Monday, June 16, 2014

Which way?

Suggesting the end of history or progress or innovation or growth or anything is a huge stretch. But stagnation theses in economics are not new. This morning's WSJ puts the Robert Gordon (no relation)-Joel Mokyr debate over this topic on the front page "Has All the Important Stuff Already Been Invented?"

It's always hard to get beyond our predispositions to be either pessimist or optimist as we listen to both sides.  I have two simple points to make here. First, conventional data are not adequate and are ever less useful as we move forward. Consumer surplus is an ever larger component of our welfare and not measured via standard statistics or reporting.  The WSJ story includes the well known graphic that shows near-150 year constant U.S. real GDP per capita growth. What will happen to this trend? Conventional measures will understate it.

A related point has to do with amazing progress in improved longevity. In the article, Gordon scoffs at that, saying that more years but with an addled brain are not worth it. Have we come to the end of the road in our understanding of neurological conditions?

Yes, we are stuck with crony capitalism and its evil twin, rational ignorance. The real question is whether the market's natural growth impulses -- resulting from consumption-smoothing desires of savers and investors reconciled on capital markets -- will overcome the natural political impulses of the cronies (of both political parties). Will resources freed by automation be put to work by markets led by savvy entrepreneurs? Will the creative part of creative destruction remain vital?

Stagnation or non-stagnation are the consequences of actions by large numbers of people. Wittingly or unwittingly, their actions weigh in on either side of the question. I had posted previously that no less an authority than  Edmund Phelps is downbeat on this question. I disagree -- and I do watch the news.