Some brief thoughts on technical change

Engelbart's mouse

I have discussed some of these issues before (here, for example, or here). But it is the last week of my intermediate macro class, and I often end up with some discussion of growth. Mostly the Solow model, and some alternative demand-led growth model. I do only the simple models, Joan Robinson's banana model and Thirlwall's balance of payments constraint, to contrast with neoclassical supply constrained stories of growth.

But in the middle of that discussion, supply constraint versus demand led growth, a conversation about the nature of technological change is always inevitable. No, I'm not going to talk about Kaldor-Verdoorn now. There are two interesting aspects of technology that are often misrepresented in mainstream models.

First, in the Solow model technology is akin to a public good, meaning is non-excludable and non-rivalrous. So technology is relatively easy to acquire, difficult to preclude others from obtaining it, and the access to it by one group does not limit its availability to others. That, by the way, is the reason patents and copyright are supposedly needed, to preclude technology to spread too easily and to provide the incentive for innovators.

However, technology seems to be considerably more difficult to acquire than what the canonical neoclassical model presumes. I always tell students that technology acquisition resembles building IKEA chairs. You have the blueprint, but even then it is hard to interpret it, and the first one is always a bit wobbly, while the process of building new chairs implies that by the time you are done with the last (perhaps the third or fourth one) the process is completely mastered.

The second element of technology that is often misrepresented, and this also true of some neo-Schumpeterians, is the role of the entrepreneur, the innovator. There is overpraise of their role in the process of technological change. The flash of genius which allows the innovator to transform the whole world is glorified. In reality, technological change is a slow process, in which several flashes are necessary to eventually produce any significant change.

For example, I asked my students what made Bill Gates the wealthiest man on the planet. Only one, by the way, said Windows, the operating system that followed DOS, and that was in every PC, after his contract with IBM (yes that contract, and the fact that he could pile his other software with the operating system, is the real source of the wealth). The operating systems were bought from another company, and essentially copied from Apple. And yes, Steve Jobs got most of his ideas from a visit to Xerox Parc. So the names of the several people that were central for the development of the graphical interface with multiple windows on a screen are hardly household names.

Walter Isaacson's The Innovators, which does overall a good job of showing that technological progress is a team sport, even if he does also idealize the role of innovators (yeah, it's in the title) tells the story of one of the them, Douglas Engelbart. About him he says (and yes there is a bit of hero worship in this):

"Over the next six years, culminating in 1968, Engelbart went on to devise a full-fledged augmentation system that he called 'oNLine System,' or NLS. In addition to the mouse, it included many other advances that led to the personal computer revolution: on-screen graphics, multiple windows on a screen, digital publishing, blog-like journals, wiki-like collaborations, document sharing, email, instant messaging, hypertext linking, Skype-like videoconferencing, and the formatting of documents. One of his technocharged protégés, Alan Kay, who would later advance each of these ideas at Xerox PARC, said of Engelbart, 'I don’t know what Silicon Valley will do when it runs out of Doug’s ideas.'"

Most of the time the several innovators needed to produce significant change are forgotten, and do not reap the financial benefits of their own innovations. In particular, because many times is difficult to sort out who had the original idea, where one innovation finishes and when the other starts. Technology more often than not develops as a result of a series of small steps, rather than by big leaps. Histories of technology should emphasize the role of institutions, like Bell Labs, and in particular for modern capitalist societies the role of the state.

Beyond Piketty musings

Piketty takes a fairly long view of capitalism, but is it long enough? Here is what I am starting to think about:

During Piketty's roughly two hundred year analysis the world (and capitalists) faced a positive second derivative growth curve. In this environment there should be increasing demand for capital and thus support for r > g. (There are elasticities to consider in all this).

One of my research projects suggests we are now entering a negative second derivative growth period for the first time since the Industrial Revolution. We are past the inflection point. If true, surely the demand for capital will slow, and I wonder if the support for r > g will not also fade.

Eventually, later this century if my model holds at all, growth will go negative first derivative. Then demand for capital will surely shrink. And what will happen to capitalists then is unclear to me.

I guess it is time for some maths; I do not have time right now, but wanted to see if anyone else has thought through these scenarios.

The Overton Window for game changing exotic energy technologies

Political scientists invoke something called the Overton Window to describe the range of possible political conversations. Forget for the moment that the political right is trying to control this window.

I want to discuss a different 'Overton Window,' one which involves the possible conversations around truly radical, even exotic, energy sources. A small group of economists, including me, believe that much of what is to be understood in growth and development has a large energy component. So possibilities to radically change the supply and cost of energy causes great consternation. But moving the conversation window even a tiny bit will have great benefits.

Geographically for me, it is truly ironic that in 1989 Professors Pons and Fleischman were tarred and feathered and ridden out of town on a rail over their forced, though admittedly premature, assertion at a University of Utah press conference of low energy nuclear reactions, a.k.a. cold fusion, in their laboratory.

Well, some two decades later several very serious, very credible, scientists have come out of the closet in support of the so-called FP discovery. Scientists from MIT, NASA, and, especially, the US Naval Research and Development arm (SPAWAR), based in San Diego. If you have an open mind, some scientific aptitude, and a life-changing hour, try this. If you want to discuss it, I can follow some of it and guide you, especially around the implications of the high-energy neutron depositions. This is very good and careful science.

Further, at least a half dozen known commercial ventures are underway, one of which (Broullin) received $2 million in venture funding this week. Another, the Andrea Rossi E-Cat project, reports just this week self-sustaining 600C output from their current reactor. The implications of this, if supportable, are profound in two senses: self sustaining implies both electricity output and infinite over-unity possibilities.

Now this sounds all very speculative and even specious, and you may question why it even appears on an Econ blog. Fairly simple in an Overton way: as my research and dissertation leads me to believe there is no more important component of an economy than its energy availability and consumption, these discoveries are game changers, and Economists should try to understand, discuss, and even model the implications. I will leave it there for the moment.

So, if true, we are on the cusp of a radical energy transition. One which 'fixes' global warming and changes all of our Economic growth models. Not a bad time to be an economist. Or a human. Put away your tars, feathers, and rails.