Is Dynamism Doomed?

Image by DALL-E 2.

I ended my last essay with a cliffhanger question: is capitalist dynamism doomed?

To answer the question, I think we need to distinguish between economic stagnation and an outright end to technological progress. Absent a cataclysm that wrecks civilization, the latter seems far from imminent. (The odds of such a cataclysm, however, are not nearly as long as we’d like.) The pipeline of technological wonders in the works remains far from empty, and I expect at least a trickle of new goodies to continue issuing from it. And, on the upside, the chances for transformative breakthroughs that lift the human condition to new heights seem to be roughly equivalent to those for catastrophe and regress.

Economic stagnation, on the other hand, is already a clear and present danger among the rich democracies today. The U.S. is contending with a pronounced slowdown: thus far in the 21st century, GDP per capita has been growing at only half the rate that it managed throughout the 20th century. Given the extent of income inequality, slow growth has meant long stretches of stagnation or worse for most people: U.S. median household income growth was essentially zero between 1999 and 2016.

The U.S. growth experience, meanwhile, looks positively robust compared to that of some other advanced economies. In the United Kingdom, real GDP per capita grew all of 1.5 percent between 2007 and 2021 (check out this recent Adam Tooze post for additional details). And in Italy, real GDP per capita in 2021 was actually slightly lower than it had been in 2000!

All the rich democracies are caught in the same kind of vise, although the severity of the current squeeze varies from place to place. All are experiencing sub-replacement fertility and rapidly aging populations, with labor hours per capita flat or falling as dependency ratios increase. At the same time, all are experiencing productivity growth that’s sluggish at best. Under those conditions, slow positive growth defines the upper limit of possibilities, while stagnation and negative growth are the lot of the stragglers. And given that incomes are more or less skewed toward the high end, most people will be doing less well than the aggregate figures suggest.

Is it possible to break out of this vise grip? Possible, sure, but far from easy. Here are the main options:

1.      Cross your fingers and hope for a new global baby boom. I mean, the U.S. baby boom after World War II was completely unexpected, so never say never!

2.      Lean much more heavily into subsidizing childbearing and childrearing. This is unlikely to push fertility rates above replacement levels, but it can reduce the severity of the demographic drag.

3.      Embrace much higher levels of immigration. If rich countries can’t make enough new residents on their own, they will need to import them. While the economic rationale for doing so is clear, national security concerns point in the same direction — as Matt Yglesias made clear in One Billion Americans. But merely bringing more people in isn’t enough — not if you just end up warehousing them in jobless, hopeless banlieues. Immigrants must be successfully assimilated into social and economic life.

4.      Build more housing — lots of it. In the United States and many other advanced economies, artificial housing scarcities caused by restrictive land-use regulations result in ruinously costly misallocations of the population: people are priced out of moving to the places where most of the GDP is being made. We need a sea change in attitudes — seeing homeownership as consumption, not investment — and building on a massive scale.

5.      Invest much more heavily in R&D. U.S. federal R&D spending peaked during Project Apollo and has fallen sharply since (although it’s picked up a bit in recent years): as a percentage of GDP, spending is about a third of what it was at the peak and down about 40 percent from the mid-1980s. EU public R&D expenditures are roughly at current U.S. levels.

6.      Launch a full-scale assault on the NIMBY vetocracy that makes any large-scale building (not just housing) so costly and time-consuming. R&D can get you to prototypes and test projects, but actual innovation requires diffusion of the new technology throughout the economy — which means a lot of building. To maximize the innovation we get from new inventions, we need a thorough overhaul of the permitting requirements that currently pose such a formidable obstacle to progress.

7.      Cross your fingers and hope that artificial intelligence and nuclear fusion save the day.

In short, all it will take to keep economic dynamism rumbling along is some combination of a demographic miracle (item 1), a technological miracle (item 7), and a political miracle (items 2-6). I believe I’ve ranked them in ascending order of probability: I don’t expect to see the first in my lifetime, but I do have hope for progress on the second and third. Whether that progress will be sufficient is anybody’s guess. My sense is that slow growth will be the best that rich democracies can manage for the foreseeable future, with intermittent stretches of stagnation either economy-wide or for large sections of the population.

It's important to recognize, though, that the cessation of economic growth — that is, of ongoing increases in the market value of traded goods and services — doesn’t necessarily mean the end of technological progress and continuing gains in wellbeing. A few years back, I wrote a piece speculating about the possibility of “peak GDP”; I’ll quote myself here:

Note that flat or declining GDP per capita need not mean the end of technological innovation or of new and improved products. Productivity growth can continue so long as labor hours decline as quickly or more quickly. Furthermore, well-being can keep improving in ways that don’t show up in or are only partially registered by GDP statistics. The natural environment can be made cleaner and more beautiful; the privations and social exclusion of the poor can be mitigated; family and community life can become richer, deeper, and more satisfying; the boundaries of scientific knowledge can continue to be pushed back.

And huge, unmonetized welfare gains in the form of improved health and longevity remain possible. Imagine, for example, the advent of anti-aging therapies that become widely and inexpensively available. GDP per capita might shrink to the extent that the enormous and growing sums now spent on the diseases and complications of aging are no longer necessary, even as longevity gains that dwarf those of the twentieth century catapult well-being to new heights.

Interestingly enough, I didn’t mention aging or population decline once in that piece. I was just looking at the trends of declining labor hours per capita (due, in significant part, to aging) and low productivity growth and putting two and two together.

While continued progress in technology and wellbeing may be possible in a no-growth economy, actually pulling it off wouldn’t be easy. You’d need to figure out how to keep private and public R&D spending going upwards when overall spending and tax revenues are flat or declining. And given that the rate of technological progress is a function of the number of researchers, engineers, and entrepreneurs engaged in innovative activity, and further that innovative activity is subject to diminishing returns, you’d need to maintain the growth in innovative labor hours in the face of a stable or shrinking work force. That is, progress will depend on mobilizing an ever-rising share of total resources to devote to innovation. Ongoing success in such mobilization might well require major cultural and institutional changes.

I want to devote the remainder of this essay to the future of technological progress, regardless of whether it’s accompanied by GDP growth. On this blog I’ve identified various factors that contribute to dwindling dynamism. Do any of them have the potential to grind technological progress to a halt? I already said that, for the coming decades at least, only some cataclysm could stop progress in its tracks and send civilization lurching backward. But what about the long run? The organized, systematic pursuit of technological progress is only about 150 years old. Will it still be going 150 years from now?  

Before looking at the contributors to dynamism’s decline that I’ve already written about, let me briefly address a factor that I haven’t discussed, but which is probably the most popular theory for why technological progress is doomed — namely, that in our heedless gobbling up of natural resources and spewing of toxic waste products, we have initiated a series of environmental catastrophes that will eventually lead to something like civilizational collapse. Pronouncements of impending environmental doom are generally colored by an anti-Promethean ideology that I emphatically do not share; that said, I concede the possibility that at least some of the doomsayers may end up being right. As I’ve said before, I don’t believe our current technological dispensation of fossil fuels and factory farming is ecologically sustainable; if we take too long to grow out of it and move to something better, we may well face dire consequences. Regardless of our past hubris, though, I don’t believe that an encounter with Nemesis is inevitable. There is no necessary conflict, in my view, between technological progress and a clean, healthy planet.

OK, let me now repeat the recap I offered in my last essay of the various causes that I’ve identified as contributing to capitalism’s crisis of dynamism:

• Innovation and growth get harder over time as low-hanging fruit is progressively exhausted.

• Greater wealth naturally breeds caution and conservatism, as people with a lot to lose naturally prioritize hanging on to what they’ve got over chasing new gains.

• A strong cultural aversion to technologies that empower large-scale interventions in the physical world — what I call the anti-Promethean backlash — arose with the emergence of the environmental movement during the 1960s and acts today as a major barrier to technological progress.

• The arrival of mass affluence and the post-industrial economy has changed our society’s fundamental orientation from solving problems in the physical world to solving problems of social relations and psychic health, in the process degrading our ability to engage in the former.

• The lack of any systemic competition since the fall of communism has made conditions less favorable for institutional innovation.

• The global collapse in fertility means that population growth — the fundamental driver of technological progress throughout human history — is grinding to a halt.

Of these six causes, the second, third, and fourth — the rise of loss aversion, the anti-Promethean backlash, and the reorientation of society away from physical problem-solving — are cultural in nature. In my telling, the dramatically altered conditions of mass affluence have triggered thermostatic cultural responses that make the continued pursuit of innovation and growth more difficult.

In the end, these cultural trends may prove durable and insuperable. That is, their continuing, combined effect may be sufficiently powerful to tame the “gales of creative destruction” and reduce them to the occasional light breeze. I don’t think the anti-progressive elements in our culture are capable of putting an end to new inventions, but they could effectively block the wide diffusion of inventions throughout society on which innovation and progress depend. Recall the Antikythera mechanism, the ingenious analog computer built over 2,000 years ago to calculate and predict the positions of the Sun, Moon, and possibly the visible planets. Here we see remarkable technological sophistication, but deployed to build what was essentially a plaything — with no apparent thought to how the techniques used to build it could be employed more widely (e.g., to make mechanical clocks). Perhaps in the future, our technological genius will be reduced to producing latter-day Antikythera mechanisms — evidence simultaneously of brilliance and of that brilliance’s relative impotence.

Or perhaps the effect of these cultural trends will be less dramatic, but in the end just as decisive. As a result of the cultural drag on technological advance, we could experience just enough of a slowdown in innovation and growth that we are unable to avoid, or bounce back from, some calamitous shock (a coronal mass ejection, say, or a genetically engineered pandemic) that wrecks civilization and resets technological development at an appreciably lower level.

Or maybe not. It’s entirely possible that these cultural trends will dissipate, or be superseded by more benign and progressive movements. Or it could be that the forces propelling us forward are strong enough to keep doing so even in the face of continuing cultural drag. We can be dismayed by the elements of our culture that are hostile to dynamism and progress, we can push back against them or work to encourage more favorable developments, but I don’t think we have any warrant to conclude that the cultural fallout of mass affluence will necessarily lead to stagnation. After all, we’ve been contending with these trends for decades now, and we’re still muddling along.

The fifth of the six causes I’ve identified — the lack of systemic competition for capitalism — is institutional in nature. The relative shallowness of institutional diversity in the world today means that we have lost what has been an important source of social innovation. But for however long the global capitalist monoculture persists, the absence of external competition seems at best a drag on innovation and growth, not a death sentence. Again, it’s possible that’s a distinction without a difference: the drag could be just enough to make us vulnerable to catastrophe. But I don’t see how capitalism’s monopoly could on its own constitute such a grave problem that its persistence would make technological and civilizational stagnation inevitable. And of course, there’s no guarantee that the monopoly will persist. On the contrary, there’s every reason to believe we’ve not yet reached the final word on how humans arrange their terms of cohabitation and cooperation. Sooner or later, a return to institutional variation seems unavoidable.

This leaves the first and last causes I’ve written about, which together offer the best candidate for amounting to a binding constraint on the extent of technological progress. Here we are talking about, first of all, the natural tendency of progress to slow down because of diminishing returns to innovative activity, a tendency counteracted only by relentlessly expanding the hours per person devoted to innovation; and second, the approaching prospect of zero or negative global population growth.

Put those two together, and you see a dynamic that could spell the end of technological advance. With no increase in the overall population, an increasing share of worldwide working hours would need to be spent on innovative activity in order to keep hours per capita on the rise. At some point the mobilization of collective labor in the service of innovation will have to max out: people can’t spend all their time on innovation. With a static or falling population, then, eventually innovative labor hours per capita will stop growing, at which point technological advances will slow till eventually they peter out.

As opposed to all the other causes I’ve talked about, diminishing returns to innovative activity constitute what looks like a hard limit on technological progress. Even with population continuing to increase at some realistic rate, eventually per capita hours of innovative activity will have to stop climbing, and when that happens progress will diminish every year until it ultimately ceases. Meanwhile, what is a nearly universal cultural reaction to modern social conditions — people want and have fewer babies — serves to move up the date of eventual stagnation.

Are there ways to prolong this squeeze, to draw it out as long as possible so that we keep progress chugging forward? Or is there some way to escape the squeeze altogether? I think these questions are rich and interesting enough to explore at some length, so I’ll turn to them in the next essay.