Physicist, Startup Founder, Blogger, Dad

Saturday, January 12, 2013

Low hanging fruit and technological innovation

Have we picked all the low hanging fruit? GDP growth may not be the same as growth in "utils" (units of utility, as in happiness or utility function), but it's a reasonable proxy. Click graph below for larger version.

The util return per unit of technological effort is probably decreasing as the problems left to be solved become more challenging. But it's hard to put a util value on some things that are in the foreseeable future, like machine intelligence and genetic engineering. A GDP value will be assigned by definition of commerce (the market), but actual utility is harder to understand, as we may be altering ourselves and our civilization along the way! Singularitarians would have you believe that the graph below will reach a point of divergence in the near future ...

Economist: ... For most of human history, growth in output and overall economic welfare has been slow and halting. Over the past two centuries, first in Britain, Europe and America, then elsewhere, it took off. In the 19th century growth in output per person—a useful general measure of an economy’s productivity, and a good guide to growth in incomes—accelerated steadily in Britain. By 1906 it was more than 1% a year. By the middle of the 20th century, real output per person in America was growing at a scorching 2.5% a year, a pace at which productivity and incomes double once a generation (see chart 2). More than a century of increasingly powerful and sophisticated machines were obviously a part of that story, as was the rising amount of fossil-fuel energy available to drive them.

But in the 1970s America’s growth in real output per person dropped from its post-second-world-war peak of over 3% a year to just over 2% a year. In the 2000s it tumbled below 1%. Output per worker per hour shows a similar pattern, according to Robert Gordon, an economist at Northwestern University: it is pretty good for most of the 20th century, then slumps in the 1970s. It bounced back between 1996 and 2004, but since 2004 the annual rate has fallen to 1.33%, which is as low as it was from 1972 to 1996. Mr Gordon muses that the past two centuries of economic growth might actually amount to just “one big wave” of dramatic change rather than a new era of uninterrupted progress, and that the world is returning to a regime in which growth is mostly of the extensive sort (see chart 3).


Ron Unz said...

Hmmm... So America's per capita growth rate in GDP dropped sharply after about 1970, due to worldwide changes in technological innovation. It's purely coincidental that this dramatic inflection occurred around the same time that America was experiencing such equally dramatic changes in its economic, social, ideological, and economic systems.

Another good example is China. In the late 1970s, the growth in Chinese per capita GDP suddenly rose from below 1% to above 5%, and has since stayed at that level. The explanation was obviously a change in technological factors, rather than the dramatic internal changes in the Chinese economic and social systems.

Technological factors are an excellent explanation for all these otherwise mysterious changes in economic well-being, both upwards and downwards...

David Stern said...

The difference is China's government decided to allow the Chinese economy to begin to catch up to the developed economies. That then resulted in a phenomenal growth rate as they caught up with the last couple of centuries of innovation. By contrast the US is usually thought of as the most technologically advanced country in terms of productivity and so a slow down in growth in the US is a sign that the global rate of innovation is slowing down. This could be for either fundamental technical reasons or because institutions favor less innovation.

stephen zhang said...

Maybe the measure of productivity after 1970 is not inclusive of some new factors?

gide07 said...

"But in the 1970s ..."

So the computer revolution has not increased real productivity per worker,
but just per some workers? Plus ca change.

Utiles. Ha! People living in the developed world today are in general, collectively, the most unhappy people ever.

gide07 said...

"...as we may be altering ourselves and our civilization along the way..."

Steve appears to be making a cognitive breakthrough.

gide07 said...

Good on ya RKU1. It is not appreciated by economists or businessmen or any member of the elite I know of that never ending growth is an abstraction which presupposes that men have infinite wants or needs. The concrete reality is that men's needs are finite and many of them are less satisfied today than at any other time. Unless or until man overcomes himself (makes himself smarter and longer lived) all of his needs can be satisfied with existing techne, but the prevailing economic-political-ideological system makes this impossible.

gide07 said...

"growth", "innovation", "economy" are all abstractions which you have used outside their proper scope.

David Coughlin said...

We call that, in my business, a force multiplier.

LabanTall said...

Surely you could argue that rising energy costs and offshoring of manufacturing (Far East isn't showing 1.33% growth) account for this?

LabanTall said...

One point, which Prof Hsu has often picked up on, is that a lot of bright boys, I'd argue too many, go into finance and devote their brainpower to creaming off the wealth that others create. Quants ?

You can't say the rate of financial innovation is slowing down in the West - in fact there might be an inverse relationship between that and real innovation.

A clever person these days seems less likely to want to invent a better mousetrap and more likely to figure out a tax-efficient mousetrap leasing scheme.

Old model - use your brainpower to create something which will help people less bright than you.

New model - use your brainpower to rip off people less bright than you.

Blog Archive