Definite optimism as human capital

In a brief essay, Anton Howes asks: “Is innovation in human nature?” That is to say, do people have some natural stock of innovative capacity, waiting to burst forth when conditions are right? By way of anecdote, Howes’ answer is: not really. He pushes back against the idea that the industrial revolution took place merely because the economic conditions were suitable for one: “The more I study the lives of British innovators, the more convinced I am that innovation is not in human nature… People innovate because they are inspired to do so. And when people do not innovate, it is often simply because it never occurs to them to do so. Incentives matter too, of course. But a person needs to at least have the idea of innovation—an improving mentality—before they can choose to innovate.”

Let’s ask more generally: What are the factors that drive economic growth? If we pull out and dust off our econ textbooks, we’ll read that growth is a function of higher investments, spending, trade, productivity, and so on. They can be broken down into ever more abstract categories, but technical enough that we can measure them to two decimal points and above. Howes’ framing prompts me to bring up some questions I was dumbfounded to pose in four years of econ classes: How do beliefs about the future affect long-term economic growth? What role do optimism and pessimism play? How important are imagination and drive to growth?

And most of all: Why do we treat innovative capacity as some kind of fixed stock, constant across time and between countries, ready to be activated as soon as policymakers have finally gotten around to legislating the right conditions in place?

I’ve come to the view that creativity and innovative capacity aren’t a fixed stock, coiled and waiting to be released by policy. Now, I know that a country will not do well if it has poor infrastructure, interest rate management, tax and regulation levels, and a whole host of other issues. But getting them right isn’t sufficient to promote innovation; past a certain margin, when they’re all at rational levels, we ought to focus on promoting creativity and drive as a means to propel growth.

I wonder if economists overrate the easier-to-observe policy factors and under-theorize the idea that positive visions of the future drive long-term growth. To put it in a different way, I wish that they would consider definite optimism as human capital. In addition to education levels, human capital models should consider factors like optimism, imagination, and hope for the future.

When I say “positive” vision, I don’t mean that people must see the future as a cheerful one. Instead, I’m saying that people ought to have a vision at all: A clear sense of how the technological future will be different from today. To have a positive vision, people must first expand their imaginations. And I submit that an interest in science fiction, the material world, and proximity to industry all help to refine that optimism. I mean to promote imagination by direct injection.

***

Let’s start with the capacity of science fiction to improve imagination. One way of having a better idea of the technological future is to first read about one in a book or see one on screen.

Alas, for some reason, science fiction movies have taken a bleak turn in the last few decades. The dominant mode in modern sci-fi movies is dystopia, and perhaps even nihilism. Today, the contrarian project is to present an earnest, joyful vision of the technological future. That kind of undertaking will invite mockery from commentators posting essays on Medium, but one can hope that younger, less jaded people will find attractive that daring imagination.

If I had funding and access to studio talent, I would reshoot a bunch of films. Elysium, with a focus on the logistics behind the smooth functioning of a satellite habitat. Ex Machina, featuring an artificial intelligence whose greatest desire is not acceptance in human society. Gravity, with greater marveling of space and the desire to explore, not the aftermath of random mechanical failure. Her, in which artificial intelligences decide to improve humanity, instead of migrating en masse to a higher spiritual plane. Star Wars with no wars and no Jedis—and therefore no Sith—that instead draws out the gains from interstellar exchange under oversight of the Trade Federation. (Bonus points for working out rules that would govern countervailing duties and state procurement under a galactic trade regime.)

I confess I don’t know how to make these stories exciting. Doesn’t it sound though like an exciting challenge for the creative type? It is so conventional these days to watch yet another movie about how robots attempt to wipe out humanity, but ultimately fail, because they’re missing some essential soulful touch. So let me provide prompts to the enterprising screenwriter: What might society look like if we had energy too cheap to meter? If artificial intelligences must be otherworldly, how about we present them as angels of Rilke come down to Earth? When humanity manages to become a solar civilization, can we depict the inventions we need to colonize various moons and planets? How about the logistics of how colonies trade?

Books are less uniformly dystopian. I loved two that I read in the past year: *Seveneves* by Neal Stephenson and *The Three Body Problem* by Liu Cixin. Both present definite optimistic visions of the future: Calamity threatens humanity; but it allows some time for humanity to prepare; and humanity uses this time to plan out the technological future. It more or less fulfills what it set out to do, and for the most part people triumph over their threats. I am delighted by the theme of people working hard to overcome existential challenges.

And I hope that many more authors and directors get into this genre. Let’s have more movies and books that look forward to the technological future.

***

Economists tend to be dismissive of arguments for industrial policy. I usually agree with their arguments, but today I want to stick up for one potentially positive aspect: That manufacturing and engineering work can improve imaginative capacity through exposure to industrial processes. I sympathize more often with those who lament the decline of the US industrial base because I think that more people should have greater proximity to the world of manufacturing and engineering.

(A bit of context: According to FRED’s measure, the number of people employed in manufacturing peaked at nearly 20 million in 1979; that figure is slightly above 12 million today. As a share of working age population, that’s a decline of 14 percent in 1979 to 6 percent today. That decline in headcount has not translated to a decline in total output. Today, manufacturing output in real terms is higher than ever before. But it’s worth noting that the figure collapsed after 2008, and is now only a shade higher.)

The fewer the manufacturing workers and engineers, the more removed everyone is from the particulars of industrial processes, and the more remote that knowledge becomes in each successive generation. We become think tankers and app designers and restaurant hosts, while the details of the industrial world become further and loftier abstractions. How many of our grandparents were familiar with the details of ball bearings, wire production, concrete mixing, industrial chemicals, while we are not?

I regret this abstraction of the material world. Most of our living standards are tied to the world of atoms. Even when we spend a lot of time online and on our phones, we go to work in cars and subways; keep ourselves warm and cool using machinery and electricity; surround ourselves with objects that let us cook or relax; and on and on. The online world is not entirely free of the material world. Our phones require aluminum and rare earths and silicon chips; the internet is powered by cables that run under our streets and beneath the oceans; we mine our bitcoins with a great deal of electricity.

Manufacturing work tends to be hazardous or unpleasant in all sorts of ways. But it tends to promote faster productivity growth and the greater possibility of technological upgrading. Here’s Andy Grove: “Abandoning today’s commodity manufacturing can lock you out of tomorrow’s emerging industry.” If a country gives up on manufacturing too early on, even if it’s very low value-add stuff, it also loses all the tacit knowledge and design expertise from a workforce familiar with industry. The US continues to retain the highest value-add work of R&D and marketing in many sectors; but a lot of the scaling expertise, supplier networks, and supply chain knowledge have dispersed to other shores. I predict over the long term that diminishes the country’s capacity to have the labor force ready to take advantage of scaling up a big, innovative technology; and it slightly reduces the chances that the country will have the talent to create it.

If a state has lost most of its jobs for electrical engineers, or nuclear engineers, or mechanical engineers, then fewer young people in that state will study those practices, and technological development in related fields slow down a little further. When I bring up these thoughts on resisting industrial decline to economists, I’m unsatisfied with their responses. They tend to respond by tautology (“By definition, outsourcing improves on the status quo”) or arithmetic (see: gains from comparative advantage, Ricardo). These kinds of logical exercises are not enough. I would like for more economists to consider a human capital perspective for preserving manufacturing expertise (to some degree).

***

I wonder if the so-called developed countries should be careful of their own premature deindustrialization. The US industrial base has faltered, but there is still so much left to build. Until we’ve perfected asteroid mining and super-skyscrapers and fusion rockets and Jupiter colonies and matter compilers, we can’t be satisfied with innovation confined mostly to the digital world.

Those who don’t mind the decline of manufacturing employment like to say that people have moved on to higher-value work. But I’m not sure that this is usually the case. Even if there’s an endlessly capacious service sector to absorb job losses in manufacturing, it’s often the case that these new jobs feature lower productivity growth and involve greater rent-seeking. Not everyone is becoming hedge fund managers and machine learning engineers. According to BLS, the bulk of service jobs are in 1. government (22 million), 2. professional services (19m), 3. healthcare (18m), 4. retail (15m), and 5. leisure and hospitality (15m). In addition to being often low-paying but still competitive, a great deal of service sector jobs tend to stress capacity for emotional labor over capacity for manual labor. And it’s the latter that tends to be more present in fields involving technological upgrading.

I read occasional arguments that liberal societies need to have a healthy level of engagement with its armed forces, or they risk revering but not understanding the military. I’d like to make a similar appeal for manufacturing. Until our world is much better built-up than the present, it’s too early to accept the diminishment of an industrial base, by which I mean little growth in output accompanied by a decline in the workforce. At a time when more tech companies are offering digital tools to industry, we should expect the number of people jumping in to take advantage of them to be increasing, not decreasing.

It’s sad that DuPont’s excellent slogan “Better living through chemistry” has been ironically twisted from a celebration of chemicals and plastics to enjoyment of recreational drugs. How far along is humanity in its progress toward its bright technological future? I submit that we’re less than 3 percent of where we should ultimately be. Let’s worry about premature deindustrialization in the developed world as well.

***

Here’s a bit more skepticism of service jobs. In an excellent essay on declining productivity growth, Adair Turner makes the point that many service jobs are essentially zero-sum. I’d like to emphasize and elaborate on that idea here.

There are plenty of service jobs that are meant to cancel out the efforts of other service jobs. One firm spends a few million dollars to hire a dozen ad agencies to convince you to purchase its car insurance policies; another firm hires a different dozen agencies and puts out other ads. One firm or person decides to sue another, creating the need for two sets of lawyers. One candidate attempts to raise a hundred million dollars to win an election, and the other side has to do the same, and meanwhile only one can win.

Worse, the zero-sumness is often asymmetric. A dozen hackers make a theft, and suddenly companies everywhere need to spend collective billions on staff or outside agencies to protect themselves. A few criminals plague a state, and suddenly the government needs to hire hundreds of officers to make people feel safe; or border agents and wall builders if it turns out the criminals were aliens. A few dozen people commit accounting fraud, and the ensuing uproar forces companies and banks to ramp up the size of their compliance departments by the tens of thousands.

Although manufacturing jobs can be wasteful, I don’t think it has this issue of being zero-sum.

I noted in my computer science piece that two of the big growth areas of US bachelors degrees have been healthcare and law enforcement. Much of the marginal growth has to deal with compliance—after all, in health care at least, the growth of new doctors has not accelerated. In addition, a lot of the marginal growth in financial services and higher education appears to be compliance-related as well.

Some of that is prompted by legislation. Without passing judgment on the overall merits of these new policies, I find them to be pretty remarkable as jobs programs. It almost feels like developed countries have shifted the focus of industrial policy to service jobs. If this was the principal aim of US policymakers, I find impressive that they’ve pulled this off in response to deindustrialization. Congress rises in my estimation.

Healthcare and finance are both high-margin industries, and I wonder if Congress will find another to take a more active role as a jobs provider. Technology, perhaps? Maybe something like hiring people to keep newsfeeds and search results free from dangerous content or fake news. In fact that’s something that sounds like it could well receive bipartisan support.

***

A Bloomberg piece prompts some of my questions about definite optimism and human capital. The current unemployment rate in Japan is 2.8 percent. Japanese millennials get to enjoy a fairly tight labor market, which means they ought to have their pick of company to work for. But few of them have an interest in switching jobs, because they want not high wages but perfect stability. The article attributes this risk aversion to lingering fears of the previous downturn. The country that lost a decade—or maybe two—has fostered a generation of youth highly averse to risk-taking. (Elsewhere in Bloomberg headlines: “Japan has the world’s gloomiest millennials.”)

By contrast, the article quotes a recruiter who says that China has a “fearless” employee base. When recruiters come around promising higher wages, Japanese millennials keep their heads down, while young Chinese are willing to try something new. Given that two generations of Chinese have never experienced recession, it might be that job hops don’t even feel like a risky move; there ought always be another opportunity waiting around the corner, so why not try something out for fit?

That theme dovetails into another of my recent pieces. I think it’s a puzzle that relatively few people major in computer science given how lucrative it is. After I wrote my piece, a great number of people responded that I’ve been focusing on the hangover of the 2001 dotcom bubble. Let’s say they’re right, i.e. the bubble drove a lot of people away from majoring in CS, such that the number of graduates in 2001 wasn’t surpassed until 2014. I see this as a pessimistic interpretation. It means that it took nearly 15 years for the number of graduates to recover to a previous high after a single, brief recession. (Meanwhile, the share of graduates remains below its ’01 high, because many more people are earning bachelors degrees today.)

It’s worrying that a recession was able to do all that. How many fewer startups have been founded, how many larger companies could have been better staffed, how many more VCs could have generated higher returns for LPs, if the field didn’t have to do with this talent constraint caused by a brief recession? The lesson of both Japanese millennials and CS grads is that recessions leave deep psychological scars that hurt risk appetites for a much longer time than the downturn itself.

That lesson comes to mind when I read Andrew Batson on the hypothetical tradeoff between short-term and long-term growth in China. He suggests that in principle, it’s possible that China’s much-criticized debt-fueled stimulus policies are not hurting long-term income growth as much as people fear: “Officials could argue they do not need to spend time worrying about measures that might damage long-term productivity growth, since no one really knows what causes long-term productivity growth anyway, and are right to focus on preventing deep and damaging cyclical downturns.”

It’s straightforward to measure a recession’s effects on employment and output. But what if the psychological impact of a recession is much more severe than we thought, to the extent that it could make a dent in long-term productivity growth? If we accept the idea that recessions linger in the form of psychological scars, lower expectations, and greater risk aversion, then it makes more sense to do a lot to avoid them. And it weakens the Austrian case for recessions as healthy corrections that improve capital allocation, because they cause a great deal of unseen harm as well. If we treated definite optimism as a function in human capital and productivity growth, then we could be slightly more rigorous in considering the broader effects of recessions.

***

I submit that an underrated Trump phenomenon is how many people have been drawn to care about political scandal. I haven’t much changed the people I follow on Twitter, but my feed has gone something like 25 percent politics to 60 percent politics; I don’t have a Facebook, and I suspect that something similar happens there as well. So many people have become addicted to retweeting the very latest Trump embarrassment, or making identical jokes about it.

But what could be more boring?

This is the social risk: That the minds of many talented young people today will be permanently disfigured by this obsession with Trump embarrassments. The effect will persist when Trump is no longer in office. By that time, people will still be hypersensitive to whatever political news is happening at the moment, as they’re glued to social media looking for breaking jokes. Some people expressed this fear when George Bush was in the White House. I submit that it’s much more severe today: It’s Donald Trump, plus social media, and more cable news, in the midst of a flowering meme culture.

I confess guilt to taking pleasure in some of these memes myself. But I realize the glee is an unhealthy one, and that I have to break it before it breaks me. I entreat more people to consider their news consumption in these terms—most of us do not need to pay attention to the day-to-day goings on in the political world. There are too many sites and personalities that have completely re-oriented themselves to telling people how they ought to feel about the latest piece of news. I don’t blame them, because I think they’re delivering what we want. But we can change our preferences.

Call me a romantic, but I’d like everyone to think more about industrial lubricants, gas turbines, thorium reactors, wire production, ball bearings, underwater cables, and all the things that power our material world. I abide by a strict rule never to post or tweet about current political stuff; instead I try to draw more attention to the world of materials. And I’d like to remind people that there are many things more edifying than following White House scandals.

***

Let me be concrete. I have two suggestions on how to take on greater definite optimism to think more about technological future:

First, we can all try to engage more actively with the material world, not merely the digital or natural world. Go ahead and pick an industrial phenomenon and learn more about it. Learn more about the history of aviation, and what it took to break the sound barrier; gaze at the container ships as they sail into port, and keep in mind that they carry 90 percent of the goods you see around you; read about what we mold plastics to do; meditate on the importance of steel in civilization; figure out what’s driving the decline in the cost of solar energy production, or how we draw electricity from nuclear fission, or what it takes to extract petroleum or natural gas from the ground.

To be a bit more future-looking, consider what the technological civilization ought to look like in the year 2300. Then figure out what kinds of theoretical and practical breakthroughs people need to solve in the near future before we can get to there.

Second, we should ask for more direct, unironic celebrations of innovation in popular culture. That means, for example, shooting more science fiction movies that are not fixated on the ways that technology will kill us all. Let’s see more examples of invention, exploration, and risk-taking in film. And also more images of what the world of tomorrow will look like.

It might be a good philanthropic undertaking to create exciting visions of the future. I humbly beg the various generous people who open up their pocketbooks to consider funding culturally exciting projects. I’d like the altruistic millionaires and billionaires to step up funding of movies, books, World Fairs, murals, memes, whatever, to expand our imagination. More art, say, that depict societies of the future, like so much of what we had previously. Or focus the World Fairs to once again showcase applications of cutting edge technologies. Or figure out how to make cool videos of industrial processes that people are happy to watch online.

Perhaps the mighty industrialists and financiers who steer so much money towards think tanks to promote their goals can consider culture more often. Fewer op-eds on how people should feel about upcoming legislation; instead, more creation of cultural products that get people excited about the technological future. These kinds of efforts to promote definite optimism, rather than a continuous focus on never-ending political battles, might result in greater economic growth in the long run.

***

It’s time to synthesize this piece with my previous. That was about the destructive results that follow when we keep our gaze fixed on the people around us, instead of towards our own goals. When we get sucked into Girardian dynamics, people get too competitive, always trying to one-up another in the group, until they reach places that look totally extreme to the outside world. The way to avoid this Girardian conflict is to direct our gaze outwards to the tangible things of the world.

When we all have different things to be interested in, we can avoid the narcissism of small differences. I’m hopeful that greater interest in the industrial world would decrease the amount of Girardian conflict in society, because manufacturing and engineering have so many different niches. It’s not the only one, however. The essay is in part an exhortation that the world has many interesting things to focus on instead of each other.

Here’s one more point that I’d like to add on Girard at college: I wonder if to some extent current dynamics are the result of the liberal arts approach of “college teaches you how to think, not what to think.” I’ve never seen much data to support this wonderful claim that college is good at teaching critical thinking skills. Instead, students spend most of their energies focused on raising or lowering the status of the works they study or the people around them, giving rise to the Girardian terror that has gripped so many campuses.

That makes me wonder if encouraging creativity and critical thinking skills is possibly overrated at current margins. Ian Leslie’s book, Curious, makes the point that we shouldn’t be so pleased to offload so much of our memory to search engines, such that the most key skill is learning how to Google instead. So I’m starting to better appreciate the Leninist system of education in France and China, in which children are endlessly stuffed with information (especially in technical subjects) and then sorted through rounds and rounds of examinations. Kids will develop critical thinking skills more easily if they have a vast base of knowledge to work with, when they’ll be able to make connections of facts on their own, instead of being taught some interesting rules and not enough content to practice them. But I throw this out as a hypothesis, not as a strong conviction.

Here is an illustration of a satellite habitat from Seveneves.

***

A few last thoughts:

An excellent objection to my points about manufacturing is that many parents worked darn hard to make sure their kids didn’t take the same kinds of jobs, and told them as such. I concede once more that much of the work is unpleasant and hazardous. Still, at some margin, there could be too little encouragement to enter the field, especially through not knowing many people not in services. I wish that the mix of adults that a high school student can expect to be exposed to include more manufacturing workers and engineers.

The digital world is indeed a lot of fun, and it’s entirely wrong to deny that the sector has been innovative. Still, I wish to remind people that changes in the physical world drive a lot of living standard improvements. Given how many people struggle in low-end jobs, and how quickly a few major expenditures are getting more expensive, reminders that the internet is really good smacks today of “Let them eat iPhones!”

It’s striking how much Neal Stephenson’s novels maintain the importance of the material world. It’s not all digital wonder for him. I chuckled at the bit in Seveneves in which Stephenson blamed social media for civil disorder, cannibalism, and general social collapse.

I wouldn’t change much about The Martian movie. More like it, please. I’m cautiously optimistic for the movie adaptation of the Three Body Problem, due to be out later this year. There’s no way it can be as good as the book. But the series is driven by a fundamentally optimistic vision, and that’s refreshing. And instead of an alien civilization that’s 70 or 80 percent more advanced than humans, it asks why aliens should not be 10,000 times more advanced than humans. That’s fun to wonder about.

Stephenson’s Project Hieroglyph sounds like a great idea, I wish that there were more institutions like it: “Inspiration is a small but essential part of innovation, and science fiction stories have been a seminal source of inspiration for innovators over many decades. In his article entitled “Innovation Starvation,” Neal Stephenson calls for a return to inspiration in contemporary science fiction.” But it doesn’t seem to be very active. Anyone know if it’s still an ongoing concern?

The most important essay I read in the last month is by Lant Pritchett. He asks why the scarcest economic resources—entrepreneurial ability and technical talent—are going into automating an abundant resource: cheap labor. In the developed world, labor is expensive because of policy restrictions, and it is neither efficient nor equitable to use scarce technological talent to displace globally abundant workers.

Thanks to Michael Gibson for reading an early draft.

  • Like my posts? Please consider subscribing.

    I publish something once every few weeks. Enter your email to get my posts delivered to your inbox.

Leave a Reply

Allowed HTML tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>