which is a costly proposition if you’re introducing a new technology. It vastly increases the upfront capital costs needed to bring a product to market because of all the safety testing and permitting that has to happen before you sell the first unit.

By contrast, innovation is occuring in the digital realm because the realm of bits doesn’t have any physical effect on the environment, and therefore isn’t subject to regulation. You can introduce new products to market pretty much immediately, without passing through layers of testing. You can develop and launch a new product on a shoe-string budget. And you don’t have to ask the government’s permission before you start selling.

Not that there aren’t any “physical” products that you can’t sell without asking permission first, but the risk of running afoul of some environmental or health and safety regulation is much larger if you’re making a physical product as opposed to a digital one.

F. Lynx Pardinus February 5, 2013 at 2:43 pm

“You can introduce new products to market pretty much immediately, without passing through layers of testing. You can develop and launch a new product on a shoe-string budget. And you don’t have to ask the government’s permission before you start selling. ”

My experience is that you’re underestimating the drag caused by software patent issues in the technology industry.–if you want to learn more, go to any tech news site and search for “patents.”

john personna February 5, 2013 at 2:47 pm

Thousands and thousands of companies and publishers fly below the patent radar. I agree it should be reformed, but it’s not a drag on your neighborhood car dealer, and his web site (now with phone alerts, social media, or whatever).

Brett February 5, 2013 at 3:46 pm

There’s also a “ask forgiveness/fight it in court later” ethos, helped by the fact that the patent-holders don’t generally know what you’re doing until you actually launch.

Ray Lopez February 5, 2013 at 4:40 pm

+1 – most businesspeople don’t mind fighting it out in court. It means you’ve made enough money to be a target–that is a sign of success, not failure. And this includes large companies too (e.g., GE ‘stole’ Dr. D’s MRI machine and made serious money before it had to pay Dr. D royalties for his MRI patent).

jpa February 6, 2013 at 9:22 am

Being in the software industry, the conventional thinking is: “patents don’t matter unless have a business worth suing. So don’t worry about patents, just focus on building your business.” Patents are a very real, nasty issue for mid sized software companies. They are not an issue for startups.

Brett February 5, 2013 at 3:48 pm

There’s good reason for a lot of that. If you bring out a new way of extracting oil, and it causes a horrific accident with tons of pollution, then the government and corporation are on the hook for that clean-up (never mind what it does in terms of health and economic impact to the residents of the area). Digital innovation, by contrast, is usually much less impact – if you screw up, you’re just wasting time and money.

The Original D February 5, 2013 at 4:51 pm

Exactly. Anyone who’s spent even 24 hours in China instantly recognizes how much of a difference those regulations make in health and quality of life.

Therapsid February 5, 2013 at 7:08 pm

They make a difference. But China’s 8% economic growth over three decades makes a greater impact on human welfare.

When you have Western economies sputtering at 0-2% GDP growth, on the other hand…

baby February 5, 2013 at 9:25 pm

Starting at a lower level… What if iPhones, everything else, wasn’t made in China.

derek February 5, 2013 at 7:52 pm

Compared to what? Compared to a development country, or compared to what china would be without the industrial development?

Brian Donohue February 6, 2013 at 9:39 am

Anyone who’s spent even 24 hours in China instantly recognizes how much of a difference being rich enough to be able to afford those regulations makes in health and quality of life.

FTFY.

Hazel Meade February 6, 2013 at 11:03 am

There could be rational reasons for it, and yet it still has a negative impact on innovation.
Especially when it comes to “precautionary” approaches to regulation. If you are going to presume something is dangerous and require it to be subjected to all sorts of testing prior to ever going to market, then your going to effectively prevent any backyard tinkerer from ever bringing a new product to market. Only the large corporations can afford to do that kind of thing, and they’re going to weigh the profits and the risks before they invest.

Yog Sothoth February 5, 2013 at 1:51 pm

Well said Tyler (and Hazel Meade). If we’re at the hard part of the “innovation curve” for most industries, that seems to suggest we need new industries, and regulation and disincentives is probably hindering the creation of some of those. Hopefully powerful new lobbies can start to open up opportunity for things like drones and 3D printing. Everything that comes under health care, like gene therapy, faces a tough bureaucracy and powerful entrenched interests. In energy, I think the innovation we’ve had is a little underrated. Fracking and the natural gas industry an important improvement over oil and coal. It’ll be a while until we get to renewables, but the problem there is that the science is difficult, not so much the regulation.

john personna February 5, 2013 at 2:44 pm

I think drones and 3d printing are well (over) subscribed, in part because they have few hurtles and low cost at the low end. On the other hand, people have been announcing 3d printed houses for years. They’ve been slower to arrive. There you’ve got the building codes and the costs.

I personally think innovation is fine, and that the 21st century will total up better than people counting now (12 years out of 100) will expect. Of course, habitat and environmental bounties will continue to decline, taking some shine off the total benefit.

john personna February 5, 2013 at 2:49 pm

Shorter – I’m going to call The Great Stagnation a millennial cult ;-)

Ray Lopez February 5, 2013 at 4:44 pm

+1 – even shorter: Tyler Cowen’s Great Stagnation is diminishing returns for inventions. Common in every field including biology. When a new species is introduced into an island, it “runs amok” and diversifies radically in short time into new species, then it stabilizes and once each niche is filled there is less such ‘new species’ formed. Great Stagnation in biology too? Nothing more than the second derivative being negative. Then a ‘new platform’ comes along, from extinction or another invasion of life, akin to Gould’s ‘punctuated equilibrium’ thesis, and innovation starts again.

Shane M February 5, 2013 at 8:57 pm

Ray, agree on punctuated equilibrium. I also wonder to what degree innovators transforming into rent seekers plays in the dynamic.

Brett February 5, 2013 at 3:50 pm

Without the waves of clinical trials and tests, it’s often quite difficult to tell whether or not a drug is actually effective. Even then, some drugs slip through and are found to be ineffective later on when they can draw on the much larger population of patients who have been taking it for some time (such as with Avastin).

Moreover, the potential risks with health care innovation can be quite high. If you screw up and release a drug with some unknown but highly negative side-effects, you can cause stuff like the Phalidomide Babies.

Greg Ransom February 5, 2013 at 1:53 pm

Indoor plumbing dates from before the time of recorded history.

Did the demand for indoor plumbing fluctuate, or did the background depth & wealth of physical and social capital goods fluctuate?

Greg Ransom February 5, 2013 at 2:02 pm

Why does Tyler Cowen repeatedly call everyone’s attention to the fact that rising in levels of background wealth has significance influence on pollution reduction & poverty reduction, but rarely mentions the role of rising in levels of background wealth on innovation and the adoption of superior technology in other aspects of our lives?

Indoor plumbing dates from before the time of recorded history, widespread innovation and widespread technology adoption required generations of advances in the scope and depth of capital goods per capita, ie the growth of capital goods supplied wealth.

Yog Sothoth February 5, 2013 at 4:22 pm

Having a tough time interpreting your argument. It sounds like you’re saying that quantitative increases in the stock of capital are the source of innovation. I.e. inventing the more productive processes is usually trivial, and the important thing is accumulating enough capital to “build” those processes. So innovation is mainly an endogenous side effect of capital accumulation. Trying to imagine a model that would have this result… Solow + increasing returns to scale, maybe? If I understand you correctly, I think your argument requires stronger and more unusual assumptions about the relationship of capital to production than you realize.

Greg Ransom February 6, 2013 at 1:34 pm

We are not talking about more replication of the same one good — that isn’t what happens when the depth and length of capital goods is extended and grown. What happens is that you move to new production processes using different inputs and technologies that take longer. Eg move from eating grapes directly to turning grapes into aged wine — and all of the innovations linked with these changes in production and all of the possible innovations evolving out of new production channels.

When the length/depth of the production process is extended, demand arises for products & technologies which otherwise would have no demand.

When the length of the production process is extended, new demand arises for products & processes never before economically viable.

When length of production is extended, new demand arises for technologies which otherwise would have no demand: new = ripe for innovation.

When the length of the production process is extended, more people have more & cheaper capital goods available to tinker with & innovate.

The logic of choice involving production goods and the basic fact of the social science involving production goods is that no one will extend length of a production process unless it promises superior output — this logic and this basic fact is not recognized by Solow’s one-good model.

Solow doesn’t help us think about the logic of capital goods and the basic facts of the social sciences involving production goods — his “model” represents brain-death when it comes thinking about production goods.

Greg Ransom February 5, 2013 at 2:05 pm

History shows societies which are consuming capital and are in economic decline are societies which abandon technological advances which were already on hand.

Advances in innovation are correlated with societies which are increasing the stock and depth and complexity of their capital goods.

uffy February 5, 2013 at 2:15 pm

Unless you mean that all humans are part of a society that is abandoning technological potential due to economic decline then this makes little sense in explaining our current (supposed) stagnation.

Greg Ransom February 5, 2013 at 2:20 pm

I’m not a stagnationist.

Jared February 5, 2013 at 3:21 pm

“Advances in innovation are correlated with societies which are increasing the stock and depth and complexity of their capital goods.”

People who with memory of the heavy industry uber alles Soviet era would beg to disagree. That is pretty extreme reductionism.

Greg Ransom February 6, 2013 at 1:35 pm

A command economy shortens the capital structure, it doesn’t deepen it. Econ 101.

Ray Lopez February 5, 2013 at 4:55 pm

Marx would agree with you Greg Ransom; Google “Capital Deepening”. Perhaps Schumpeter would agree with you too. As would “Big Science” advocates, where innovation is a function of capital (you cannot prove the Higgs Boson in a cheap lab, you need a Large Hadron Collider, though you can posit it in a thought experiment). But every backyard tinker in the Late Roman Era, Byzantine Era, Soviet Union, or late Native American inventor would disagree that consuming capital and economic decline are barriers to invention. IMO there are two types of inventor: those that invent primarily for free or for fame (nearly every Nobel Prize winner), and the rest, which are working on Wall Street or practicing physicians or law or maybe even econ professors professing the Great Stagnation. :-)

Greg Ransom February 6, 2013 at 1:37 pm

I’m not talking about barriers to innovation, I’m talking about windows to innovation, jumping off points to innovation, evolving new worlds for innovation.

Ricardo February 5, 2013 at 2:06 pm

I would like to invoke Cowen’s Second Law and ask what the literature says about the shape of the “innovation curve.” Have we established beyond doubt that it is concave? Always? Everywhere? If I said “everything after the toilet is a footnote,” would everyone nod their heads in agreement?

Andrew' February 5, 2013 at 2:12 pm

I would say innovations in horseshoes WAS stagnation.

john personna February 5, 2013 at 4:11 pm

Which indicts the metrics-based stagnationists (patents per year per 100,000). Also I see that 1912 was the first year that autos outnumbered horses in NYC. Presumably later elsewhere. There was a lot of percolation of that technology in the 20th that gets glossed over. Gibson’s “the future is here, not evenly distributed” has always been true. One way to get historical distortion is to take invention for pervasive application, and to collapse the decades of change.

Nick February 5, 2013 at 2:22 pm

What would you say to the argument that marginal improvments to existing things become harder but also we find new things that we can improve, start again from a low haning fruit level.

An example would be the light bulb, there is not much improvment to be made to a light bulb anymore. But since a couple of years the LEDs have stated pushing into the same space and we are just starting to say how much potential there is for LED light everywhere.

Ray Lopez February 5, 2013 at 5:08 pm

Good points; if you think about it, nearly every new invention is doing something the old way, better, cheaper, faster. Oil lamp –> whale oil lamp –> gas lamp –> electric bulb (Incandescent) -> neon bulb –> LED. So there’s always ‘low hanging fruit’–its the same fruit of the previous generation. Even with the airplane: Daedalus/ Icarus myth of wax wings –> steam jet propulsion model airplane of ancient Greeks (speculative?) –> man-holding flying kite in medieval Asia (?) –> hang glider for condemned prisoners that flew for kilometers in Chinese emperor’s court (?) –> French balloonists of 18th+ C –> Langley/Wright Bros./others heavier than aircraft –> 747 –> space shuttle –> ramjet NY to Tokyo in 1 hour space-plane (?). Same as it ever was.

Hazel Meade February 6, 2013 at 10:43 am

The development of LED light bulbs really is mroe a story about personal computers and electronics, and especially semiconductor development than light bulb development. All LEDs are based on different types of semiconductor. 20 years ago, there were only the green and red kinds, and they didn’t emit much light. But there was a lot of money in developing computer technology, so there was lots of money going into semiconductor research. And at the same time, the electronics industry wanted more varieties of LED. More colors, brighter colors, etc. So that led to a lot of people experimenting with LED technology, and eventually they developed these bright white LEDs that you could put together to make a lamp.

Nobody set out with the specific intention of replacing incandescent light bulbs with LEDs. It happened as a byproduct of people trying to make cooler-looking electronics.

Daniel Klein February 5, 2013 at 2:54 pm

I take a “low-hanging fruit” view similar to Tyler’s on the fortunes of liberalism:

http://austrianeconomists.typepad.com/weblog/2009/08/a-milton-friedman-on-the-horizon.html

Brock February 5, 2013 at 3:04 pm

I think the story of the Great Stagnation is that “game changing” innovations, like the internal combustion engine, do not come at any predictable rate. The internal combustion engine (or the steam engine before it, or the transistor more recently) produces a rate change for a century or so when first invented, but eventually the rate falls back to zero, although now at a considerably improved height.

The history of the 19th century and early/mid 20th century was unique because of so many super-technologies being invented almost simultaneously. That’s what allowed us to escape Malthusian trap, whereas previous super-techs like steel did not.

But despite that I am not pessimistic. The transistor (and all related electronic pieces, like silicon lasers and optical fiber) is still having dramatic effects on growth, robotics is hitting its stride with new AI and sensors, and new super-technologies in biotechnology are being invented right now. It’s too early to say which biotechnology technique will prove to be the internal combustion engine of its century, but I’m absolutely positive one of them will be. The ability to “delete out” bad DNA and “write in” better genetic technology into living systems (people, crops, etc.) will not only make us healthier, it will create whole new fields of industrial biology. Algae that takes in sunlight, water, and air and throws off unlimited quantities of any organic molecule you might want (diesel fuel, pharmaceuticals, plastic building materials, proteins, enzymes, etc.) are only the beginning. George Church’s book “Regenesis” goes into this.

Bill February 5, 2013 at 8:05 pm

+1, and note that many of the large advancements in one field relied on small advances in others: today’s technologies involve many different fields simultaneously: an advancement in biology inolves a different sensor created in another field where it is regarded as a small advance, but to the biologist, it is exactly what he needed; same with chip design turning on advances in chip manufacturing technology, which in turn, relies upon changes in material sciences.

And, what is this sole focus on tech: aren’t there improvements we can make in deliverying healthcare, education, etc. Talk about low hanging fruit; it lies in the service sector.

Roy February 5, 2013 at 10:38 pm

Steel may not have allowed us to escape the Malthusian Trap…

Oops, you should read about John Deere, and his steel plowshare… It actually did, plowing up the Mississippi bottomlands and the Great Plains.

I think we can state that the Malthusian Trap was escaped in the 19th Century withinventions such as John Deere’s steel plow, McCormick’s reaper, and the railroads and steamships that distributed the surplus they created.

Brock February 5, 2013 at 11:15 pm

Roy, steel was invented a long, long time before that.

Roy February 6, 2013 at 9:07 am

But mass produced steel in the quantities needed to produce steel plows for every farmer wasn’t available until the nineteenth century. And Bessemer steel, ie really really cheap steel, wasn’t available until after the US civil war.

Btw, a similar event happened with the invention of cast iron in China in the late first millenium BC, and Northern Europe in the 18th century, that allowed mass production of farm implements. All of this increased carrying capacity and pushed the Malthusian point further away.

Joe Smith February 6, 2013 at 12:43 pm

Cheap steel really became available around 1875 and it made possible inventions which then quickly followed – including internal combustion engines.

Hazel Meade February 6, 2013 at 10:30 am

I’m with you on biotech, but that’s where regulation is definitely a major problem.

It’s been over 20 years since the first biotech crops were introduced, but no new crops have gone to market in over 10 years, mostly because of opposition from anti-biotech groups. And that’s despite having the endorsement of every major scientific society or organization related to plant biology or microbiology. There’s near universal scientific support for this stuff, and yet it’s impossible to get new biotech foods through FDA approval. Genetically engineered wheat and salmon have been sitting on the shelf for 10 years as a result. And people have stopped investing in it because they have no idea if they will ever be allowed to sell their product.

Matt February 5, 2013 at 3:10 pm

Joel Mokyr has a paper on the history of medical innovation that’s a good counter-argument to the idea that incentives are all that count (“Induced Technical Innovation and Medical History: An Evolutionary Approach”). He points out that there has always been a high demand for “not getting sick and dying,” and yet advances in medicine didn’t really pan out until we had a requisite knowledge base. Put another way; no messing around with innovation incentives during the Black Death would have really helped until we had a theory of the germ.

whatsthat February 5, 2013 at 3:20 pm

You are all forgetting that it is the inclusive institutions that matter.

Nothing else!

Institutions + inclusivity + incentives = 42

Joe Smith February 5, 2013 at 3:37 pm

The high rate of innovation in horseshoes was probably a direct consequence of the fall in the price of steel and an indirect consequence of the general growth that flowed from the fall in the price of steel. The internal combustion engine was probably the result of the same forces.

Matt February 5, 2013 at 3:48 pm

Haven’t horseshoes been advancing? New materials, new shapes, etc. Horseracing makes use of these new technologies.

Also, I don’t really understand Acemoglu’s argument exactly… Is he stating that we would continue to be developing ever more advanced and powerful horseshoes pretty much indefinitely if there were no combustion engine? “If the incentives were right, we’d be riding horses to the moon!”.

Surely the adoption of the combustion engine is merely in fact a symptom of the fact that mass horse based transit innovation had pretty much run its course? The nature of innovation is that people make new technologies because they can, and wouldn’t it be interesting if… , and they are then applied when they prove to have applications. Blue sky research. There is no major “incentives” responsible for inspiration.

Philo February 5, 2013 at 4:38 pm

“We are simply at a point where further breakthroughs are hard . . . .” That’s always how it seems, as some veins of innovation-ore are exhausted. But in the past new veins have always been discovered. So (I predict) it will be now, if the incentives are present.

Therapsid February 5, 2013 at 7:13 pm

Unfortunately, Tyler takes for granted that innovation today requires all those fancy degrees which eat up scientists and engineers most productive years. Credential inflation means we end up with stem cell researchers hitting the ground running in sometime in early middle age.

Richard Sprague February 5, 2013 at 7:47 pm

Wikipedia is just not getting as many updates now as did a few years ago because for many (most?) of the articles, there really isn’t much “new” to say.

It seems to me that Innovation, in the broad sense, is in a similar situation. Many/most of the important “articles” have already been written.

Ray Lopez February 5, 2013 at 7:56 pm

But Wikipedia is getting deeper. Now you can find engineering articles on obscure topics that are quite detailed and good. Before it was not that way. Deeper innovation a form of ‘new’ innovation? Who wants 1970s technology today, even though functionally it may be the same (or better): vinyl records vs CDs vs MP3–I think there’s a degradation in quality there.

Andreas Baumann February 6, 2013 at 3:58 am

Vinyl sales are going up, up, up, despite the fact that most speaker systems wouldn’t be able to reproduce the difference between the digital formats and the vinyl. Materiality matters.

superflat February 5, 2013 at 8:46 pm

i love the suggestion that we’re close to being done, the low hanging fruit has been picked, etc. absolute nonsense, you can find the same sentiment throughout the ages. i’d like to see tyler put his money where his mouth is, so we can see whether this is just an interesting theory that’s getting him some press, or something he’s willing to stake (e.g.) his retirement and his kids’ future on. don’t get me wrong, love the blog, longtime reader and commenter, etc. but this is just nonsense. cold fusion will come along tomorrow, all bets are off. or everyone still living in the 15th century will leapfrog via cellular and the kahn academy, we’re on the cusp of an age of wonder as africa takes over the world. or the singularity will arrive. or the genetics revolution will accelerate. etc. seriously, how can you think that even with more of the world’s population joining the party, and working harder than the self-indulgent developed lands, we won’t see serious dividends? perhaps a little rumsfeldian, but you can’t see what you can’t see.

Claudia February 5, 2013 at 10:03 pm

I agree that TGS going forward seems like a poor forecast. And yet, I find much of evidence over the past decades compelling. I worry that there is a misdiagnosis of the sand in the gears of major leaps. The low hanging fruit idea seems plausible but incomplete. I think it’s more about our reduced tolerance for risks and less our willingness to accept huge mistakes. Now it’s true at the beginning there are lots of false starts, so the first fruit you can grab (off thr ground) is often filled with worms. As we get more established in a technology or process, we start trying to root out the imperfections…past the point of dimishing returns. I think recent financial innovations and their failed attempts at reducing risk are an ‘excellent’ example. The only danger I see is if our drive to be perfect and in control and safe discourages the messy first stage of innovation. There will always be low hanging fruit but we may not be keen to pick it…seems unlikely but worth considering.

where is louis pasteur when you need him February 5, 2013 at 11:35 pm

In addition to the institutional problems caused by so many non-large-group discoveries
having been made (a situation familiar to those who fish in small lakes towards the
end of summer). and in addition to the self-serving gerontocratic hierarchies at top institutions that 50 years ago
made the best 22 year olds professors and now make them almost indecently subservient
to lame-o Nobel-buzz “bonnes eleves” “star professors” – thus driving them away from the very institutions where non-individual discoveries generally take place (I quote from Mandelbrot here, this is not personal experience, I still don’t have the multiplication table memorized past 6 or on a good day 7), and in addition to the flip-effect delusion of Flynn effect improvements caused by our grandparents producing an industrial civilization that raised most of our IQs by surrounding us day and night with symmetrically manufactured objects, but that disappointingly left the right creative tail of the bell-curve, impervious to replicated gee-gaws, unimproved, and therefore distressingly and confusingly not intellectually up to the more and more difficult tasks of ensuring comfortable air travel, a non-obesity-prone public health environment, and ensuring general public freedom from anti-scientific general consensus cant, there is my favorite Great Stagnation cause, which the Grand Poobahs of Great Stagnation rarely mention but which I guess that Asimov acolytes have often darkly hinted at. To wit:
The smartest among us, feeling a deep kinship to the smartest of previous generations, are working at the peak of their abilities to slow progress (their motives being – I would guess – not love of steampunk – but rather disillusionment with changes of all kinds, except detailed improvements with no general – and no amenable to mischievous misapplication – uses).
Not sure I approve of this, because, as a 1960 vintage individual with the average 5 or 6 ailments of the age, I would really like for the next few years to be Golden Years of victory against the Pro-ailment forces of nature (and as a hopefully decent human being there are lots more bigger medical and technical problems I would like to see solved) the backwash of the anti-progress geniuses will leave me and so many others with very few benefactors of mankind to rely on. Also,asuming there were geniuses among my circle of friends, I would not like to see them shirk their potential. But there it is.

Ricardo February 5, 2013 at 11:42 pm

I think there is a close analogy with the oil industry. James D. Hamilton (the energy economist) has pointed out that most of the wells we relied upon for oil in the late 19th and early 20th centuries are running dry. Oil production is up because the industry is seeking out new wells and is drilling deeper and deeper into the ground at significantly higher cost to squeeze out as much oil as it can.

Innovations follow a similar path. A new field comes along and there is a flurry of innovation much like discovering a new shallow oil well. Yet, over time, the well starts to run out and then you need innovators to either seek out a new well or else find a replacement for oil (like, for instance, natural gas or synthetic fuels). High oil prices are an analogy as well as an arguable symptom of stagnation. Large parts of our economy outside of communications or IT run on technology and infrastructure from the early to mid 20th century.

superflat February 6, 2013 at 12:55 am

so we have technology that basically came along in the past decade, at most, and completely changed the world, affecting politics, how people spend most of their free time, the ability of communities to stay in touch over distance, access to information of all sorts, creation and distribution of the arts, etc., and we’re in the midst of the great stagnation? this has to be as big a deal as the move to cars, or air travel. does anyone seriously think the adoption of smartphones/handheld computers/whatever won’t be a watershed event that separates the pre-computer (or whatever the right word is) and computer ages? have you been on a train or bus lately and seen everyone spending all their time online? this is the beginning of the virtual world, or at least the serious intermingling of virtual and meat space, but by some outdated metrics it doesn’t compare to plumbing? seriously? you can say it’s not the same as (e.g.) health advances, but anything that so fundamentally alters life, to the point where many people can’t really even recall (or believe) what it was like not to be online, or on call, nearly all the time, not to have every stray thought prompt the formulation of an appropriate google query, anything that so radically changes how humans interact, seems easily to refute assertions of stagnation.

Claudia February 6, 2013 at 6:12 am

can you say without a doubt that the online will support material progress? … more jobs, more income, more stuff. we are still flesh and blood types, who have to eat and do a few other things to carry on as a race, so the virtual only goes so far. I worry that the online let’s us smooth out some risks that oppose real-world progress. hyper-transparency can kill off new ideas quickly. I still see online more as a replacement for TV, something recreational, that a compliment to productive endeavors. Of course, I recognize tons of potential and baby steps in the latter direction, but it seems harder than it should be to use the medium productively.

Roy February 6, 2013 at 9:13 am

Yes I can because it has revolutionized my field of Geology, it has also changed agricultural science dramatically. The internet, but also GIS. These allow more primary resources to be produced, unless political steps are taken to retard this progress, I can’t see how this doesn’t have a large economic effect.

For example the huge leaps forward in hydraulic fracturing have barely begun to play out, but let me assure you they would not have been possible without the improvement of computer imaging tech.

Hazel Meade February 6, 2013 at 10:54 am

I can see both sides on this issue. I’m NOT a believer in the Great Stagnation. But making the leap from innovation in the virtual world to the physical world runs into barriers. You can revolutionize the practice of agriculture in a computer model, but then someone will come along and say your new method for optimizing wheat production is causing loss of biodiversity. Or someone will say hydraulic fracturing is causing earthquakes etc. Material progress, be definition, has some sort of environmental impact. You can’t make more physical “stuff” or even change the way you make said physical stuff, without affecting the physical world.

Roy February 6, 2013 at 11:30 am

Actually you can increase wheat production without causing loss of biodiversity, in a monocrop field that has been planted continously in rotation for more than a century, you can still improve yield, but that biodiversity was lost a century ago. And things like more efficient contour plowing, elimination of plowing, etc… also make the farm more sustainable. The same can be done with mining, oil, timber, and fisheries, all have increased productive capacity with computer technology in the past decade. Anyway you are talking about political barriers, not technical ones. Yes if we make it impossible to farm, to harvest natural resources, whether sustainable or not, we will kill progress, but these improvements have already happened, gains have already been realized.

And short of bannin extractive industries and abolishing agriculture, or a truly dedicated luddite political agenda, these fields have, and will continue to become more efficient.

Claudia February 6, 2013 at 11:51 am

Roy, I agree that the internet and computing technologies have completely transformed *how* most of us work, but where’s the giant leap in the *value* of our output? I cannot imagine doing my work as an economist without these tools, but economists before me did. My value-added is not radically different or at least is not valued as such. Sure you can come up with counter-examples, but this technology is so widespread so why aren’t the income gains from it widespread too?

Steve J February 6, 2013 at 11:24 pm

“but this technology is so widespread so why aren’t the income gains from it widespread too?”

That is a good question. And I think the answer is because we are not yet ready to accept the gains. Entire industries should have been automated away by now. Why do real estate agents, tax preparers, loan officers, stock brokers, etc still exist? We don’t want to accept that computers do these jobs better than people (or at least so well that these people should be getting paid radically less). Too many people somehow associate a computer with worse customer service rather than better. The “I want to talk to a person” mentality makes no sense to me. What are the odds the person on the end of the phone is going to know more than what Google can provide to you? But I still hear people asking questions about things as if the answers were not immediately available. I am hoping the next generation better realizes it is rare that a person can outperform a computer. Once reading, writing, arithmetic and Googling becomes the standard for learning I think the gains will start to appear.

ThomasH February 6, 2013 at 5:24 am

It would be interesting to test the hypothesis by returning to an economy in which there were a labor shortage and public support for research were back at historic levels as % of gdp in the US and other rich countries. OTOH the Olsen thesis would suggest that rich countries that have been stable for a long time will develop the kinds of economic arteriosclorsis (attitudes toward risk, NIMBYism) that will look like a “great stagnation.”

Thomas DeMeo February 6, 2013 at 8:57 am

The issue is one of coordination and cooperation. Consider something like an iPhone, and how many technologies, standards and networks it requires to deliver value. The ideas are the easy part; the cooperation and coordiantion is very, very hard.

Frederic Mari February 6, 2013 at 9:42 am

http://www.treasury.govt.nz/publications/research-policy/tprp

I fail to see TGS. We’re still getting productivity improvement of 2-3% a year, the way we almost always did since the 19C… The fact that it’s not showing in income growth has nothing to do with it not being there in the first place.

Going forward, the low hanging fruit thing seems overdone. In banking operations, for example, someone was telling me that the amount of people in her big bank’s back office hadn’t changed since the 70s. The volume of trades cleared had increased hundred-fold. You may debate the social utility of hundred-fold increase in trading volumes but I suspect that’d be a separate issue.

Furthermore, we keep on cutting people in all kind of fields. Agriculture and manufacturing are STILL managing to cut employment and, of course, services are starting to as well: Jobs in intermediate occupation are being lost and not recovered. That’s productivity gains too.

What’s missing is the sharing of those productivity gains, something that would allow normal people to benefit from all the wondrous improvements biotech and AIs and robots and self-driving cars will allow…

Brian Donohue February 6, 2013 at 9:52 am

Here’s a book I read years ago on the subject that I thought was good:

http://www.amazon.com/Economic-Laws-Scientific-Research/dp/0312173067

whatsthat February 6, 2013 at 10:05 am

innovations tend to be rapid when existing technology is threatened

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