Stagnation and Skandalοn

In my last piece, Momentum in the 21st Century, we discussed the current state of the stagnation argument, the various camps and the relationships between progress, productivity and innovation. The stagnation debate's first stage is primarily concerned with whether growth is slowing at all. The second stage of the debate focuses on the primary drivers of growth and potential reasons for its slowing. This is the skandalon (σκανδαλον in Greek, which means stumbling block, obstacle or trap). The final stage, only just begun, is what can be done to increase growth. For the next few pieces, it will be my goal to explore the obstacles to growth.

2021: A Space Oddity

Just as extra-terrestrial explorers landing upon a foreign planet would first seek to get their bearings, we too must orient ourselves. We begin with the origins of the productivity paradox debate so that we can better understand the causes and claims about decelerating growth. Since at least 1972, when the Club of Rome published Limits to Growth there has been an argument that growth must slow down. Already in the 1980's the U.S. steel industry was failing, and by 1997 MIT economist Robert Solow quipped in a review of Manufacturing Matters that "You can see the computer age everywhere but in the productivity statistics." Still, this was not a widespread failure of economic growth, but a critique of U.S. industrial policy. Published in 1995, Paul Krugman's Peddling Prosperity, was probably the first popular voice to point out the inadequacy of growth. In 1999 Paul Strassmann, an industry executive, wrote about the poor results of the IT revolution, blaming the IT industry for not just failing to increase productivity, but for being a drag on growth. By 2003, following the dot com bubble and 9/11, with the booming 1990's well behind us, economic analyst Stephen Roach reconsidered his 1991 piece on the coming IT revolution in an op-ed arguing that that IT wouldn't save us. Then the Great Financial Crisis hit in 2008.

Following the crisis, economists took up the debate with new fervor, particularly Tyler Cowen who coined the phrase, "Great Stagnation," Larry Summers who revived the term "Secular Stagnation" and the economic duo Joel Mokyr and Robert Gordon, who took their debate to universities across America. Mokyr and Gordon have a good act, and if you'd like to get up to speed on the arguments quickly, I recommend watching this debate (from 2017):

The most important thing to notice about this debate is that even in 2017 it was no longer possible to claim, as Mokyr does in a 2014 article, that the pace of innovation has been continuously increasing. Instead, he defends various adjacent positions claiming that growth is just around the corner and that we have mismeasured historical growth. By 2017 the position of ever-accelerating growth was preposterous amid Trump's inauguration, Brexit and the Federal Reserve ceding any hope of recovering to pre-crisis levels. With the benefit of hindsight, we now see that this was just the beginning of the end. Things would get much weirder by 2021, with the tumultuous Trump presidency, the pandemic and war in Europe. Whether or not 2021 was indeed the first year of the 21st century is a point we will return to at the end of this piece.

At this phase of the debate, it is clear that semantics and definitions are taking over, and like the space scout, our goal is not to prove the existence of the planet but to explore its features. Therefore, I'll leave the first stage of debate here and enter the second stage.

The Birth of Tragedy

The second stage of the stagnation debate focuses on the proximate causes and narratives of decline. Like any story, many causes can explain the actions of characters and evolutions of plots. Instead of attempting to determine the causes through psychological character study or historical sequence, let's examine the atomic unit of narrative, the conflict.

Four main types of conflict can challenge a protagonist. Just as heroes can struggle against men, nature, society and self/god, so too is growth beset by these antagonists. Frequently you hear people blame the rich, the powerful and the elite for the state of the economy. Almost as often you hear people suggest that we are either running out of resources or bumping up against environmental constraints. Complicated social theories usually take the form of institutional failures or too many regulations. Finally, some argue that we are morally astray and it is ourselves/our lack of piety that is to blame.

Whatever the cause, it is not likely to be limited to one reason or even one type of conflict. My goal here is not to build a complete theory, just as it is not my goal to prove beyond doubt that growth is slowing. My aim is more pragmatic. I am simply cataloging the causes in hopes that it will serve as a useful diagnostic so that we can spend our time on the remedy. Below is the starting point for a list of hypotheses:

Causes of Stagnation

1. Economic (Man vs Man)
   A. The under funding of public goods has led to fewer innovations
   B. Growth created inequality and inequality is bad for growth
   C. The economy has been caputured by financialization and rent seeking ("the smartest people in the world are working to get you to click on ads")
   D. Over regulation, taxation and government interference has strangled growth

2. Natural (Man vs Nature)
   A. The low-hanging fruit has been picked (e.g. innovation is harder, mid-century one-time boom and/or the cost disease)
   B. Structural changes in demographics are changing patterns of growth
   C. Resource depletion increases costs to growth

3. Cultural (Man vs Society)
   A. Meritocracies are breaking down either due to the errosion of heirarchies, the gaming of systems or the inability to better quantify merit
   B. Growth just isn't as important as things we value that cannot be quantified
   C. A culture of risk aversion prevents us from doing anything new
   D. Concentration of economic power (monopoly) and distribution of political power (democracy) has created progress gridlock

4. Psychological/Spiritual (Man vs Self/God)
   A. Growth is wrong and humans are bad
   B. The degrading of ethical values/virtues has weakened faith in institutions and corrupted leaders
   C. Lack of motivation either due to a failure of imagination and cynicism or pax Americana and no obvious existential threats
   D. Greater homoginization through globalization and social media lead to less exploration and innovation

I'm interested in hearing from you about what I got wrong or missed, and where you would make any additions. Please email me at robert.terrin@tailrisk.com or find me on Twitter so that I can update this list with useful additions.

Fix Your Little Problem and Light This Candle

Let us return to 2017 and our astral adventurer. Space exploration began when people first looked up and asked "Why?" Understanding the obstacles to and origins of progress also begins when people look up and ask "Why?" In 2017, it had become clear that the typical answers we had been taught were insufficient. Then in late 2019, coronavirus went from epidemic to pandemic. People clamored for a cure, the stock market crashed and protests broke out around the world. By 2022, Mokyr was down to his final defense, "... the real problem is that most of the important contributions to economic welfare are often seriously, seriously, seriously underestimated in our procedures." His statement reminds me of an old Soviet Armenian joke:

Soviet leaders Lenin, Stalin, Khrushchev and Brezhnev are on a train together. Unexpectedly, it stops.
Lenin: "Let's declare an extra work day so that workers fix the problem." Stalin: *puts his head out the window* "If the train does not start moving, the driver will be shot!"
But the train doesn't start moving.
Khrushchev: "Take the rails from behind and lay the tracks in front."
Still the train doesn't move.
Finally, Brezhnev: "Comrades, Comrades, let's draw the curtains, turn on the gramophone and pretend we're moving!"

This is not to say Mokyr is completely wrong, he is making an argument about economic history, not one about the current state of progress. In the years between the debates with Gordon and now the world has changed substantially and with it, some new hope has arrived.

In April of 2020 Marc Andreessen wrote It's Time to Build. A couple of months later we got a safe and reasonably effective mRNA vaccine. Then, by the end of the year, Peter Thiel claimed that the 21st century had begun. The following sentiment captures the mood of the time:

While GPTs, electric cars and SpaceX faired better than mRNA, IPOs and Crypto, Nabeel deserves a great deal of credit for spotting high-variance outcomes. In 2021, Jason Crawford wrote about how to end stagnation and opened the sluice gates for a flood of essays on accelerating progress from Derek Thompson, Will Rinehart and Katherine Boyle, among others, in 2022. That brings us to today's latest excitement. We may be on the cusp of a major technological breakthrough in 2023. I sincerely hope we are, but my enthusiasm is tempered by skepticism, not only of esoteric scientific claims, but that technology alone is enough.

It's not my expertise to opine on materials science, but even if it were, the origins and obstacles to growth are not singular. Periods of extended growth are not the product of a single discovery, however important it might be. They are the work of individuals who create new institutions that reshape our world. These individuals and how well-equipped they are to face the risks of refounding society is a challenge that technological breakthroughs cannot solve. The first type of challenge in the list above is the economic competition of Man vs Man, and that is where we will begin our planetary exploration next week.