Me on the end of the Great Stagnation

Here is some (edited) transcript from an AEI symposium, via Jim Pethokoukis:

We’ve come up with great new ideas, took a little while to figure out how to use them and how to spread throughout the economy, and eventually they made big differences. Are we assuming that these new technologies are like the ones in the past and they’ll have that eventual impact?

I think the new innovations will be special in at least one significant way: A lot of them will not contribute that much to per capita GDP. So, if you take the mRNA vaccines, they’re influencing what would normally be called the “cyclical component.” If you think of older people as more likely to die from COVID-19 . . . by saving lives — I’m not suggesting per capita GDP will go down — but the impact on human welfare will be much greater than what would appear to be the long-term secular trend in GDP. Also, two of the big advances that might happen are a vaccine against HIV/AIDS and an effective vaccine against malaria. Those would be incredible advances for humanity, but I don’t know how much they would show up in US per capita GDP or productivity — possibly not really much at all.

The other new wave of innovations, which you could call green energy — again, you could be very optimistic about those, but the main thing they’re doing is helping us avoid a catastrophe. So they’re boosting GDP relative to a quite awful counterfactual of just continuing to burn coal and other fossil fuels. But I’m not sure we’ll feel we have higher standards of living relative to what we were used to simply because there’s a solar panel on your home. It might in some ways make your energy supply better, but again, it will be hidden by the counterfactual. So, it will be a very strange kind of technology boom when I look at the two main areas where I see a lot of progress.

If we go through a period where none of this stuff is really showing up in data and maybe it’s not obvious that people’s living standards are rising, do we risk having less societal tolerance for the kinds of disruptions that economic growth and progress naturally make?

Here’s one of my fears: The biomedical innovation progress is so fast but the rest of the economy stays relatively static, so we become older as a society more quickly than we had been expecting. You could have a lot more status quo bias — just more entrenchment, 10 years more of a problem — and we could, in a funny way, innovate ourselves into a tighter complacency and a tighter stagnation.

I’m not rooting against increases in life expectancy. Ceteris paribus, I would take them, obviously. But that said, you want to be careful about the order in which progress comes, and I’m not sure if we’re going to get it in an optimal order.

Here is the complete excerpt.

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