Every Tree Is Known by Its Fruit

Last week wrapped up the manmade causes of stagnation (underfunding, inequality, rentier capitalism, government overreach) by emphasizing the danger of focusing too much on culpability. This week we turn to the natural causes of stagnation, a blameless category that raises questions about determinism. Let's put aside these challenging questions until we've explored the natural causes. The first of the natural causes I call the low-hanging fruit argument.

I've lumped together three varieties of this low-hanging fruit: fruit within reach, fruit you can shake free, and fruit you have to stoop to pick. The fruit within reach stands for relatively low effort progress. The world used to consist of whole unmapped continents, uncreated inventions and a frontier of knowledge that could be reached by a well-studied 18 year old. Fruit that falls when the tree is shaken is a one-time windfall that provides bounty today at the expense of tomorrow. Often people point towards the Manhattan Project and the Space Race as government programs that deployed vast resources to pull the future forward while fundamentally changing the scientific institutions of America and the world. Finally, and less discussed are fruits that are so low, you have to stoop. These fruits are easy to pick at first, but the more you pick, the harder it becomes.

The State of Nature Has a Law of Nature

If you want a brief introduction to the idea that we've eaten the low-hanging fruits of progress, the best summary comes from Tyler Cowen. I've mentioned Cowen, the economist responsible for popularizing the Great Stagnation, a couple times already. In a recent panel hosted by James Pethokoukis (also previously mentioned) of the American Enterprise Institute, Cowen had this to say:

There are two main thrusts of this argument. First, that progress is slowing because people do the easy things first. Second, that one-off shocks, negative or positive, may jolt us into accelerating or decelerating regimes of progress. Tyler's first paragraph about Central European innovation in the 19th and early 20th century seems to point towards a cultural or psychological/spiritual cause of stagnation, which we can return to at another time. The main argument is that the combined discovery of fossil fuels and invention of machines was a step change in progress that ran its course. Negative shocks – world wars, energy crises, regulations – can knock us back to the previous equilibrium, and eventually positive shocks wear out as well.

By the Sweat of Your Brow You Will Eat

Many have argued that picking the next lowest apple on the tree eventually requires more effort (climbing the tech tree as it were). Fossil fuels were an abundant, energy-dense resource just lying on the earth's crust. But eventually you run out of easily accessible coal, oil and gas. Then you have to mine deeper, go off-shore or invent fracking. As Scott Alexander Siskind (known online as the prolific Slate Star Codex) puts it:

... Constant progress in science in response to exponential increases in inputs ought to be our null hypothesis, and that it’s almost inconceivable that it could ever be otherwise.

Another proponent of this reasoning is Patrick Collison, co-founder and CEO of the payments company Stripe. In a piece in The Atlantic, coauthored with physicist and quantum computing expert Michael Nielsen, he analyzes physics Nobel laureates and finds that despite ever increasing budgets, scientific progress produces diminishing returns. Nielsen clarifies in this discussion that his view is not exactly that there is a finite amount of low-hanging fruit, but that progress is an infinite orchard and the fruits of one tree may afford us the energy to hop to the next one with plentiful low-hanging fruit. The example he gives is mathematical logic after computers, which opened up many new areas of research where breakthroughs were trivial to solve for those with these new tools.

Nielsen defends his view in a discussion with Jason Crawford (mentioned previously here) who wrote about the panel discussion on his site. Crawford draws on the work of Carlota Perez, professor and author of Technological Revolutions and Financial Capital. She describes progress as overlapping S-curves with one field (or tree in our metaphor) beginning with steep progress, leveling off and eventually plateauing, only to be overtaken by another S-curve in its early and steep phase. This solution, however, begs the question. Picking the fruit within reach on all the trees visible to us is not very different than picking the fruit within reach on one tree. We are still left with the problem of finding new areas or fields with easily accessible fruit. How that is done is anybody's guess.

Crawford, Collison and Nielsen call for scientific investigation into and funding of new field discovery. This is akin to the underfunding of public goods argument that has some merits. Siskind, however, argues that "constant growth rates in response to exponentially increasing inputs is the null hypothesis." In other words, maintaining the annual constant rate of progress requires doubling the resources poured into it every year. This is not quite as fatalistic as Piketty's argument that growth is exogenous, and when pushed on whether science will collapse once we run out of people to do research, he replies with historical anecdotes that you shouldn't bet against the trend line.

I’m Shocked! Shocked to Find That...

When discussing sweeping economic and cultural trends it is easy to discount specific events as inconsequential and improbable as a singular explanation. While it is true that every cause we have discussed and the causes we have yet to discuss all share some linkages, that doesn't mean that discrete events cannot play a catalyzing role or at least compound the issues. To achieve growth in progress requires many things to go right, but failure to progress sometimes only needs one thing to go wrong.

With this in mind, let's look at some bets against trend lines that would have paid off handsomely. One popular example of trend lines breaking is the compendium of economic and social indicators WTF Happened in 1971. The site, created by Ben Prentice and pseudonymous Collin, two bitcoin enthusiasts, shows many trends that existed for decades before sharply breaking in the early 1970s. Ben and Collin, had a specific answer in mind to the rhetorical question, "the end of the gold standard by Richard Nixon happened in 1971." This one-time effect was more gradual than many claim, occurring over the five year period of 1968-1973. Nevertheless, it was a significant and new monetary regime that coincides with the era when progress began to stall.

Without turning into an international monetary finance lecture, I'll attempt to make the case for how the Nixon Shock could have slowed progress for 50 years. In 1944 the Bretton Woods Agreement pegged the dollar to $35 an ounce of gold and 44 countries fixed their exchange rate to the dollar. The impossible trinity holds that countries can only choose two of the following: a fixed exchange rate, lack of capital controls and independent monetary policy. The US pegged the dollar to gold, since it was the lone economy of size that was intact following WWII, and everyone else pegged to the dollar. This meant that the US had to choose between controlling investment coming into or out of the country and the Federal Reserve's ability to curb inflation and maintain low unemployment. By the late 1960s Western Europe and Asia had economically recovered and demand for dollars was at an all-time high, but exchange rates remained fixed. The only way to get dollars was by selling goods to Americans for cheap. This not only hurt American companies and workers' wages, but also angered foreign politicians. Other countries began to back out of Bretton Woods by allowing their currencies to fluctuate against the dollar and some leaders attempted to exchange their dollars for gold. Faced with a shortage of gold, high unemployment and rising inflation, Nixon unilaterally announced that the US would no longer honor its gold peg.

So what does this have to do with growth and progress? While it is certainly true that following the depegging of the dollar the US fell into recession from 1973-1975 and deficits have continued to grow every year, except for a brief respite in the 1990s, it's difficult to see a direct link between the end of the gold standard and 50 years of stagnation. For one thing, for most of US history the dollar has not been pegged to any commodity for very long. The longest period of a US gold standard was 1870-1920, hardly a period known for stability and lack of panics. We cannot rule out such a drastic monetary policy change as playing a role, but many drastic changes were taking place in the late '60s and early '70s, among them Nixon's other most famous achievement, his 1972 trip to China, and the beginning of modern globalization (a topic we will address in future posts). Kissinger, Nixon's top foreign policy advisor, was mired in talks with Vietnam while Israel, Egypt and Syria were feuding. Between the Arab states' anger at US support of Israel and the now free-floating dollar, OPEC decided to cut production.

Another shock that many believe played a role in slowing growth was the energy crisis of 1973. J. Storrs Hall (mentioned before here) makes this point as an aside to his main argument in "Where is My Flying Car?"

In a more recent update on his blog, Hall argues for Cowen's view about the historical importance of fossil fuels and his view that curtailing nuclear power may have been the mechanism, if not the primary cause of stagnation. While nuclear has seen a moderate increase in support, especially among the young, male and very online, total nuclear output continues to fall in the United States, despite a recent nuclear win with the completion of Georgia Power's Vogtle plant. In How The World Really Works, Vaclav Smil argues that we are more "fossil-fueled" than ever, and yet we have been aware of the environmental risks of fossil fuels for over 150 years. If you look at the change in energy sources and uses between 2010 and 2021 you clearly see that overall consumption is flat, with a fairly large shift from coal to natural gas.

That we are neither on track for achieving climate goals, nor making energy more abundant is disappointing, but not surprising. The combined effects of local opposition and environmental restrictions on fossil fuels, nuclear and even renewables do provide evidence in favor of the government overreach argument. Environmentalists and land owners have put up a sign reading, "Don't shake the tree of progress."

There is another kind of shock that we have not yet discussed. The arguments above advocate for a prohibition on certain conditions (commodity money, protectionism, permitting of energy infrastructure), but there was another major, if somewhat nebulous, shock prior to the 1970s. This positive shock took the form of government programs, from New Deal policies like rural electrification and public works in the 1920s and '30s to war efforts to rapidly industrialize and perform advance research from the '40s through the '60s. It's hard to pinpoint the exact set of policies, but these public goods can be grouped under the heading of industrial policy which we have previously discussed. The difference in this argument, however, is that industrial policy is a one-time benefit akin to the government acting as an adult who, seeing a gaggle of kids jumping and grasping at fruit, shakes the tree.

Never Stoop So Low As To Be Fashionable

In addition to the fruit-within-reach and tree-shaking arguments, there is another low-hanging fruit argument that I've called the stoop argument. The stoop argument goes something like, Picking a few berries at knee level is trivial, but continuing to pick berries is back-breaking work and each previous berry picked adds to the difficulty of the next.

This is fundamentally the argument journalist Timothy B. Lee made in his piece on the productivity paradox. The argument was best theorized by the late William Baulmol as the cost disease – high productivity sectors have higher wages and attract talent away from low wage sectors, thereby raising wages and prices in low productivity sectors. The fruit you stooped to pick raises costs across the rest of the economy, ultimately reaching some new equilibrium, at which the back pain is too great.

This is related to the argument that "the smartest people in the world are working to get you to click on ads." As theorized here, if the low-hanging fruit is rent-seeking, it attracts talent away from socially productive areas, making progress harder in socially productive areas. If the low-hanging fruit creates surplus value for society, then it does not really explain the slowdown in progress (because we should all be made richer).

Take for example the fentanyl epidemic. Clearly, drug dealing is anti-social and anti-progress, but it is a highly "productive" use of capital. If it attracts talent and investment from legitimate forms of progress, prices rise elsewhere and society is worse off, both because of the direct harm done to consumers and the decrease in productive capital and talent available for prosocial activities.

As a counterexample, take the legal drug industry. Many modern pharmaceutical companies began by making dyes. Companies like AstraZenica, Bayer, Novartis, Pfizer and Sanofi are the result of former dye makers leaving that business to make drugs (or merging with pharmacies to then make drugs). Nobel prize winning physician/scientist Paul Ehrlich, inventor of the first modern antibiotic and coiner of the phrase "magic bullet," became interested in medicine by dyeing microscopic tissue substances. Surely the capital and talent attracted to pharmaceuticals created surplus value for society above and beyond colorful textiles and photochemicals.

This argument hinges on how socially productive one finds the more productive sector, and is therefore a variant of the rent-seeking cause, discussed last week. One other curiosity made clear by the counterexample above, is that productive sectors are often compliments, to labor and capital. Advances in chemistry allowed us to improve agricultural yields (through fertilizer), make clothing more colorful and invent new drugs. Tyler Cowen, way back in 1996, made a critique of Baumol's cost disease along these lines. He found that productivity in the arts, Baumol's example of a static sector, increased if one accounts for quality, diversity and popular forms of art.

Friends in Low Places

The above categories of fruits are some of the most commonly made arguments, once one accepts the stagnation thesis. While some of the arguments may seem a bit nuts (technically a fruit!), these are also some of the most well supported and believable causes of stagnation. The subtitle of Tyler Cowen's Great Stagnation is "How America Ate All the Low-Hanging Fruit of Modern History, Got Sick and Will (Eventually) Feel Better." In the last chapter he discusses his reasons for optimism including: potential innovation coming from India and China, the internet and US voters prioritizing outcomes in education. His advice is to elevate the position of science in society and refrain from contributing to political finger pointing. The reasons for optimism have not exactly panned out in the last decade and science seems to have become more politicized.

I point this out not to diminish Cowen's work (it was ahead of its time and much needed in 2011) nor to sow seeds of pessimism, but to push back on the idea that naturally caused stagnation may naturally work itself out. As a critic, I benefit from the privilege of hindsight, and do not mean to denigrate the contributor, and this is precisely the best argument against natural causes of stagnation. It is with hindsight that fruits appear low-hanging, but I'm sure it did not appear obvious or fated that progress would occur when the US entered WWII in 1941, or in the 1850s on the eve of the American Civil War, or in 536 AD, the worst year to be alive.

At the core of Cowen's low-hanging fruit argument is an appeal to reason and science. The evidence for natural causes of stagnation is much easier to quantify and cite, but his case for optimism is based in culture and psychology. These topics will have to wait for now as we address demographics and resource depletion, the remaining natural causes of stagnation, next week.