A Few Tentative Conclusions on Secular Stagnation and Our Economy

A few tentative conclusions on secular stagnation and our economy, with a vigorous disclaimer that I am far from a macro economist. It seems a core dynamic of our times is too much capital relative to the number of productive investable economic opportunities. Coupled with a massive global capital flight to quality since 2008, it’s hard to see interest rates rising dramatically anytime soon.

While I am a bull on technological progress, it also seems that much of that progress is price deflationary in nature, so even extremely rapid tech progress may not show up in GDP or productivity stats, even as it equals higher real standards of living. I think economists, particularly on the center-left and left, are really underestimating two factors that are inhibiting investment. The developed world and the sheer level of regulatory burden on business formation and growth, per George McGovern.

On this point I agree deeply with : Many sectors of Western business are now wired to prevent or inhibit new investment. In the developing world, often brutally high levels of corruption and expropriation are making new investment extremely risky. It seems straightforward to identify ways to increase rate of investment and also hard to see how any of that politically happens.

For these and other reasons, we may be living with an oversupply of capital relative to opportunity set for a long time. But this is not necessarily a terrible world to live in. In fact, it might be a wonderful world to live in, for these reasons: Oversupply of capital means that any investable project can get funded. We see that today in tech, and it may broaden from here. We may experience a massive global demographic tailwind, as a huge number of young people worldwide are fully connected to the modern economy.

Virtuous cycle of science and tech advances, with fast-growing number of scientists and technologists globally, may overwhelm expectations. In this world, we can have massive advances in real standards of living even with a formally low investment, GDP, and productivity growth. Beyond that, a world where 7 billion people decide they really do want and deserve an upper-middle-class American-equivalant lifestyle may make all of these current stagnation theories look as silly as Alvin “Secular Stagnation” Hansen now looks 76 years later.

Source Tweets: 1,2,3,4,5,6,7,8,9,10,11,12,13,14,15,16,17,18

Excellent Survey of The Original “Secular Stagnation” Thesis of Alvin Hansen in 1938

An excellent survey of the original “secular stagnation” thesis of Alvin Hansen in 1938 by .

Source Tweets: 1,2,3,4,5

A Counterargument From David Beckworth to Larry Summers’ “Secular Stagnation” Thesis

Now, thinking about a counterargument to Larry Summers’ “secular stagnation” thesis from .

In this interpretation, there is no secular stagnation, there was just a crisis and then a slump, which is already ending.

References:

Source Tweets: 1,2,3,4,5,6,7,8,9,10

Larry Summers’ “Secular Stagnation” Thesis

: “Secular stagnation is an economist’s Rorschach Test. It means different things to different people.” Contrary to a lot of public discussion, Larry’s thesis is about interest rates and supply/demand of capital, not technology change.

To quote Notorious BIG, “mo money mo problems“. In this case, mo money equals not enough productive places and projects to put it. As economists do, Larry then proposes a series of reforms to address the dynamic, few of which seem politically likely.

Can the goal be to get to normal if there is no normal? Or should the goal be something else?

Source Tweets: 1,2,3,4,5,6,7,8,9,10,11,12,13,14,15,16,17

Questioning Christensen’s Theory Of Disruption

A fascinating question around Christensen’s theory of disruption: “OK, smart guy, why haven’t Apple iPhone/iPad been disrupted by Android?” I count five possible answers, there may be more.

  1. The theory of disruption is hucksterish management consultant fraud. (This one I do not agree with.)
  2. Right now Apple *is* the disruptor–iPhones/iPads vs Windows PCs. Many are surprised by the rapid rise of direct substitution, including me.
  3. Apple *is* getting disrupted right now: Android phones are outselling iPhones somewhere between 5:1 and 10:1 worldwide right now.
  4. Apple isn’t getting disrupted *yet*, but will be soon. This is what many in Silicon Valley believe, but Apple does not.
  5. The most interesting one: The current theory of disruption is incomplete and does not have a broad enough concept of end-user quality.

In this line of argument, disruption theory was born in the Microsoft/Intel era, when everyone expected computers to have, um, certain issues. Apple brilliantly redefined the conception of what was possible from an end-user quality and integration standpoint, against prevailing assumptions. We have attempted to generalize *this* concept into “full stack” thinking, which many of today’s best startups are also pursuing. It’s possible disruption theory needs to be evolved to accommodate these newer patterns and knowledge. But it’s also possible all such “full stack” patterns are just integrated approaches that themselves will be disrupted in the future.

Time will tell. In Silicon Valley, these topics are central and being debated both in actions and words by ultra-smart people every day.

References: Full Stack Startups, Disruptive Innovation

Source Tweets: 1,2,3,4,5,6,7,8,9,10,11,12,13,14

Dear Young Person, If You Are a Geek, the World Needs You.

A rare interview with one of my heroes: Stanford Professor Donald Knuth, author of “Art of Computer Programming“…

I can speak only to people who happen to have grown up with the strange kind of ‘brain organization’ that I seem to have. For lack of a better word, let me simply say that I’m a ‘geek.’ I haven’t got a good definition or a good litmus test for geekhood but I definitely know it when I see it; and I see it in about 2% of the world’s population. The main characteristic is an ability to understand many levels of abstraction simultaneously, and to shift effortlessly between in-the-large and in-the-small. Dear young person, if you are a geek, the world needs you, and you will never run out of opportunities to apply your talents.

Source: Tweets – 1,2,3,4,5,6

Responses:

Imagine a World with No Physical Need Constraints

Thought experiment: Posit a world in which all material needs are provided for free, by robots and material synthesizers. Housing, energy, health care, food, transportation–> All delivered to everyone for $0, by machines. Zero jobs in those fields remaining. What would be the key characteristics of that world, and what would it be like to live in it?

First, it’s a consumer utopia: Everyone enjoys a standard of living that kings and Popes could have only dreamed. Fifth, all human time, labor, energy, ambition, and goals reorient to the intangibles: the big questions, the deep needs. Human nature expresses itself fully, for the first time in history.

Without physical need constraints, we will be whoever we want to be. The main fields of human endeavor will be culture, arts, sciences, creativity, philosophy, experimentation, exploration, adventure. Rather than nothing to do, we would have everything to do: curiosity, artistic and scientific creativity, new forms of status seeking (!).

Imagine six, or 10, billion people doing nothing but arts and sciences, culture and exploring and learning. What a world that would be. The problem seems unlikely to be that we’ll get there too fast. The problem seems likely to be that we’ll get there too slow.

Utopian fantasy you say? OK, so then what’s your preferred long-term state? What else should we be shooting for, if not this? Finally, note the “thought experiment” nature of this stream — this is an extrapolation of ideas, not a prediction for the next 50 years!

Clarification: I’m not talking about Marxism or communism, I’m talking about democratic capitalism to the Nth degree. I’m not postulating the end of money or competition or status seeking or will to power, rather the full extrapolation of each of those.

Source – Tweets: 1,2,3,4,5,6,7,8,9,10,11,12,13,14

Responses: