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Abundance Or Stagnation?

August 20, 2012

Economy, Markets, Technology

This morning I congratulated a client on the successful surgery she underwent to replace one of her knees. At 82 she was delighted to be pain free and resume her regular activities after years of degenerative arthritis. She described the technology used in the operation in almost reverential terms. Truly, we are living in an amazing world, full of wonderful possibilities. Technology in virtually all areas of human activity is advancing exponentially driven by Moore’s Law, which states that the processing power of computers will double every eighteen months to two years. Yet, at the same time, the developed countries are drowning in unprecedented levels of debt which threatens to smother at birth the very growth and innovation, which Moore’s Law seems to assure us, will continue for the foreseeable future. How do we reconcile these two conflicting visions? I made a first attempt in an earlier post, Platonic Dialogues For Our Times: Part II.

These two opposing views, the techno-optimist and the economic pessimist are represented by two different books, both well worth reading: Abundance: The Future Is Better Than You Think by Peter Diamandis and Steven Kotler and The Great Stagnation: How America Ate All the Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better by Tyler Cowan.

Diamandis and Kotler argue that four forces will soon enable us to create abundance, defined as the ability to provide clean water, food, energy, health care, education and freedom to everyone on the planet. These forces are the exponential growth of technology, the DIY innovator (individuals and small companies now have access to tools that only large companies and governments once had), the Techno-philanthropists (a new breed of philanthropist who, like Bill and Melinda Gates, are committed to using their wealth to make the world a better place) and the rising billions (every year there are billions more people using the internet and helping to solve the world’s problems).

Tyler Cowan, on the other hand, argues that America has already eaten much of its low-hanging fruit which included:

  1. Plentiful, free and fertile land combined with abundant immigrant labor.
  2. Numerous major technological advances such as electricity, electric lights, automobiles, airplanes, the telephone, indoor plumbing, the typewriter, radio, household appliances, pharmaceuticals and mass production.
  3. Plenty of smart but uneducated kids previously ‘kept down on the farm’ who received a high school or college education in the 20th century.

One could also add to this list the benefit of the U.S. dollar as the world’s reserve currency.

Cowan argues that in the United States the slowing rate of economic growth since 1970 is a sign that technological development has also been slowing. He goes on to state that most innovations in the last 20 years have been refinements of earlier inventions and have not had a significant effect on U.S. economic growth. He claims that, with the exception of computers and the internet, life is not so different as it was in 1953. Cowan plays down the value of the internet, arguing that most of the benefits are ‘in our head’ i.e. we are all enjoying it immensely, using it to blog, play games, and learn and communicate in interesting ways. However, while he predicts that its influence will be even stronger for the next generation, he points out that until now the internet has not had a significant effect on the economy i.e. it is not creating net new jobs or significantly affecting the revenue generating sectors of the economy.

If Cowan is correct that America is not benefiting from all this technological innovation where are all the benefits flowing to? The answer seems to be the developing countries.  In the developed countries smart phones are useful for finding a place to meet your friend for lunch but in the developing countries they are used, for example, by farmers in rural areas, to find out the daily prices of agricultural commodities, information that allows them to improve their bargaining position when taking their goods to market.

Diamandis and Kotler seem to ignore the fact that most developing countries are poor not because they lack technological innovation but because they have corrupt governments, so the poor lack easy access to the legal system. Without clear legal title to a property there is no incentive to improve it. Without the ability to seek fair redress in the courts commercial activities must inevitably be informal and limited in size.

Finally, there is nothing inevitable about Moore’s Law. Besides the problem of finding a replacement for silicon, exponential growth curves do not usually continue indefinitely. Consequently, I don’t buy Diamandis’ and Kotler’s argument that exponential technology growth will inevitably bring about worldwide abundance, even as the authors define it. In the developed countries, innovation will help us, at best, muddle through the fiscal mess that our politicians have created for us.

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“The Internet is the most important single development in the history of human communication since the invention of call waiting.” Dave Barry

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About Malcolm Greenhill

Malcolm Greenhill is President of Sterling Futures, a fee-based financial advisory firm, based in San Francisco. I write about wealth related issues in the broadest sense of the word. When I am not writing, reading, working and spending time with family, I try to spend as much time as possible backpacking in the wilderness.

View all posts by Malcolm Greenhill

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10 Comments on “Abundance Or Stagnation?”

  1. Margot Johnson Says:

    Malcolm, computers are working their way into our DNA, or should I say eating holes in it. In a few generations we won’t be able to function on any level without them.

    Reply

    • Malcolm Greenhill Says:

      Margot, thank you for your comment. They are definitely already in my DNA :). This is actually Cowan’s point. While we all enjoy using computers they have not yet made a big impact in terms of employment or the money making sectors of our economy. Think about Google. Everyone uses it but it probably employs no more than 20,000 people worldwide.

      Reply

  2. Jonathan Sharp Says:

    Hi Malcolm, This is a good one! Without reading the books, it’s difficult to comment, but that’s never stopped me before!

    I agree on Moore’s Law. Gordon himself never expected the trend to continue beyond a few years.

    I completely disagree that the ubiquity of computers and the internet has not contributed significantly to economic growth. Productivity drives economic growth and computers and connectivity have had a significant impact on productivity in the US and elsewhere. A host of new US companies (with very big market caps and pay-rolls) have emerged to produce the technologies that have made those productivity gains possible. I have no idea how Cowan can begin to argue against that one.

    I agree that legal title is a major stumbling block for emerging countries. But if corruption and lack of clear legal redress was the only thing that mattered, then China is hard to explain.

    Cheers

    Reply

  3. Malcolm Greenhill Says:

    Jon, thank you for your comments. It is difficult to assess the value of the internet with respect to economic growth. I think Cowan’s point is that the internet is at the same stage as the early years of the industrial revolution i.e. most of its potential is in the future. As for its impact to-date, Cowan would argue that earlier discoveries such as electricity changed everyone’s lives while, so far, the internet has changed many lives, but not everyone’s.

    Reply

  4. Dr. Michael Edelstein Says:

    Malcolm, congratulations on another fascinating blog. You certainly know how to stir up controversy!

    There is much to disagree with (and agree with) in your blog. You state “there is nothing inevitable about Moore’s Law” as one piece of evidence for your stagnation hypothesis. However this argument fails since exponential technological growth does not depend on the indefinite continuation of Moore’s Law. In fact, Moore’s Law is expected to expire by the end of the decade.

    Moore’s Law was not the first, but rather the fifth paradigm to provide the exponential growth of computing. Each time one paradigm runs out, another picks up the pace. http://www.kurzweilai.net/the-law-of-accelerating-returns

    Michael R. Edelstein
    http://threeminutetherapy.com/

    Reply

    • Malcolm Greenhill Says:

      Michael, thank you for pointing this out. I don’t put much store in these laws of exponential technological growth. Maybe the exponential growth curve flattens out at some point or maybe it leaps forward when there is market demand for technological growth and stalls whenever there is insufficient market demand to profit the technologists? Maybe inventions are created at a constant rate by a fixed population and technological growth is actually a function of population growth, not innovation? Extrapolating a current trend into the future is always risky and especially so with exponential growth. Remember the fears about the ‘population bomb’ which were proved completely wrong. Years ago there were articles extrapolating transportation trends which had gone from horses to rockets in 50 years. People seriously suggested that man would soon be going faster than the speed of light.

      Furthermore, it’s not clear if it is actually possible for any intelligence to construct an intelligence ‘greater’ than itself. Even if we develop an intelligence more advanced than us how are we even going to recognize it as such? If the superior intelligence keeps replying “om” to all our questions, it could be because it has discovered some fundamental truth that we cannot fathom or it could just be that there is a bug in the system.

      Raw computing speed is 10 times faster than it was a few years ago, but it doesn’t mean that we can do things on the computer 10 times faster. The speed of light will be the limiting factor for accessing the web no matter how fast the servers become. Soon virtually everyone in the world will be within easy access of the web, so there will be no exponential increases in connectivity.

      Finally, I see no evidence that there has been as much progress in human wisdom and understanding as there has been in technological progress. With that in mind I am not confident that we will not find a way to destroy ourselves as the gap between technological innovation and our ability to understand and manage that innovation widens. The devil is in the details and as we are dealing with people I suspect that today’s vision of exponential technological progress will look rather strange and peculiar to people in the future studying the history of our times.

      Reply

      • Dr. Michael Edelstein Says:

        Malcolm, in the interest of time, I’ll just respond to one point from each paragraph.

        Par 1: I’m not clear how citing “maybe’s” and failed predictions advances the discussion. Do these somehow refute the Law of Accelerating Returns (LAR)?

        Par 2: The way we would recognize an intelligence more advanced than ours would be by testing its predictions against ours.

        Par 3: We can do some things more than 10 times faster than a few years ago. For example, a few years ago not many people could access the internet from their cell phones. Now orders of magnitude more can do so.

        Par 4: There have always been the possibility of humans destroying themselves and always been the doomers predicting we’re on the eve of destruction. You may recall, as one of many examples, Helen Caldicott the Australian physician who began a campaign in 1980 to spread the gospel of imminent nuclear holocaust. As you may have noticed, it hasn’t happened. This doesn’t prove it can’t happen, but it does say something about the resourcefulness of the human race.

        Michael R. Edelstein, Ph.D.
        http:// http://www.ThreeMinuteTherapy.com

        Reply

  5. Malcolm Greenhill Says:

    Michael, thank you for this.

    Par 1: LAR is a theory based on extrapolating past trends. It is cautionary to note what happened to similar such theories in the past.
    Par 2: Sounds good if you could understand the superior intelligence. How well could an ancient Egyptian astrologer understand quantum physics even if there was no language barrier?
    Par 3: Your example does not follow from your initial statement. The latter refers to speed the former to quantity of people.
    Par 4: The point is that human understanding is not keeping pace with technological progress so there is an increasing (exponential?) chance of a bad outcome.

    Reply

    • Michael R. Edelstein Says:

      1. “The sun will rise tomorrow” is a prediction from a theory based on extrapolating trends as is the LAR.
      2. Both intelligences would understand predictions and outcomes, e.g., applying treatment x will cure y disease.
      3. My point here is that as a consequence of increasing computer power life is improving at an accelerating pace.
      4. Since human understanding is inherent in technological progress, without understanding most progress would not occur. Henry Ford understood what he was doing, he did not invent the automobile by chance or accident.

      Reply

      • Malcolm Greenhill Says:

        1) By ‘similar’ I meant other theories about social phenomena that originally appeared to have an exponential growth curve such as population growth.

        2) If the Egyptian astrologer cannot understand quantum physics I fail to see how he can understand the meaning of a prediction and outcome based on quantum physics.

        3) I don’t disagree with this statement as a current description.

        4) I think you are confusing ‘technical’ understanding with ‘human’ understanding, a similar mistake to confusing training with education. For example, governments are developing increasingly sophisticated biological weapons. Are you confident that they are advancing their understanding of the implications of developing and using these weapons from a moral, ethical and social perspective, at the same pace that their technical knowledge about these weapons is advancing?

        Reply

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