Why Track Trends?

I just read my first book via phone, Tyler’s The Great Stagnation. Turned out to be a surprisingly pleasant way to read, especially while traveling.

Tyler’s thesis is that the US has slower growth than decades ago because we’ve used up the low hanging fruits of easy industry-era innovations, mass education, and cutting discrimination. The mismatch between growth expectations and realities is behind our financial and deficit crises. As solutions he suggests we lower our expectations and raise the social status of scientists.

My grad school (Caltech) didn’t teach macro, and I never took undergrad econ, so I’ve tried to avoid pontificating on macro topics. Tyler’s growth slowdown story sounds plausible, but others disagree, so I’ll stay agnostic for now.

But what I can speak to is how little such trend analysis or projection matters, at least for most economic policy. The complexities of the world often make it hard to say with great confidence which policies will increase economic welfare. Even so, given our usual way of doing economic analysis, the  question of which institutions will most increase economic welfare rarely depends much on the exact values of the sorts of parameters social scientists and the media track with such enthusiasm and concern.

Yes, knowing your budget can help you decide how much to spend, and so yes firms and governments should attend to clues about their future revenue. But in a good economic institution, it will be some folks’ job to attend to such clues and signal their conclusions to others, so that important actions can depend on such things. We economists should mainly worry about arranging the incentives, etc. for that job, and then leave it to them to figure it out the details.

Alas Tyler doesn’t even discuss what are good institutions for this job of dealing with uncertainties in future growth rates. I’d guess that huge political coalitions fighting to the death to maintain their expected government benefit increases is particularly bad at adapting to such uncertainties. With private pensions, medical plans, etc. adaptation would still be painful, but would less threaten our national stability.

Tyler also gets it wrong by suggesting we raise the status of scientists. It is engineers and business innovators more generally, whose status needs a boost. Scientists already claim too much credit for social innovation – they have little to do with most of it. Tyler also doesn’t mention over-regulation, a huge barrier to innovation. Consider this recent quote on flying cars:

The company has cleared the biggest hurdle: building a safe flying, driving and converting vehicle. But there are other obstacles ahead. Foremost, the vehicle needs regulatory clearance from an alphabet soup of agencies, including the FAA and the National Highway Traffic Safety Administration. The company says it is working closely with regulators to ensure that the aircraft meets all standards. It has won important exemptions to certain road and air rules.

But any “no” from any regulator — for being a pound overweight, or having a bumper an inch too short, or failing to have adequate airbags, or a thousand other issues — means at best delays and at worst a failed project. Weight, especially, has proven problematic for the company, Dietrich says — in part because a heavy car is a safe car, but a light plane is a safe plane, two engineering truths that are hard to square. (more)

As Bryan wisely notes, people attend too much to recent news and trends, and too little to fundamental, at least for the purpose of gaining useful insights.

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  • J Storrs Hall

    Hear, hear. For another clear-headed look at trend-peddling types, see Future Babble (http://www.amazon.com/Future-Babble-Expert-Predictions-Worthless/dp/0525952055/). (He even mentions prediction markets…) I just finished reading this on an iPad, downloaded in a minute after seeing it favorably reviewed on a blog… Read TGS the same way. If anything, it’s too easy!

    Regarding TGS, the low-hanging-fruit argument is nuts. The productivity gains available from new technology are greater than ever — think nanotech — but there is a concerted swing of the culture to squelch it, with many, many aspects, including low status of engineers, high status of eco-movement lawyers, govt-corp cronyism and entry barriers, etc ad nauseum.

    I think Tyler actually did a decent job on part of that, hiding it to some extent under the other. But I came through the semibook with the clear impression that he felt that those entrusted with our economic health had failed us.

  • legalsystem

    Blame the current legal system; if people started driving these lightweight, unsafe plane cars, and you or I run into them, it is us that would pay for their medical bills. I welcome the regulation since, under the current legal system, they would be imposing a negative externality on me.

  • Victor

    An article related to the blog, but not to this post:

    Charity is HIGH:

    http://healthland.time.com/2011/03/29/why-getting-high-increases-charitable-actions/

  • CaptBackslap

    Yes, that’s the problem with society: the low status of business innovators.

    As John McEnroe would say, you cannot be serious.

    The problem is the inordinately high rewards given to people whose “innovations” are merely ways to push piles of money around, rather than actually creating anything of value.

    • richard silliker

      Bingo!!

  • Riley Jones

    I would like to see more elaboration on this.

    It seems that only a small percentage of the best scientists, engineers, and entrepreneurs are responsible for life-changing innovation. The rest is just turning out more of the same repackaged garbage in different forms with different names.

    Or no?

    • http://entitledtoanopinion.wordpress.com TGGP

      John Galt is a fictional character. The billion tweaks are real.

  • Aaron W

    I don’t know if engineers are held in such low regard compared to scientists. It’s actually about the same.

    Also, scientists, engineers, and entrepreneurs aren’t necessarily discreet groups that never overlap. I know many academic scientists who’ve gone on to found their own companies, or engineers who end up doing what would probably be better considered scientific research. Consider this for example.

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  • Karl Hallowell

    As an aside, flying cars are a bad example. Imagine a hundred million of these things in the sky at once with a pilot having training comparable to a regular car driver and the vehicle being inspected and maintained (or not as the case may be) like regular cars. There are still substantial hurdles to widespread adoption of such technology that springs from reasonable concerns.

    I think it’s more reasonable to consider the flying car a roadworthy plane in describing the problems of the vehicle and the demands on its driver-pilot.

    But I do agree that aerospace is a prime victim of “alphabet soup” agencies. I worked for a aerospace non-profit, JP Aerospace, for several years. They used to do a lot of balloon-launched rockets (a thing they’re starting to work on again). Each launch used to require a “pallet-load” (so I’ve been told) of paperwork distributed to various agencies. And you couldn’t just reuse the old paperwork. There’s also bizarre export-restriction laws, ITAR which have inhibited JP Aerospace’s activities from time to time.

    For a time, JP Aerospace switched to balloon-only projects since those required vastly less paperwork and manpower and there was some paying clients who were interested in balloon-related work.

    A few years ago, the federal rules were changed so that balloon-launched rockets had almost no paperwork. I understand the prime requirement currently is that you need to notify the FAA a few days ahead of time and of course, you can only launch from a few places in the US. As a result, most of JPA’s recent balloon missions have a rocket on them. The current breed of rockets aren’t particularly impressive, they’re mostly hobby rocket sized. But this will generate a precedent of dozens of successful launches, using their launch/flight hardware, should the FAA or another agency attempt to close the gates once more.

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  • Phil Goetz

    “It is engineers and business innovators more generally, whose status needs a boost. Scientists already claim too much credit for social innovation – they have little to do with most of it.” [citation needed]

  • http://sanjaysaigal.com Sanjay

    Robin – Poll folks on high-impact engineers/business innovators. Then poll them on scientists. Bet you dollars to doughnuts that while everyone can name Warren Buffet and Steve Jobs and Gordon Moore and Larry/Sergey and God-knows how many other “heroes” in the former category, they’ll have trouble naming a single active scientist (Craig Venter, maybe?) And I’m thinking of your university campus here. Walk around main street and the disparity is likely to be much worse.

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