17 September 2012

People are terrible at judging innovation while it's in progress

NBER | Robert J. Gordon | Is U.S. Economic Growth Over? Faltering Innovation Confronts the Six Headwinds

A useful organizing principle to understand the pace of growth since 1750 is the sequence of three industrial revolutions. The first (IR #1) with its main inventions between 1750 and 1830 created steam engines, cotton spinning, and railroads. The second (IR #2) was the most important, with its three central inventions of electricity, the internal combustion engine, and running water with indoor plumbing, in the relatively short interval of 1870 to 1900. Both the first two revolutions required about 100 years for their full effects to percolate through the economy. During the two decades 1950-70 the benefits of the IR #2 were still transforming the economy, including air conditioning, home appliances, and the interstate highway system. After 1970 productivity growth slowed markedly, most plausibly because the main ideas of IR #2 had by and large been implemented by then...

The computer and Internet revolution (IR #3) began around 1960 and reached its climax in the dot.com era of the late 1990s, but its main impact on productivity has withered away in the past eight years. Many of the inventions that replaced tedious and repetitive clerical labor by computers happened a long time ago, in the 1970s and 1980s. Invention since 2000 has centered on entertainment and communication devices that are smaller, smarter, and more capable, but do not fundamentally change labor productivity or the standard of living in the way that electric light, motor cars, or indoor plumbing changed it...
Sorry, how to do reconcile these things? IR2 took a century to mature. Why would you assume all the gains from computation have already been achieved? Why am I supposed to believe that the DotCom boom was a global and not a local maxima?

And yes, technological gains in the last couple of decades appear to be consumer-focused. First of all, get back to me in 50 years and tell me all the work in 3d printing that's occurring currently isn't going to have a profound effect on production. Secondly, so what? The point of the economy isn't to give people jobs to do, it's to fulfill our desire to consume. You can say Twitter or Netflix is trivial because they've only put a couple thousand people to work, but hundreds of millions of people derive tons of genuine hedonic value from them. What more do you want?

Via Noahpinion, who has very good extended commentary. I will highlight this:
But even on a more modest level, there are technological improvements already in the works that will help sustain growth. The fall in solar costs is one of these. Improvements in robotics/automation/A.I. are a second. Genetic technologies are a third, and biomechanical engineering (artificial eyes and the like) is a fourth. These things are real.
All three of these are very underrated.


  1. As the world continues to move, so does the advancement of technology. Every year sheds light on improvements to yesterday's devices and new inventions appearing on the horizon. At the center of it all is a desire to speed up communication across the globe, with the intention of making inconveniences a thing of the past.

    1. That's quite profound.


      Your ideas are intriguing to me and I wish to subscribe to your newsletter.

  2. Unfortunately, there are a number of fairly influential people )the progressive, ironically), who want to stop most of this technological progress dead in its tracks. They don't like GMO/biotech, and energy sources that could provide significant amounts of power at reasonable prices are a bad thing. Computer tech is OK as long as it just relates to entertainment, and then they want to make sure that it is "inclusive", and does not drag youth down into computer-game hell. Any sort of technology that enables the masses to be able to move around in a non-collective way are bad, as well.

    They want us to only make stuff that would sell in a craft fair, but we still have to "share" it.