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Tuesday, June 17, 2014

The Economics of American Exhaustion

Posted by on Tue, Jun 17, 2014 at 8:45 AM


Robert Gordon, a curmudgeonly 73-year-old economist, believes our best days are over. After a century of life-changing innovations that spurred growth, he says, human progress is slowing to a crawl.

Joel Mokyr, a cheerful 67-year-old economist, imagines a coming age of new inventions, including gene therapies to prolong our life span and miracle seeds that can feed the world without fertilizers.

Both points of view are wrong. The section of the economy that has "spurred growth" over the past 30 years, the financial sector, has had nothing to do with "life-changing" innovations. The stock market is almost entirely disconnected with research and development in the productive sector, which for its own part, as the economist Mariana Mazzucato points out in The Entrepreneurial State, is greatly dependent on research funded by the government. And the reason we should not expect "new inventions" to save the world any time soon is because in our age of finance capitalism, governments have one priority: support the financial markets. Complying with this directive means keeping inflation low, protecting private assets with public money, and cutting government spending—infrastructure maintenance, social services, and, of course, funding for precisely the kind of scientific research that the productive sector depends on for new and innovative products like the iPhone.


Comments (15) RSS

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lark 1
Good Morning Charles,
I actually don't disagree with Gordon. I believe the best times may be over and inventions exhausted. I highly recommend Simon Winchester's book, "The Men Who United the States". It's an excellent account of America's technical rise and "conquering" of the continent.

Right now from the perspective of the rest of the planet, America and the West are in decline across all spectrums. Sure, there will be some new innovations in technology and medicine. But, along with those will be great ethical problems to solve. I, for one don't really want to live to be 140 y/o. Seems very undemocratic.
Posted by lark on June 17, 2014 at 9:19 AM · Report this
In the 19th century government spending was less than 10% of GPD. That didn't stop Alexander Graham Bell from inventing the telephone or Thomas Edison from inventing the light bulb or Nikola Tesla from inventing the alternating current induction motor. Where is Charles getting this stuff about high levels of government spending being necessary to technical innovation?
Posted by Ken Mehlman on June 17, 2014 at 9:40 AM · Report this
Mahtli69 3
We're not even close to the end of life-changing technology. Less government spending on new technology might slow the progress, but it will happen regardless.
Posted by Mahtli69 on June 17, 2014 at 9:43 AM · Report this
Another thing, government spending today is about 35% of GDP, about the same level as it was in the early '80s. Presidents Reagan and George W cut taxes but they didn't stop spending money.
Posted by Ken Mehlman on June 17, 2014 at 9:48 AM · Report this
Fifty-Two-Eighty 5
The thing about game-changing advancements is that nobody could really see them coming ahead of time. While I see a steady course of refining and improving existent technology in our future, I can't really see anything radical on the horizon. But, of course, that doesn't mean a damned thing. Some guy 20 years from now could invent a working warp drive in his garage and change absolutely everything.
Posted by Fifty-Two-Eighty on June 17, 2014 at 9:58 AM · Report this
Theodore Gorath 6
When are people going to figure out that the morons claiming that nothing new can be invented are wrong every single time?

They have claimed this every decade, and are wrong every time. I do not even know how one comes to such a mind-bendingly stupid conclusion.
Posted by Theodore Gorath on June 17, 2014 at 10:06 AM · Report this

If you think infrastructure means roads, maybe.

If you think infrastructure means 1 Gpbs fiber or 200 Mbps LTE broadband, then we're building that.

I've been reading histories of the telegraph. It fascinates me because it would seem that the world really changed once we could communicate across the globe at the speed of light. After that breakthrough, nothing really even comes close for changing the way humans operate. Cars? So big deal, we could go from 10 mph on horseback to 35 mph on a Model T. But sending messages, two way, and instant reporting of the news? You could say the real progress stopped in 1830.
Posted by Supreme Ruler Of The Universe http://_ on June 17, 2014 at 10:11 AM · Report this
Charles is right and these two econ doucheys no one has ever heard of are wrong for a myriad of reasons.

Firstly, no major R&D national progams have been undertaken since the Kennedy Administration gave us the NASA space program and the Internet program, and so much of the progress stemming from NASA research is what has been considered new over the past four decades, but has really been simply incremental.

Next, here is another reason on the financial/economic side, related to complexity, a most brilliant short paper by socioeconomic anthropologist, Joseph Tainer:

A great read!
Posted by sgt_doom on June 17, 2014 at 10:20 AM · Report this
@2, it isn't the percentage of your "GPD" but how much investment is going on.

Those financiers who invested in Edison and Tesla were receiving their monies from government investment in the railroads, one of the earlier version of so-called public/private partnerships where those super-rich were given the railroads for practically nothing.

Mehlman, wrong as usual!
Posted by sgt_doom on June 17, 2014 at 10:23 AM · Report this
@9 Yep, 19th century industry benefitted from tax breaks, corporate welfare, give-aways of public land, etc. Are you saying none of that shit happens nowadays? Come on.
Posted by Ken Mehlman on June 17, 2014 at 10:46 AM · Report this
treacle 11
We won't be free until the last economist is hung with the guts of the last politician...
Posted by treacle on June 17, 2014 at 11:45 AM · Report this
@11 What exactly will we be free to do then? What's the utopian alternative to what we've got now?
Posted by Ken Mehlman on June 17, 2014 at 11:50 AM · Report this
dwightmoodyforgetsthings 13
There's some truth to the assertion that it's tough to top some of the technological triumphs of the previous couple centuries. Making it so we produce a surplus of food while having a small percentage of the population involved in food production is the biggest change in human society since the invention of agriculture.
Posted by dwightmoodyforgetsthings on June 17, 2014 at 1:09 PM · Report this
seandr 14
Hi Charles, just started reading Thomas Picetty's book. To the extent that his views are representative of yours, then you and I are mostly aligned. Perhaps we've simply been arguing all this time over definitions of terms.
Posted by seandr on June 17, 2014 at 2:59 PM · Report this
USA quit planting corn. Is shocked to see corn not growing.
Posted by Tim Appelo on June 17, 2014 at 7:58 PM · Report this

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