Abundance Or Stagnation?

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 20^th 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