People continue to try to find the horizon. The Economist last week warned that in seeking to assign new tasks to government, President Barack Obama risks stifling the dynamism of the American economy. Business Week began a series of contributed essays building towards a special issue in August, “The Case for Optimism.” In August, too, will appear In FED We Trust: Ben Bernanke’s War on the Great Panic– a book that may propel Wall Street Journal columnist David Wessel into a Bob Woodward-like role as a chronicler of US economic policy.
Meanwhile, the consensus forecast seems to me to be persuasive – that finance-dominated “business-as-usual” will not resume any time soon, that instead we will find ourselves, at least for the next three years, in “a world of muted growth,” much as we did in the early 1990s.
What I doubt is that this muted state of affairs will continue indefinitely – that growth has been permanently shunted onto a lower path, that a rate significantly below the trend of the last century will turn out to be “the new normal.”
So, naturally, I consulted expert opinion: I went to see the new Star Trek movie. It is the eleventh film to be based on the television series that first aired in 1966, and the first one to describe the events that brought together the redoubtable crew of the starship Enterprise. I was happy to see that the youth of the future looked pretty much like the youth of today – undaunted by the challenges they faced (which, in the twenty-third century, include a tattooed Romulan pirate bent on destroying Earth with a great big drill).
Iwas especially cheered to see what they were learning in the Vulcan Academy of Science. I had been alerted by Salon economics columnist Andrew Leonard to what was, in effect, a product placement. Sure enough, there it was, in a fleeting scene in which young Vulcans are educated in learning pods. In one pod, the formula for volume of a sphere is imparted; in the next, the “nonrival, partially excludible” nature of technology is the subject of a mind meld.
The product in question was what, until a decade ago, economists were calling “new growth theory.” It’s no longer new, so today they simply call it growth economics. Young Spock is learning how the economics of knowledge differs from the economics of things. The difference is between atoms and bits. Corporeal things, composed of atoms, are rival goods; they may be shared or divided, but they may be used by only one person at a time. Know-how, expressed as bits (or written down or otherwise relayed), is nonrival; that is, it may simultaneously be of use to any number of people.
Software is a nonrival, partially excludible good; so is the Star Trek movie; so are recipes for hybrid rice and penicillin. Advancing knowledge is the fundamental reason that the human race is not always running out of things. The bits-and-atoms dichotomy, what was new about new growth theory, is a powerful aid to understanding a dynamic that mostly eluded economists for 175 years. (See Harvard economist N. Gregory Mankiw for a contrary view.)
From Star Trek, I turned briefly to two books that are directly influential in disseminating the recent changes in our view of growth: The Economics of Growth, by Philippe Aghion, of Harvard University, and Peter Howitt, of Brown; and Introduction to Modern Economic Growth, by Daron Acemoglu, of the Massachusetts Institute of Technology. Both are textbooks, the former intended for advanced undergraduates or beginning graduate students, the latter for graduate students well along in their training. Both contribute substantially to the professional debate. But neither is easy reading.
The current book that comes closest to communicating a modern view of growth, I think, is The Venturesome Economy: How Innovation Sustains Prosperity in a More Connected World, by Amar Bhidé, professor of business at Columbia University., Bhidé, who is not an economist, compares his method to the evidentiary proceedings of a common law trial: he interviews experts from many disciplines, and then makes up his mind. The last author to make a substantial contribution to this literature was AnnaLee Saxenian, author of The New Argonauts: Regional Advantage in a Global Economy. Her method was frankly journalistic, but she came back with the goods. So does Bhidé.
The burden of the argument of Venturesome Economy is that that an inevitable expansion is taking place in the quantity of high-level know-how that is being developed in countries around the world – not just Japan and Korea, but India and China, Israel and Australia. If the US learns to relax and take advantage of new knowledge developed offshore, everything will be fine. But if “technonationalism” gains the upper hand – in the form of, say, a commitment to a strong US automotive industry, no matter what the cost – then a world carved into trading spheres could experience slower growth than otherwise would be the case.
Not everything that Bhidé says is persuasive. He disparages calls to beef up scientific and engineering training, on grounds that many other sorts of players have crucial to success in the global marketplace – entrepreneurs, managers, financiers, lawyers,, salespersons and consumers. “Public policies should stop trying to rob mid- and ground-level Peters to pay high level Pauls.”
Yet he mistakes the spectacular success of the 1958 National Defense Education Act – the US response to its Sputnik surprise – in producing, not the dry well of manned space flight, but rather the computer industry and the Internet. In a world threatened by climate change, another concerted response to a very real problem might pay significant dividends down the line. It’s not likely that the Chinese or the Indian governments will make the commitment.
The Venturesome Economy is emphatically not “Dow 36,000” stuff. Instead it is a thoughtful and accessible response to the views that took hold in the 1990s, of economic growth as fundamentally knowledge-based. It is a cheerful and fact-based working-out of the Star Trek vision. It looks pretty good so far.
Further anent last week’s discussion of the frontiers of market design, for a really good magazine piece on online auctions by a veteran magazine writer, see Steven Levy in Wired on the excellent adventure of Google’s Hal Varian.