Discussion among economists –On the permanent underestimation of technological and scientific progress

Recent observers of discussions among economists have been able to notice a by no means insignificant shift that has developed within the spectrum of opinions on the part of the experts on economic questions which often displays a diversity (even with respect to fundamental questions)that natural scientists find rather difficult to get used to: An increasing number of voices is questioning a central dogma of economics: the view that the economy (at least in the long run) is growing exponentially. The most important argumentative pillar of this basic economic postulate has always been productivity growth based on a persistent technological progress. Here at last should those listen that until today have been at the front line of driving this progress: the natural scientists.

Now, in the economic profession,when it comes to the nature of growth, we can observe changes of opinions among its protagonistsquite regularly. And upon closer examination we will notice that these changes bear some remarkable temporal correlations to the cycles of economic and financial crises. The currently most prominent advocate of doubt of long-term productivity and thus economic growth is the American economist Robert J. Gordon, who just came out with a voluminous bestseller (“The Rise and Fall of American Growth”) in which he presents us his thesis that future productivity and economic growth in the industrial world will be much lower than it has been in the last 80 to 100 years. Meanwhile, the former Secretary of the US Treasury, chief economist of the World Bank, and President of Harvard University Lawrence Summers has joined the apologists of “secular stagnation”. Well, we are barely able to summarize the full argument of 762 pages on a single page, but in essence, Gordon develops the following thesis: Economic and productivity growth in the last 100 years has essentially rested on the immense technological innovation during what he calls the “first” and “second industrial revolution”. In particular, the second industrial revolution in the late 1800s, characterized by electrical applications, the combustion engine,motion pictures, radio technology, and indoor plumbing, drove economic productivity to record levels in the following 50 years. But we have left these highs behind us, as the economist knows how to proof with extensive statistical material. The “third industrial revolution”, now characterized by computers and the Internet, which began around 1960 and,according to Gordon,reached its peak in the “dot.com” era of the late 1990s, fails to match the levels of productivity growth of its predecessor (a fact economists themselves struggle to adequately explain, which is why they refer to it “productivity paradox”). Moreover, according to Gordon,its impact has started to decline already,such that, as he concludes, in the next 50 years, due to a lack of a comparable pace of innovation, we must not expect productivity growth in the industrialized countries to be nearly as high as before (Gordon refers in his analysis mainly to the US but does allow analogies to be made to other regions).

Now as the saying goes, one should be careful with predictions, particularly when it comes to the future … and when made by economists, we should perhaps add (it is noteworthy that as late as in 2003– presumably in light of the internet boom at the time – Mr. Gordon projected much higher productivity growth rates for the following 20 years, i.e. until 2023. He was wrong on this call, as productivity in the US has grown considerably less than he predicted, as he tell us now, and which he thus uses in favor of his revised argument and opposite forecast for the next 50 years). But what should truly alarm us is how little opinion leaders of economic thinking are aware of developments in the natural sciences and the technologies they enable. The result of this is a deficient analysis and a vision of the future lacking any imagination on the part of those whose very job it is to explain the economic mechanisms of our modern living conditions. Although we cannot find much news in the various areas of science, and neither potential technological breakthroughs in the newspapers (i.e.in this respect the journalists also fail on their job), economists should yet be expected to consider development beyond daily events, monthly statistics, and annual cycles, especially when they are that key for their discipline – even though (or perhaps because) the central aspect of their traditional growth models, technological progress, has always taken on a rather abstract form.

Only blindness or ignorance towards the developments of modern science can lead an economist like Gordon to conclude that today’s technological innovation dynamics is significantly inferior to the one 100 or 150 years ago. Taking a closer look at what is currently happening in the research and technology transfer centers in the world, one might as well be inclined to come to the opposite conclusion: Nanophysics gets closer and closer to fulfilling Richard Feynman’sdream to manipulate the structures of the micro worlddown to orders of magnitude of individual atoms. New Quantum technologies promise to utilize the strange properties of the quantum world much further for developing new amazing applications in our macro world – which may potentially include the possibility of an entirely new kind of computer that could process information unimaginably faster than even the largest of today’s supercomputer. In neuroscience, we are witnessing the first steps towards connecting our brain directly with computers, and research in the field of artificial intelligence celebrates big breakthroughs on its way to replicate human intelligence. Advances in medicine and biology are promising us that rather soonerthan later we will be able to cure almost any disease known today. Meanwhile our understanding of the mechanism of genetic inheritance has become so profound that we could soon be able shape our own evolution (and rapidly accelerating the one of other species). The new discipline of “synthetic biology” may soon be able to create forms of life that have never before existed on our planet. The list of potential future “key technologies” emerging already on the horizon of scientific research is longer, more fascinating and often scarier than ever. And all these developments lie beyond what is already today portrayed as the “fourth industrial revolution” which refers to the contemporary computerization and automation of manufacturing. We find ourselves at the beginning of a new industrial revolution that is characterized by not only one, two, or three new key technologies, but by a half to full dozen of them. In 2100, as alleged by the physicist MichioKaku, we will move and manipulate objects only by the power of our thoughts. Bio and neuro-technology will have perfected our bodies, potentiated the abilities of our mind, and significantly extended our life span – perhaps even for an indefinite period. With the help of new nanotechnologies we might be able to transform objects into each other or make them arise as from nowhere. Quantum computers will master complexities that today still make us stand in awe due to their unpredictability and uncontrollability. The scientific basis of these “miracle” technologies are already being explored in today’s research labs.

Considering these developments we can expect our lifestyle, our impact on the natural world around us, as well as our very view on ourselves to change more dramatically in the coming years and decades than this has happened since the beginning of the scientific revolution 400 years ago and the industrial revolutions following it. The beginnings of a historic upheaval, in the course of which we will not only experience new powerful and stunning technologies, but will also see man himself, his biology, his identity and possibly his consciousness change fundamentally, can already be identified today. Not too far future there will probably be a moment in which the rules of human life and living together profoundly change. The fact that in light of these developments some economists assume a declining in technological progress and innovation, reveals how far away they find themselves from the “real world”. However, their profession does present us some alternative views: In their book “Second Machine Age” the economists Erik Brynjolfsson and Andrew McAfee develop future scenarios which bear strong similarities to ours described above. If the models of economists do not to entail these impending changes, it will be much easier for their creators (and us laymen)to predict the future of their own models rather than the one of the world we will live in.