Growth in a rich and crowded world

By Edward Hadas
July 23, 2014

Perky, productive robots, or nothing more than a few new smartphone apps? Cascading innovation, or just a few tweaks? Economists and technologists are debating what the future holds.

Pessimists like Robert Gordon of Northwestern University see decades of slow growth ahead, with little scope for big leaps forward. The optimists, among them Erik Brynjolfsson and Andrew McAfee of the Massachusetts Institute of Technology, expect new technological glories. Both sides are more wrong than right.

Everyone is wrong when the wrangling is numerical. Arguments based on GDP and productivity growth are too circular to resolve anything. A main cause of any slowdown in reported productivity numbers is a judgment that innovations are becoming less valuable. So a reported slowdown cannot logically be used to support the argument that technology is advancing more sluggishly.

The problem is that productivity measures depend upon what economists call hedonic adjustments. Consider a new model car that costs 2 percent more than the vehicle it replaces in a price index. The price change is clear, but the two cars aren’t identical. The new model will, at a minimum, have fancier electronics.

The statisticians have to put a value on the differences. They could decide the additional technology is just a gimmick with no effect on the real value of the car. In that case, car price inflation is 2 percent. If the same number of cars is sold this year as last, then car-related real GDP growth will be zero. And if the same number of hours went into building each car, then labour productivity would be unchanged.

But the statisticians might decide that the new model is 2 percent better than the old. With the same assumptions on sales and labour, car price inflation would be defined to be zero and both car-related real GDP and car-related productivity would show a 2 percent improvement.

There is no right answer. But measures of inflation, GDP growth and productivity are based on hundreds of such subjective judgments. Moore’s Law, the rule of thumb that computing power or capacity roughly doubles every two years, hints at how big some of these hedonic adjustments can be – at least in theory. The final results are more suggestive of statisticians’ thinking than indicators of the pace of innovation.

Once the numbers are thrown away, the more substantial question remains: Is the pace of global innovation slowing down?

Overall, the answer has to be “yes.” The biggest advances in any particular area usually come first, and later inventions tend to be less dramatic – more incremental – than earlier ones. Nothing in economic history, not even the mass urbanisation of the 20th century, has added as much to the quality of life as the prehistoric move from nomadic life to settled agriculture. Similarly, printing surely did less for the development of knowledge than the invention of writing – and electronic books have done less than printing.

There are exceptions. For example, the 19th century development of clean running water and effective sewage systems arguably did more for human health than any previous medical advance. And mass industrial production, which emerged around the same time and achieved popular recognition with Ford Motor in the United States, might have boosted the provision of domestic comforts like nothing before it.

Still, most technological innovations fill smaller gaps in people’s material condition than those that came earlier. In many areas of the economy, the remaining gaps are now so small that future innovations will necessarily be less impressive than in the past. The technology is already easily available to feed, clothe, heat, cool, house and educate everyone in the world – though there’s room for novel ways to ensure it is distributed widely enough. That in itself suggests that from here on, refinements will mostly be relatively modest and limited to things like reductions in cost and improvements in variety or quality.

There may be more room for improvement in other domains. Transport could be much faster, many more diseases could be prevented or cured, and the revolution in the collection and distribution of information still has a long way to go. Still, the techno-pessimists are right to think that overall the changes in daily life will be less dramatic in the next century than in the last.

On the other hand, the pace of innovation is not really slowing. The techno-optimists are right that the science and technology complex is still teeming with ambitious ideas. In particular, the information revolution is still unfolding – and the progress described by Moore’s Law shows only a few signs of slowing down. The line from telegraph to telephone to digital data to the internet will almost certainly lead to driverless cars from proponents like Google and another revolution in transport. It will also probably refine the management of the natural world enough to make energy much cheaper and the environment much cleaner.

However, with so many material ambitions almost satisfied, it may be that future innovations will make the most difference if they meet non-material needs. The great cathedrals of medieval Europe, the technological and spiritual wonders of their day, provide one model. Space exploration is perhaps the closest equivalent achievement in modern times, but the greatest cathedrals of technology have probably not yet been dreamt of. When it comes to human imagination, the sky is certainly not the limit.

2 comments

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its shortsighted to say “Still, the techno-pessimists are right to think that overall the changes in daily life will be less dramatic in the next century than in the last.”
We are making too many advances in field of biotechnology, genetic engineering, nano technology, etc. The world may change dramatically in a way we cannot fully imagine today.

Posted by asifmemon | Report as abusive

Space has unlimited room unlimited energy and unlimited resources. odds are accessing such would be a really big even for mankind!

Posted by johnwerneken | Report as abusive