Why Stagnation: Technological Limits or Myopic Elites?

Now that the worst seems to be over in the Wall Street crisis, there's a new academic boom in pondering what happened to the utopia that books like Bill Gates' The Road Ahead (1995) predicted, and that visionaries like Ray Kurzweil insist is around the corner. Dude, where's my Singularity? President Obama and the Kauffman and Case Foundations have taken a step in the right direction with the StartUP America Partnership, but initiatives for innovation leave the nagging question of why so many successful entrepreneurial ideas over the last generation have not succeeded in raising living standards.

The economist Tyler Cowen has just written in the New York Times, a day before the Partnership's formal announcement, about this stagnation behind the proliferation of powerful, beautifully designed electronic devices and services:

[A]dvancing discovery is not a goal to be reached by the mere application of will. Precisely because there is no obvious villain and no simple fix, and many complex factors behind success, science as a general topic doesn't play a big role in American political discourse. When it comes to understanding our macroeconomic predicament, we often seem to be missing the point.

Until science has a greater impact again on average daily living standards, the political problem will be in learning to live within our means. Because neither major party seems to support a plausible path to fiscal balance, or to acknowledge how little control politicians actually have over future income growth, we unscientifically keep living in an age of denial.

He cites the ideas of the billionaire Facebook investor Peter Thiel, who was interviewed not long about by the Wall Street Journal and remarked:

"All sorts of things are possible in a world where you have massive progress in technology and related gains in productivity," he says. "In a world where wealth is growing, you can get away with printing money. Doubling the debt over the next 20 years is not a problem."

"This is where [today is] very different from the 1930s. In the '30s, the Keynesian stuff worked at least in the sense that you could print money without inflation because there was all this productivity growth happening. That's not going to work today."

"The people who bought subprime houses in Miami were betting on technological progress. They were betting on energy prices coming down and living standards going up." They were betting, in short, on the productivity gains to make our debts affordable."

Cowen and Thiel are the latest to realize a point made brilliantly by the historian of technology David Edgerton in his recent book The Shock of the Old. Mr. Thiel the venture capitalist knows whom to blame for the disasters.

Mr. Thiel, unlike Dr. Cowen, had "obvious villains" in mind. He bashed academia, ignoring the fact that many of their top science and engineering professors migrated there when many of the great private research institutes like Bell Labs and its pharmaceutical counterparts were downsized, outsourced overseas, or shifted from more fundamental work to conventional R&D.

He also blamed government both over-regulation and peace (such as it has been!), even though real warfare always brings an explosion of regulation in a micromanaged and rationed economy. "Technology has made war so catastrophic," he said, "that it has unraveled the whole desirability of it as a spur to technology."

But isn't there another possibility that Thiel and Cowen don't cite, that corporate, financial, and government elites globally have made bad decisions about which technologies to back? On Saturday I heard a lecture by a Cornell engineering professor, Hod Lipson, on the automation of scientific discovery. With our design tools and ability to collaborate rapidly and globally, the dearth of transformative innovation becomes even more puzzling.

For an alternative view I recommend another economist, Carlota Perez, author of Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages who recently remarked in an interview:

The financial system must be moved from controlling the economy to serving its expansion. Fiscal policies and regulations must make it much more profitable to finance the real economy than to play in the financial casino.

There's a huge question at stake. Did the real estate bubble and casino mentality siphon funds from technological development? Or did it reflect an objective lack of projects justifying the risk? Thiel as an investor, and Perez as a pre-2008 analyst of financial bubbles, both have impressive forecasting credentials.

The question is what's the better hypothesis to assume, the end of progress as we've known it, or the inability of critical elites to recognize and support it, as they did with the jet engine during the Cold War, and with the modern photocopier. I can't prove it, but I'd say it's best to assume that the great ideas are out there and that our institutions (government, corporate, and academic) need to do a better job of identifying and supporting them before I buy into the "realistic" rhetoric of lowered sights.