I was having a discussion with some colleagues about Pikety’s book earlier this week. One particularly interesting argument someone eloquently (and forcefully) advocated was that the real value of Pikety is not the argument about inequality. Instead, it is evidence that the period of post-war economic growth is an anomaly, and we should get used to permanent growth rates of 1-2% forever more.
This issue of economic pessimism goes to the heart of much of the current debates on economic policy. Is productivity growth limited? Do we face inevitable stagnation, which will force bitter, socially disruptive policy choices? Are the central banks just blowing hot air into a burst balloon?
Of course, you can argue that the current situation resembles the miserable dark period of the 17th century: on that score I’d highly recommend reading the great historian David Hackett Fisher’s The Great Wave: Price Revolutions and the Rhythm of History. There are previous instances of overpopulation, demographic headwinds, commodity price pressure, and the rising cost of basic goods like shelter and falling real standards of living.
And I think there is one overwhelming argument against techno-pessimism and its related fear of economic stagnation. Another fabulous recent book is W. Brian Arthur’s The Nature of Technology: What It Is and How It Evolves. Arthur argues that technology largely advances by recombination of existing technologies in new ways. Technological recombination naturally creates new niches and new needs and new problems, which in turn call forth new solutions. (I’ll be talking about Arthur and the Sante Fe approach to systems and complexity a lot in the future.)
The more building blocks you have lying around for reassembly, the more creative technical progress is possible. And we have more such blocks lying around for reassembly than ever before in history, with better technologies (like full-text journal articles on the internet) for passing knowledge around.
That argues for expecting more technological changes, not less. I think there are profound challenges in the institutional and social adaptations needed to cope with economic evolution, but at root I am optimistic about economic growth. We’re not going back to the 1700s.