Shrinking economies don't innovate
overcomingbias.com
overcomingbias.com
> Most economic growth comes from innovation, not the accumulation of capital or labor.
... triggers a big "citation needed" to me.
For a blog called "overcoming bias", I find that a bit ironic.
Also, as usual, what's the definition of economy being used there? Money? Production? It's even dropping fertility and population in the mix so it's hard to tell. I'm almost sure you can find innovations happening during recessions where both economy and production go down(1).
On the opinion itself, I could see that it as a theory worth pursuing, but I'm almost certain this is very "within system". We're on a finite planet, we don't have a choice but to continue innovating while limiting population growth and production. That's where the definition of economy matters, because if you consider production, I don't believe it. If you're talking about money, I'm gonna say, sure, but it's anecdotal.
1: not gonna provide an example since the source material didn't bother to.
The bigger question is whether he's mixing cause and effect, and it's actually "innovating economies don't shrink [at least not in the medium term]"
Economic growth is subjective in ways, but over previous long horizons, this is obviously true.
If you took 10B pre-industrial humans and had them work 24 hours a day 365 days a year - their production would be pale in comparison to what we currently produce.
At some point, when you get close to physical limits, and you start having vastly diminished returns on technological improvement, or when most innovation is not going to the benefit of most people - it would be debatable.
Maybe you want to argue we're headed into that future.
The capital and labor followed the innovation. Without the innovation, there would not have been an extreme boost in growth, no matter how much capital and labor accumulation took place.
Hanson, a brilliant economics professor (among other things), shouldn't need to justify or provide citations for every basic statement about economics. It is often useful to lay out assumptions up front to provide context for the body of the essay.
For the rest of your argument you seem stuck on definitions for words, which is helpful for your understanding but unhelpful for discussion of the ideas.
If we were discussing our business plan for next quarter and you began saying ‘what is business? what is a plan, on a deep level?’ I would not engage with you but ask you to leave because either a) you don’t belong in the meeting b) you’re acting in bad faith semantics
The word "economy" in the discussions around growth and de-growth is used to describe a multitude of things, notably (1) money (commonly looked at it in terms of GDP) or (2) production (commonly looked at in resource and goods produced, and services rendered). Because they are notoriously not well correlated (because of the capital market, inflation, ...) there are multitude of examples where (1) is growing while (2) is shrinking.
If you're saying "shrinking economies don't innovate", do you mean "Economies with shrinking GDP don't innovate", or "Economies whose production drop don't innovate". This is wildly different, and, contrarily to your comment, fundamental to discuss this idea.
When it comes to accepting someone's opinion in blind faith because they're smart, do whatever you want. Undocumented opinions coming from smart, educated people are valuable opinions ; but they're opinions nonetheless.
In $, not amount of goods and services.
> GDP does not measure money any more than mass measures kilograms.
Mass is a physical dimension. GDP is the product of the physical dimensions of the goods and services you product by the value attributed to these physical properties.
> It measures the value of all goods and services produced in the economy.
You're saying it yourself: it measures the value of the goods and services. Value is measured in money and is not directly linked to the volume of goods, resources and services they represent.
You can produce the exact same amount of potatoes, if the value of a kg of potatoes increases, the GDP rises. If you look at the value of oil to gauge its production, there's one day in 2020 when we sent oil back to earth[1].
Economic growth literally means the value of goods and services produced by the economy rose. It does not mean "monetary value" in one place or "number of widgets" in another place. Robin Hanson is not confused here by what he means by economic growth and his argument does not rely on some ambiguity in terms.
>>You can produce the exact same amount of potatoes, if the value of a kg of potatoes increases, the GDP rises.
Yes, of course.
>>If you look at the value of oil to gauge its production, there's one day in 2020 when we sent oil back to earth[1].
I'm not sure what this is supposed to illustrate. If a finished good or service does not have value then it cannot contribute to economic growth. The entire point of an economy is to produce goods that have value.
GDP=C+G+I+NX
where:
C=Consumption
G=Government spending
I=Investment
NX=Net exports
This hasn't been true though. We aren't limiting population growth, but the rate is declining as women gain reproductive freedom and people don't need to have as many kids to work the land. And we haven't done anything to limit production, as that goes against economic growth, which causes economic recessions. As for a finite planet, we do have energy from the sun, and potential materials from the rest of the solar system to make use of, starting with the Moon.
https://www.academia.edu/es/38627904/Blame_it_on_the_goats_D...
We even have more goats than wild mammals (and half of those are mice).
> As for a finite planet, we do have energy from the sun, and potential materials from the rest of the solar system to make use of, starting with the Moon
Our planet's finiteness extends beyond just physical resources and space. The air we breathe, the oceans that regulate climate and support life, and the intricate web of biodiversity are all interconnected components of Earth's finite ecosystem.
While external sources like solar energy and space materials offer opportunities, they don't alter the fact that the planet's capacity to support life and maintain these critical systems remains limited.
Production. The first result on google for "Economic Growth" defines it.
Its 'dropping' fertility and population into the mix because his thesis is that declining population will lead to less innovation thus retarding economic growth. Innovation happening in a recession is not in any way a counterexample whatsoever.
All work exploits some gradient of energy, i.e. a potential difference. Any "innovation" is a discovery of some such gradient. As the gradient is exploited, the difference in potential decreases. The innovation loses its potential return on investment. The most basic reason for this is that the simplest/least costly methods for exploiting the difference will be the most likely to be discovered.
Our societies organize around these processes for exploiting gradients. Greater influence is given to those who can do the most work. That influence directs future collective investments. Those with the influence will use it to increase investment in the source of their profit... extraction of work from the same gradient which they've been exploiting.
Eventually that gradient is exploited beyond an positive return on investment. All low-hanging fruit has been consumed. There is no longer investment available for finding other gradients along which work can be done and those with influence use that influence to extract resources from other members of the society since their external gradient no longer exists. Their influence increases in proportion to the other members' and the society eventually eats itself.
IMO there's the basis for a quantitative model in there. The conclusions are total speculation, but the basic foundations I think are valid. (They mostly come from a combo of information theory, joseph tainter's collapse of complex society, as well as "incomplete nature" by terrence deacon). But of course we don't have the money available for investigation into such things :/ Funding seems to only be available for models that bolster existing sources of profit.
Indeed. Very important subject, weak article.
The best example is Japan. Japan was growing and innovating rapidly until 1989. Then there was a crash. The Nikkei index went down, and down, and down, until bottoming out in 2014 at about a quarter of the peak. Then recovery began, although the level of 1989 has never been exceeded.[1]
In the 1970s and 1980s, Japan powered the world's consumer electronics industry. From ICs to VCRs to cars, it all came from Japan, with good quality at low prices. Then that ended. Not because the business sector was in decline. China wasn't a major competitor in the 1990s. But the growth in Japan had stopped.
This used be called the "lost decade" in Japan. Then the "lost decades".[2] So Japan is where to look at this problem.
Innovation in Japan declined despite massive government attempts to push it. Japan has "Tsukuba Science City", which has many government-funded labs but is not the home of major industries. So that didn't really work.
What happened?
So which is it? Either economies don't innovate because they are shrinking (shortage of capital/labor) or economies innovate to grow and it's an ephemeral state that has nothing to do with the economics. eyeroll
We should be judicious about where this aggregate effort gets spent before terminal decline in labor output (leaving potential future productivity gains as out of scope due to them being in the “hope” bucket).
Or sometimes entrenched industries are too powerful for innovation to take hold. One example is in payments. Credit card payments are horrible. I have to carry a physical card which has minimal security features and can be lost or stolen. We are also regularly expected to lose sight of these cards at restaurants. Cards can be skimmed. It’s old tech.
What is much better? Paying by QR code. It’s much faster, doesn’t require any hardware we don’t already have, and is far more secure. Countries which never had credit cards pay by QR code because it’s better. Countries (like the US) which use credit cards because they are entrenched both economically (big companies don’t want to switch) and socially (very few places support it because very few people use it).
I wish economists step outside of their academic bubbles and realize that some problems need political/social action, not more economic theory.
Don’t pretend that we have all we need.
Don't pretend you understand what my comment meant, so you can abuse me.
The Club of Rome predicted this in 1972. Recent reviews of their work have confirmed the 'business as usual' trend, suggesting it's about to play out in the next few decades.
True, it's being degraded.
> or this would have happened in the 60s and 70s as originally predicted
We've entered the overshoot in the 1980s (+-), as predicted. What's on the horizon is the collapse of the carrying capacity.
https://www.resilience.org/stories/2021-08-16/revisiting-the...
https://advisory.kpmg.us/content/dam/advisory/en/pdfs/2021/y...
"I conducted a data update to Limits to Growth (LtG), best known from the 1972 bestseller that forecasted a scenario of global societal collapse occurring around the present time if humanity did not alter its priorities. Empirical data comparisons since then indicated that the world was still heading for collapse. ... I found that the scenarios aligned closely with observed global data, which is a testament to the LtG work done decades ago. The two scenarios aligning most closely indicate a halt in growth over the next decade or so, which puts into question the usability of continuous growth as humanity’s goal in the 21st century. Both scenarios also indicate subsequent declines, but only one—the scenario in which declines are caused by pollution, including greenhouse gas pollution—depicts a collapse pattern. The scenario with the smallest declines aligned least with empirical data, however, absolute differences were rarely big and sometimes insignificant. This suggests that it’s almost, but not yet, too late for society to change course."
https://www.researchgate.net/publication/332655753_Limits_Re...
"We unravel the arguments that have raged for forty years in its aftermath and explore more recent findings which relate to the original hypothesis. There is unsettling evidence that society is still following the ‘standard run’ of the original study – in which overshoot leads to an eventual collapse of production and living standards. Detailed recent studies suggests that production of some key resources may only be decades away. Certain other limits to growth – less visible in the 1972 report – present equally pressing challenges to modern society. We highlight, in particular, recent work on our proximity to ‘planetary boundaries’ and illustrate this through the challenge of meeting the Paris Agreement on climate change. We also explore the economic challenge of a ‘secular stagnation’. If the Club of Rome is right, the next few decades are decisive."
> Technology and policies change the carrying capacity
Do you mean the 'green revolution' which resulted in biodiversity loss, soil degradation and erosion, eutrophication, oceanic dead zones, and deforestation? That's not an increase in carrying capacity; rather, it's a temporary extension beyond all safe boundaries leading to a much larger catastrophe.
> We don't have to have decline with the right approach
Do you see anything that would suggest we're on the right track?
> The sun .... fusion and superconductivity ...
You seem to think it's only about fossil fuels / energy. It's not... In my view, tipping points, deforestation (== droughts) and dwindling biodiversity are the main problems ahead.
https://en.wikipedia.org/wiki/Planetary_boundaries#Nine_boun...
> The biosphere can be repaired or even extended
Yes, by letting it be. We can't even do that.
Like vehicles, the new feature is monthly charge for heated seats, or 'enable the whole battery pack to be used'. Cell phones are battery-sealed for 'reasons', along with easy rapid charging (read: battery destroying charge).
I know plastics are used EVERYWHERE, including things like gears and structural members that will guaranteedly break. And where old electronics had schematics and repair diagrams, now "just throw it away" cause there are no replacement parts to buy.
Or worse yet, theres the expensive gadgets that have required cloud tie-in. Cloud changes/goes away? Hello garbage bin.
I get tired of all this.
But remember that capitalism doesn’t optimize for minimal physical waste - it optimizes for minimal waste overall.
This includes cost of capital, human brainpower, opportunity cost, taxes, input material, and of course, physical waste.
So the optimal product doesn’t necessarily last forever - that would involve an unaccetable amount of investment in material and labor.
One must also take tech progress into account - consumers may not want a product that lasts forever, since they might want version 2.0 some years down the line, and throw away a perfectly functional version 1.0.
No, at best it optimizes for minimal waste of capital. If you can't find a way to use it for marketing or to receive subsidies, giving food to people who can't afford to pay for it is the same as throwing away food within capitalism: both are waste in a capitalist sense.
Material waste is only relevant within capitalism inasmuch as the material in question is valuable.
Such a weird take.
Capitalism only optimizes to increase profit. If waste is profitable, it will be very wasteful, especially if the downsides of this waste can be externalized.
This is obvious in terms of pollution and physical waste, but given the perfect perverse incentives, it will also waste human brainpower, opportunity cost, et cetera and so forth.
Minimizing physical waste isn’t always a good thing. Take it to an extreme to illustrate: one million engineers spend their whole careers to make a platinum toaster that will last billion years.
On the other extreme: one engineer slaps together a plastic toaster that breaks when you put the bread in.
Somewhere in between those two is an optimal point. We have to balance our energy, resources, brainpower, time, physical waste, and optionality effectively.
That balancing point is the perfect toaster, it makes a ton of profit, it doesn’t break before one use, and it doesn’t last forever either.
Things like a carbon tax, or making especially dirty companies clean up their own pollution.
This aligns minimum total economic waste, which includes environmental damage, with maximum profit.
1. BEV production
2. Only AVs in the world in production
3. LLMs come from here
4. Reusable launch vehicles
5. EUV tech was invented here
There's so much more in every field. The reality is that the USA is a hotbed of innovation: in software, hardware, biotech, materials science. There's a reason that the town of Berkeley has more Nobel Prizes than many European countries.