Pod Insights Freakonomics Radio 310. Are We Running Out of Ideas? About this episode Economists have a hard time explaining why productivity growth has been shrinking. One theory: true innovation has gotten much harder – and much more expensive. So what should we do next?
Transcript 7,526 words · 15 speakers
Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
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2:29 Speaker 01 Yeah, I know whenever I go to parties and people ask me, you know, what you do, and I say, I'm an economist, I say, what do you study? I say productivity, and they usually walk off at that point.
2:39 Stephen J. Dubner? Yeah, well, I can identify with that.
2:41 Speaker 01 If I then say what I actually am, my measure of productivity is, you know, whether you stay alive, then that really gets people interested.
2:50 Stephen J. Dubner? Huh, that is interesting. Let's find out more, shall we? Today on Freakonomics Radio, we will look at productivity in a whole new light, from the good
3:01 Speaker 02 He estimates that you can make a house in about 24 hours.
3:04 Stephen J. Dubner? To the bad
3:05 Speaker 02 We've been working on it for over 50 years, and we still haven't managed to make it power a toaster.
3:10 Stephen J. Dubner? To the ugly.
3:11 Speaker 03 So we might destroy our species as we know it while chasing total factor productivity. So I
3:17 Stephen J. Dubner? Wait a minute, what does powering a toaster and building a house in 24 hours have to do with destroying our species? What ties all these together?
3:25 Speaker 04 The only way to tie these together is it's just getting harder and harder to find new ideas.
3:40 Speaker 05 From WNYC Studios, this is Freakonomics Radio, the podcast that explores the hidden side of everything. Here's your host, Stephen Dubner.
3:54 Stephen J. Dubner? Let's start with the power of an idea.
3:57 Speaker 06 I am a believer in the power of ideas. And the kind of ideas that I really cherish are those ideas that are incredibly simple.
4:06 Stephen J. Dubner? That's my Freakonomics friend and co-author Steve Levitt. He's an economist at the University of Chicago.
4:12 Speaker 06 I've really come to think that many companies that are successful are really successful on the back of one or two simple ideas. I often get the feeling that they believe they're good at everything, when the evidence is probably that they're about average at everything, except for one or two things that they happen to be really good at.
4:31 Stephen J. Dubner? If ideas are so powerful, and if all it takes is one or two great ideas to make a company successful, you'd think that everyone would spend a lot of time searching for great ideas. That's not what Levitt sees.
4:44 Speaker 06 I am a believer that, in general, people spend far too little time devoted to trying to come up with ideas, and far too much time, in contrast, executing on day-to-day things that could be transformed through the power of ideas.
5:02 Stephen J. Dubner? Levitt's idea about ideas is really just an idea. But what if we upgraded it to a hypothesis? Could this hypothesis then be tested?
5:12 Speaker 01 The power of ideas makes it something which is very different from any other goods.
5:17 Stephen J. Dubner? That's John Van Reenen, an economist at MIT.
5:20 Speaker 01 Well, thanks for having me.
5:21 Stephen J. Dubner? Nicholas Bloom is an economist at Stanford.
5:24 Speaker 04 How are you doing? Good to hear from you.
5:25 Stephen J. Dubner? Bloom and Van Reenen, along with two more economists, Charles Jones and Michael Webb, have written a paper with a deliciously provocative title. It's called, "Are Ideas Getting Harder to Find?" It begins with the assumption that ideas are, indeed, extraordinarily powerful, that a good idea can create exponential leverage.
5:46 Speaker 01 So it took a long time for the first person to come up with the invention of the wheel, but once that was discovered, lots of other people could start using that information to make wheels. New ideas can spread very easily and can actually drive the forces of productivity growth.
6:03 Stephen J. Dubner? Economists see a natural connection between an idea and productivity and the growth thereof. And for economists, productivity growth is a really big deal. It's what keeps pushing our standards of living higher, which means it's a big deal for the rest of us. It's incorporated into all our economic models, like the ones that tell governments and firms how much money to set aside for future budgets and pensions and healthcare costs. If you base your calculations on a certain growth rate and then the growth rate falls, well, that's a problem. For many decades, our economy grew at a robust and fairly predictable rate. The computer revolution and all its bounty
6:48 Stephen J. Dubner? seemed to suggest more of the same. We spoke about this with the economist Robert Gordon in an earlier episode. It was called, "Yes, the American economy is in a funk, but not for the reasons you think."
7:01 Speaker 07 Yes, during the heyday of the dot-com revolution, we had our nationwide measures of progress, namely productivity growth, catching up briefly for about a decade to the kinds of measures of progress that we had back in the second industrial revolution. So it was transformative, but it didn't last long. The revival of productivity growth occurred only between about 1995 and 2005.
7:31 Stephen J. Dubner? And what about lately? Nick Bloom again.
7:34 Speaker 04 The most recent few years in the US and globally have been so dismal and so depressing. We start to think, well, is this part of a longer trend?
7:42 Stephen J. Dubner? But what about all these amazing new technologies?
7:45 Speaker 04 You know, living in Silicon Valley, I definitely, you know, drink the Kool-Aid and get very, very excited about the technology.
7:51 Stephen J. Dubner? But you know there's a but coming, right?
7:53 Speaker 04 But it just seems when you add up all the numbers, there just aren't enough new technologies to offset the decline.
8:00 Stephen J. Dubner? How can that be? We're being bombarded by new technologies. And even more persuasive, there's the standard growth models used by economists.
8:11 Speaker 01 The standard model says, well, as long as you can keep that number of researchers researching and coming up with the new ideas, the self-driving cars, the new drugs, the new technologies, we'll continue to have those rates of growth. But that's always been a bit weird to me in a sense, because with most activities in life, you get diminishing returns. You get more out from everything you put in, but the amount you get out slows down at a certain point.
8:37 Stephen J. Dubner? Can I just say, I'm so glad to hear you say exactly what you just said, because, I mean, you've expressed my layperson's view of, I guess, what you call endogenous growth theory, and you expressed it much better than I ever could. But in this paper, you write here, I'll quote you to yourself, "A key assumption of many endogenous growth models is that a constant number of researchers can generate constant exponential growth." And to me, as a non-economist, that just sounds absurd. I mean, your profession is the one that invented the phrase diminishing returns. So why on earth should the assumption be that growth is not only constant, but exponential?
9:15 Speaker 01 Yeah, I mean, I think to give endogenous growth in a theory, it's due. I mean, before then, the idea, economists always thought that technology is critical for growth. But the assumption was that that technology dropped on us like manna from heaven. It was exogenous, it was just going to continue. So actually trying to incorporate the choice of doing research and development to create innovations, I think, is a very strong part of endogenous growth theory. So that part I like, where I think this other assumption, as you said, sounds a bit, that that's going to go on forever with a fixed number of inputs, isn't something which I think is so compelling.
9:55 Stephen J. Dubner? That's the relationship that Van Reenen, Bloom, and their colleagues set out to explore, the relationship between growth and technology, including where the ideas for new technologies come from. Their paper includes three primary case studies. The first deals with the computer industry and what's known as Moore's Law.
10:16 Speaker 04 Moore's Law goes back to an observation made by Gordon Moore, who was one of the co-founders of Intel, way back in 1965. And he noticed that the number of transistors per square inch on a circuit doubled roughly every other year.
10:33 Speaker 01 And that's led to something like every year, 35% improvements of productivity in semiconductors. So enormous rates of improvements of technological progress in that sector, driving the kind of digital revolution, the computer revolution. So people often point to this. So what we do is you say, okay, that's great, but to get that 35% improvement every year, how much research and development had to go into doing that? And what we show is the amount of research going into semiconductors has enormously increased, but productivity growth in that sector hasn't accelerated.
11:07 Speaker 04 So back in 1965, there are a few teams around the country working on this. Now, there's hundreds and hundreds of millions, billions globally, spent on trying to improve the speed of silicon chips. And as a result, we calculate the amount of resources has gone up by 25-fold. So we've had a 25-fold increase in inputs just to maintain the same speed.
11:31 Stephen J. Dubner? It's so interesting because Moore's Law is held up as kind of the banner for human progress and the amazing gains that technology has to offer. And you're saying, yeah, that benefit is real, but the costs have just been totally overlooked, at least by people outside the industry, yeah?
11:49 Speaker 04 Yes, so it's become harder and harder, and they do spend more and more money.
11:53 Stephen J. Dubner? The second case study: agricultural productivity.
11:56 Speaker 01 So agriculture is another nice sector to look at because you can look at crop yields produced per acre of land.
12:04 Speaker 04 Yes, so productivity in agriculture has been declining for a long time. There was a huge burst of productivity growth between the 30s and the 60s with modern hybrid seeds, with better fertilizers, with better farm management. But most of those gains have been eked out. American farmers, in fact, are incredibly efficient and businesslike. And as a result now, it's kind of on the third down in the four yard line. It's really grinding out yardage with incredible pain.
12:32 Speaker 01 Just like in semiconductors, you see that the amount of R and D which has gone in has been very large in order to maintain more or less the same rate of growth.
12:41 Stephen J. Dubner? Well, let me ask you, related to agriculture, let's say agriculture versus semiconductors, is there a correlation between an industry's maturity, how long it's been around? Agriculture versus AI, let's say, and its growth rate?
12:56 Speaker 01 There is. I mean, certainly the more mature industries are going to struggle more to have faster rates of technology growth compared to the new sectors. So when you think about AI or some parts of medicine or virtual reality, those are areas where they've come from nothing. So the rate of productivity growth is enormous. So it is not true of more mature technologies, there's less that you can squeeze out. I think your broad point is right. There are possibilities of some improvements of technology. But across all of them, you see in order to get those, you have to put more resources in to be able to get that juice out.
13:35 Stephen J. Dubner? Okay, so you've looked at semiconductors, you've looked at agriculture. I think a lot of people, even if they don't deal in economics at all, can relate to the idea of productivity growth in those fields. But the next one is a little bit different. Mortality and life expectancy. Talk about what you were looking for there, what the data were and what you found.
13:55 Speaker 01 So we look at how different type of treatments have improved people's life expectancy. So treatments towards breast cancer or other forms of cancer, to what extent has research there helped improve people's length of life and the quality of life that they live.
14:14 Speaker 04 Yeah, so mortality and life expectancy. The numbers there are a great example of the offsetting forces. We looked at the cost to increase a human life year. And in fact, you see over most of the time that's been increasing. But there was actually a surge in productivity in the Late 80s and 90s, and that was part of the era of modern professionalization of drug discovery. So pharmaceutical firms got very effective at mass screening of thousands of compounds in a more automated way. And of course, that made them more productive. We could again see something going forwards with genetic medicine. So this depressing downward trend isn't universal, certainly not by Fields. It's more of a roller coaster.
14:56 Speaker 01 There have been these phenomenal improvements in survivor rates after cancers and other kinds of diseases. But in order to get those, again, we've had to put in huge amounts of resources in terms of research and development. And those have increased by very large orders. And it hasn't improved at the accelerating rate that you'd expect, given the amount of research dollars which have gone into it.
15:23 Stephen J. Dubner? In addition to the case studies in the medical, agricultural, and computer industries, the researchers also used the CompuStat database to examine firm-level data across all sorts of industries.
15:34 Speaker 04 Yes, so we also looked at thousands of firms publicly listed in the US. And we looked at how much they spent on R and D, and how that translated into gains in sales, gains in employment, and gains in market capitalizations. And in all cases, there's a positive relationship. The more you spend, generally, the more you sell and the more valuable you are. But that relationship has been falling over time. So for a million dollars of R and D in the 60s, you got something like three times as much impact in terms of sales as you would in the 80s. And again, it's been falling ever since. The low-hanging fruit is all gone, and it's becoming far harder.
16:14 Stephen J. Dubner? Between the R and D story, the case studies, and the fact that productivity growth is slowing in the economy as a whole, Van Reenen and Bloom think the data show a clear picture.
16:25 Speaker 04 Growth is slowing down at the same time as we're spending ever more money on research and development. So what that tells us is it's just taking more and more dollars of R and D to increase growth or to increase output, so to keep growth at a reasonable rate. And the only way to tie these together is it's just getting harder and harder to find new ideas.
16:47 Speaker 01 As our knowledge grows greater and greater, getting the next increments of knowledge, the next idea, becomes more challenging.
16:54 Speaker 04 Think of some of the most important innovations that have happened. Things like penicillin. So Alexander Fleming, he basically, you know, discovered it on his own. Or Flight, the Wright brothers, they more or less invented, you know, the modern aircraft or the electric light. Thomas Edison in the US and Charles Swan in the UK independently basically came up with modern lights. They were massive inventions that came about, you know, one or two people more or less tinkering around in their own labs. So, you know, I visited a LED factory the other day and the LED factory for modern light box. It looks like something out of the Terminator movie with, you know, machines and robots everywhere. But they also told me they've spent, you know, hundreds of millions in R and D.
17:36 Speaker 04 So in every case, you know, huge inventions that have changed the world seem to in history come from one or two individuals. And now it's taking huge corporations, you know, universities and the government, hundreds or typically billions of dollars to push it ahead.
17:52 Stephen J. Dubner? Again, this is not what economists had been predicting. Economists had predicted that new technologies would continue to push growth forward.
18:00 Speaker 04 So the basic assumptions in these models that a given number of scientists or expenditure in R and D would deliver a fixed amount of growth is just, is just wrong.
18:09 Stephen J. Dubner? So how upset should we be at the economics profession?
18:13 Speaker 04 Ooh, should we be upset? Of course we shouldn't be upset with the economics profession. I mean, in this case, it's, you know, don't shoot the messenger. You know, we're kind of delivering some hard truths. I mean, of course, fair enough. You know, I think in Greek legend, the messenger got shot. I think it was the crow. In this case, I'm hoping I don't get shot.
18:38 Stephen J. Dubner? Coming up after the break. What if these economists who are saying the other economists were wrong? What if they're the ones who are wrong? In other words, what if there are a lot of new ideas in the pipeline that might create a productivity explosion?
18:53 Speaker 03 If you improve people's IQs, they tend to become not just more productive, but, you know, happier, more social, less likely to commit crimes, that sort of thing.
19:03 Stephen J. Dubner? And we've all been told about the need for continuing economic growth, but...
19:09 Speaker 04 But, you know, why are we so obsessed with our growth?
19:12 Stephen J. Dubner? That's coming up right after this.
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20:58 Stephen J. Dubner? Freakonomics Radio is sponsored by PNC Bank. Boring. Great word, bad rep. Yet, time and time again, here at Freakonomics, we find that when something culture-changing happens, boring things like calculations and careful planning are usually behind it. Which begs the question, why not apply it to other aspects of life? Like banking, for example? Well, PNC Bank did since its inception, proving time and again that the best banking Strategy isn't the exciting type, but the steady, reliable, definitely not YOLO type. PNC Bank, brilliantly boring since 1865. Brilliantly boring since 1865 is a registered mark of the PNC Financial Services Group, Inc. PNC Bank, National Association, Member FDIC.
21:47 Stephen J. Dubner? So a bunch of economists have recently concluded that a bunch of other economists, the entire economics profession, really, has historically been kind of wrong about economic growth, that growth has slowed in large part because there just aren't as many good ideas. You know, the low hanging fruit is all gone, and it's becoming far harder. And these economists have assembled a mountain of data to make this argument. But that doesn't necessarily mean they're right either. Let me introduce you to a couple of people who offer a different view. Warning, they are not economists.
22:23 Speaker 02 So my training is as a parasitologist.
22:26 Stephen J. Dubner? That's Kelly Wiener Smith.
22:28 Speaker 02 I study parasites that manipulate the behavior of their hosts at Rice University.
22:32 Speaker 03 I draw a comic called Saturday Morning Breakfast Cereal.
22:35 Stephen J. Dubner? And that is Zach Wiener Smith.
22:36 Speaker 03 And I run a show called The Festival of Bad Ad hoc Hypotheses.
22:40 Stephen J. Dubner? The Wiener Smiths are a married couple, and they've written a book together called Soonish, 10 Emerging Technologies That'll Improve and/or Ruin Everything.
22:50 Speaker 03 This is the first time we've sort of formally worked together on something big.
22:54 Speaker 02 It was definitely stressful, but that was because he had a full-time job as a cartoonist. I had a full-time job at Rice University, and I was pregnant, and we had a two-year-old. So it was nuts, but it was a good time.
23:07 Stephen J. Dubner? Soonish begins with some welcome sarcasm. Quote, "This is one of those books where we predict the future. Fortunately, predicting the future is pretty easy."
23:17 Speaker 02 So it's just, it's really hard to make these kinds of predictions. And just about, you know, all the data suggests that the people who make these predictions are often wildly wrong. They almost always still have jobs, which is good for those people.
23:30 Stephen J. Dubner? The first emerging technology the Wiener Smiths look at is space travel. It currently costs somewhere around $10,000 per pound to escape Earth's gravity, which is a lot. But reusable rockets from companies like SpaceX and Virgin Galactic could change that.
23:47 Speaker 02 Well, if you can bring that cost way down, then you can imagine that it would be much cheaper to launch satellites, for example. And if you launch satellites, then our communication systems are going to get better, they're going to get cheaper.
23:57 Speaker 03 In terms of going to other planets, it's not clear to me how you get rich other than having tourists. And that's awesome, and I'm all for it. But as far as I know, it doesn't boost productivity. I don't make people go to Mars and they come back with some sort of better sense of self and they become more productive, but I doubt it. Yeah, so beyond tourism, the economic applications of space are pretty questionable.
24:20 Stephen J. Dubner? OK, let's say space travel is not the productivity game changer we're looking for. How about another hot technology? Fusion energy. The Wiener Smiths are kind of cool on this one, too.
24:30 Speaker 02 Because we've been working on it for over 50 years, and we still haven't managed to make it something that we can use to, for example, power a toaster.
24:38 Stephen J. Dubner? OK, but here's an idea they're bullish on: biotechnologies. Bioprinting, for instance.
24:44 Speaker 02 So the idea here is that you harvest cells from an individual who has an organ that's failing. You grow up those cells in large numbers, and then you put them through a 3D printer that builds you a new organ, layer by layer.
24:57 Stephen J. Dubner? Also, synthetic biology.
24:58 Speaker 03 A big, exciting thing is you can create organisms that make complex molecules that we like, such as medicines or fuels.
25:05 Stephen J. Dubner? And precision medicine.
25:06 Speaker 02 So the idea with precision medicine is that if we know enough about you in particular, we can figure out the best treatment for exactly the disease that you have, and the best treatment for you in particular.
25:18 Stephen J. Dubner? We could also, using the CRISPR gene editing tool, address entire diseases in the gene pool. We looked at this possibility in an earlier episode called "Evolution Accelerated." And then there's the idea that brain-computer interfaces could jack up our cognitive abilities, which might have a lot of positive externalities.
25:38 Speaker 03 And so there's pretty robust evidence that if you improve people's IQs, they tend to become not just more productive, but happier, more social, less likely to commit crimes, that sort of thing. So that seems like a good benefit.
25:52 Speaker 02 So at the moment, these devices are being used for things like trying to give amputees the ability to move their arms again, or to move their fingers again. But it's possible that at some point, many of us will have devices on our brain that help us be a little bit more efficient.
26:06 Speaker 03 The ominous thing there is, and this is already happening with pharmaceuticals, is once one person is using, everybody else in the industry is going to feel the obligation to use. So there's this weird thing where we might destroy our species as we know it while chasing total factor productivity. So my opinions are largely negative on that, but to an economist, that might seem great.
26:28 Stephen J. Dubner? One of the most promising technologies to boost productivity: augmented reality.
26:33 Speaker 02 So the idea with augmented reality is through your augmented reality glasses, or through the iPhone or iPad that you're looking through.
26:40 Speaker 03 And maybe in the future, that's a contact lens or something.
26:43 Speaker 02 You're looking at the real world, and layered on top of the real world are things that don't really exist there.
26:49 Speaker 03 And so there are obviously entertainment applications for this, but from an economic perspective, there's a lot of amazing stuff. So, one, you could drastically cut down training time.
26:59 Speaker 02 There's companies who are integrating augmented reality into construction helmets, and the task that the people did was done with fewer errors the very first time when they were wearing these helmets.
27:10 Speaker 03 It's not just that you can do it because you have this system set up, you actually learn how to do it faster. So the economic benefit of that could be huge, especially right now, when some people argue there's a skills mismatch. So if you can fix that skills mismatch without having to have people go to two years of training, if you can cut it down to a year or six months, that's potentially really huge.
27:29 Speaker 02 So in general, it could make our workforce more efficient, more likely to catch errors before they happen, and it could make training happen much more quickly.
27:37 Stephen J. Dubner? Another almost-ready-for-prime-time technology: robotic construction.
27:41 Speaker 03 If you look around your office, mostly you're going to see things that were cheaply manufactured in mass manufacturing systems. And that's why they're relatively inexpensive compared to what it would have cost to hand-make them. Buildings are essentially handmade.
27:54 Speaker 02 Yeah, so robotic construction is an area that I'm particularly, really excited about. And so one of the robots that we came across was a robot called SAM, or the Semi-Autimated Mason. And SAM is a robot that's able to lay bricks.
28:08 Speaker 03 It slaps mortar down, sticks a brick on, and just keeps rolling, and does it very quickly.
28:12 Speaker 02 And SAM, coupled with a person... Is able to work three times faster than one person alone. And so you can imagine that that could have really major impacts on home building. And there are a number of other technologies that we came across. For example, a technology called Contour Crafting, which is made by Dr. Barok Khashenevitz at the University of Southern California. And what this is, is essentially a giant gantry, so like an upside down U, that has a 3D printer attached to it, that uses a special kind of concrete, and it makes the outside of the house. And it also has an arm, so as the house is being built, it sticks pipes in and stuff as it goes. So the only thing you have to do at the end of the day is stick the windows and the door
28:55 Speaker 02 in when you're finished printing out the rest of the house. And he estimates that you can make a house in about 24 hours, and I believe it was for something like $5,000. So pretty cheap and super fast relative to how long it takes to make and build a house now.
29:11 Speaker 03 So there are all sorts of exciting possibilities, and I think it's pretty obvious how that would improve productivity. You're either going to make individual construction workers a whole lot more productive on the job, or perhaps a bit more ominously, you might just replace them entirely, which obviously on paper economically makes the average worker more productive, though it would displace a lot of people, and how that would shake out is questionable, especially in the short term.
29:38 Stephen J. Dubner? How all this shakes out is a big question, big set of questions, really. It's something we've looked into before on this show in past episodes, like how safe is your job and is the world ready for a guaranteed basic income? Because if machines can do most of our work better, faster, cheaper, and more safely, how does that change the shape of a society that's built around human labor? Here's what the MIT economist Eric Brynjolfsson told us earlier.
30:08 Speaker 08 We're now beginning to have machines be able to augment and automate our brains and replace mental tasks. Machines can do computations and make decisions, and we're still in the early stages of this, but we believe that the implications will be at least as profound as what the Industrial Revolution did for our muscles.
30:28 Stephen J. Dubner? This, of course, raises even more questions. What do we do with all the time we used to spend working? If we're not being paid to work, where will our money come from? And will those machines and robots eventually conclude that we humans aren't worth having around?
30:48 Speaker 09 It brings to mind Stanley Kubrick's 2001: A Space Odyssey and the rebellious computer robot Hal. Technologically speaking, we are just about there.
30:58 Speaker 10 Open the pod bay doors, Hal. I'm sorry, Dave. This mission is too important for me to allow you to jeopardize it.
31:06 Stephen J. Dubner? A lot of technologists and economists see a huge upside in the spread of artificial intelligence, and they say that upside will show up in the productivity numbers before long. Others are more pessimistic. One reason for pessimism? Good ideas are getting harder and harder to find. That, at least, is the theory put forth by Nick Bloom and John Van Rhenan. I asked Bloom which camp he puts himself in: techno-optimist or techno-pessimist?
31:36 Speaker 04 Ooh, good question. I'm gonna claim I'm a techno-realist, but if that has to put me in one of those two camps, I guess a techno-pessimist. You know, if you claim the optimists see a future where everything's fantastic and growth explodes, I just don't see that happening. You know, look back over the last 40, 50 years, extrapolate out, and growth continues, but you know, there's no nirvana over the rainbow. It's certainly not Clockwork Orange or Wally, these kind of depressing futuristic technologies. But I see more of the same, which is, you know, slow growth, eked out by millions of scientists and engineers around the world working away in labs. We're not saying growth's gonna stop, it's just getting more and more expensive. But, you know, why are we so obsessed with growth?
32:22 Stephen J. Dubner? Yeah, I mean, you've basically just summarized my view, which is that, I mean, twofold. A, why are we, and by we, I mean you, economists, so obsessed with growth? Because I think that's where we, the populace, gets this idea from, which is that economists have been preaching for the past, I don't know, 50, 80 years, that growth is kind of the natural, necessary state of the body economic, and that if it doesn't proceed apace, then we're in a lot of trouble, and there's a lot of malaise associated with 1% or 2% growth. So why are we so obsessed with growth?
32:59 Speaker 04 Well, we like growth because growth enables us to spend more money on things that we like. So schools, hospitals, cars, you know, nice meals out. But on the other hand, there's no necessary level of growth. If you look back at humanity from about the Roman Empire to something like 1800, there was almost no growth. So there's kind of 2,000 years of which growth was, people estimate about 0.1%. It then exploded to 1% during the Industrial Revolution. If you think of what's happening now, we're something like, you know, 2%. So compared to most of the history of humankind, we have actually incredibly high growth rates now and should be very thankful.
33:39 Stephen J. Dubner? Yes, so why aren't we? Other than the fact that we had what may turn out to have been a temporary golden era of absurdly high growth.
33:48 Speaker 04 You know, I think our expectations have been normed by, you know, 40, 50 years of fantastic growth since World War II. So, you know, it's like take a very rich man and make him rich. He feels poor, much like, you know, we've had 3, 4% growth since World War II. We've now, inverted commas, plummeted to 2% growth. But again, if you look back to, you know, our great-grandparents would have been incredibly happy with 2% growth since that was faster than anything they'd ever seen before in their time and, you know, generations back over the history of humankind.
34:24 Stephen J. Dubner? John Van Reenen agrees that we should appreciate the dramatic growth of the past, but he also recognizes the limits of that appreciation.
34:33 Speaker 01 People seem extremely angry that the growth rates that they got used to over the last 50 years don't seem to be happening. My impression is that most people are not at all comfortable with that, that they have come to expect that they'll be better off than the parents were. And the fact that seems not to be happening is something which I think is creating a lot of political and social unrest all over, all over the West at the moment.
35:01 Stephen J. Dubner? So if we can agree that more growth is better than less growth, and if we can agree that good ideas are both A, necessary for better growth, and B, increasingly harder to find. What's to be done about it?
35:15 Speaker 04 I think the people who should be listening to this seriously is our politicians, because the thing that worries me most is our pensions and budget deficits are all based on, frankly, unrealistic growth numbers. So the way it works is you go to Washington, they look back at growth over the last 20, 30 years and say, hey, presto, this is what we're going to get over the next 20, 30 years, so we can now spend a lot of money and pay it back later. But if unfortunately the US economy doesn't grow like that, we'll discover when we all come to retire, there's nothing left in the pension pot, and actually we're facing massive tax bills.
35:48 Stephen J. Dubner? Right, so if you were the politician, you would say, look, here's the sad truth is that productivity is a lot more expensive to come by now, or growth is more expensive to come by now, and if we want to keep having it, we have to take money from elsewhere and put it here. Is that essentially a sort of policy-ish prescription you would advise?
36:07 Speaker 04 If I was an honest politician, I would, you know, face up to the fact growth is slowing down. You know, you have to be realistic. If I was a politician fighting for political survival, you know, I may be tempted to fudge it a bit and kind of ignore the issue.
36:20 Stephen J. Dubner? All right, so let's pretend you are, however, an honest politician, or an advisor to an honest politician. What kind of policy prescriptions would you make based on your findings in this paper, Nick?
36:32 Speaker 04 I would spend more on research and development, so we can have higher growth with more R and D. So the ways to do that was obviously make it more tax advantageous for firms, so a more generous R and D tax credit, more government funding. You know, this is why it seems like an insider job, but honestly, more government funding to research in universities, science and engineering, more government labs. So what you see in the US is why private firms' R and D expenditure has risen. That tends to be more development, more market-focused research, the more basic R of R and D, the research, the kind of high-level stuff is actually done more in government labs and universities, and the funding for that has actually been cut.
37:15 Stephen J. Dubner? John Van Reenen offers another policy idea, drawn from a paper he wrote with several co-authors. It's called "The Life Cycle of Inventors." They analyzed data from more than 1.2 million US inventors from 1996 to 2014.
37:30 Speaker 01 We found some, you know, we found many things, but I think one of the most striking things was if you were born to a family in the top 1% of the income distribution, you were 10 times more likely to grow up to an inventor than if you were born in the bottom 50% of the income distribution. And one story why that is, is well, maybe, you know, kids with rich parents are so much smarter than the kids with poor parents. But we could look at the kind of test scores of what, you know, what these kids got at a very early age, like in third grade. And we found that the kind of ability in maths and other subjects, although it was higher for the rich kids than the poor kids, wasn't so much difference that it could explain these kind of very large differences in future invention rates. And so what we argued in that paper is that, you know, if you're born into a poor family
38:15 Speaker 01 or if you're in some disadvantaged group, there are, you know, big barriers to you growing up to becoming an inventor. This is a big loss to American society. If you could kind of remove those, some of those barriers to becoming inventors, you might actually find some lost Einsteins, some people who could really make a huge difference to, you know, knowledge and productivity of the economy. One of the ways you might want to improve the rate of invention and the rate of growth is to think about kind of policy interventions to help improve the chances of disadvantaged kids becoming inventors.
38:52 Stephen J. Dubner? So who's right? The techno-optimists or the techno-pessimists? There's one thing we've learned over the years doing this show. It's that predicting the future is a fool's game. But a lot of research suggests that, at the very least, optimism is good for your health. So let's go out with this from Sunish co-author Zach Wiener-Smith.
39:17 Speaker 03 The one thing that gives me a little bit of optimism is I think somewhat famously in the 19th century physics, there were a lot of people that thought they had reached the point where we were, we were just figuring out the details. Now we basically got it figured out. And then there was Einstein and the quantum revolution. Given the preponderance of people in history who thought we were out of new things, we should at least be a bit reticent to at the present moment, decide that we're in that situation. I like to say, I think it's very important to remember that there's a strong cognitive bias to consider that you are at the end of history, because the history books all end with you. But for any given thing, whether it's increasing human productivity, or it's some sort of social or cultural institution, wherever you are right now is probably the middle,
40:00 Speaker 03 not the beginning or end, because the middle is the big part of most things. So I think the optimist in me wants to say that the adventure that was started sometime in the 18th century is probably still continuing. We're probably somewhere in the middle.
40:15 Stephen J. Dubner? Nice. Let's raise a glass to being somewhere in the middle. Coming up next time on Freakonomics Radio, the problems with ticket pricing. This is a market that's been screwed up for a long time. We talked to a lead producer of Hamilton.
40:33 Speaker 11 There was a point where we knew that up to 70% of our tickets were being purchased through automated bots.
40:40 Stephen J. Dubner? We talked to a former bot wizard and scalper.
40:43 Speaker 12 Everybody's making money on scalping. You know, everybody from top to bottom.
40:47 Stephen J. Dubner? And we talked to some very disappointed Bruce Springsteen fans.
40:51 Speaker 13 I don't know. I think I'm just gonna go for a drink or something.
40:55 Stephen J. Dubner? It's next time on Freakonomics Radio.
41:00 Stephen J. Dubner? Freakonomics Radio is produced by WNYC Studios and Dubmire Productions. This episode was produced by Greg Brzezinski. Our staff also includes Alison Hockenberry, Merritt Jacob, Stephanie Tam, Harry Huggins, and Brian Gutierrez. We had help this week from Dan DeZula. The music you hear throughout the episode was composed by Luis Guerra. You can subscribe to Freakonomics Radio on Apple Podcasts, Stitcher, or wherever you get your podcasts. You should also check out our archive. At Freakonomics.com, where you can stream or download every episode we've ever made. You can also read the transcripts and find links to the underlying research. We can also be found on Twitter, Facebook, or via email at [email protected] . Thanks for listening.
41:53 Stephen J. Dubner? Freakonomics Radio is sponsored by Ozempic. Innovation happens through rethinking what's possible. And when it comes to GLP-1s, Ozempic pill does just that. Learn more about Ozempic semaglutide tablets, 4 in 9mg, by calling 1-833-OZEMPIC or visit Ozempic.com to view the medication guide and ask your doctor what's possible with FDA-approved Ozempic pill.
42:24 Stephen J. Dubner? Freakonomics Radio is sponsored by Southern Company. The world and its energy needs are always changing. Southern Company's commitment to meeting this demand stays the same. That's because Southern Company believes energy is more than a utility, it's what powers possibilities. So they are looking ahead and investing $80 billion in infrastructure upgrades and are committed to fueling growth in ways that benefit all customers so that reliable and affordable energy is accessible for generations to come. Go to southerncompany.com to learn more. Southern Company, building the future of energy.
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