Technology and the Growth Imperative
Monday, March 26, 2012
On October 9, 1910, the New York Times published an analysis of a perplexing new question in transportation technology. The crucial inputs were oil, gasoline, hay, and oats. The output was passenger miles per dollar. The title of the article was “Auto vs. Horse.” The verdict? “Six-Day Test Shows Motor Car Cheaper and More Efficient Than Animal.” At 1.57 cents per passenger mile versus 1.84 cents, the auto beat the equine—by a nose.
The automobile turned out to be an engine of the “American Century.” Today, however, there’s a new argument over technology and jobs, and America’s attitude on the topic will largely determine our cultural and fiscal future.
In his December speech in Osawatomie, Kansas, President Obama lamented job-stealing technologies. Many professions, he said, have been “replaced by ATMs and the Internet.” Indiana Governor Mitch Daniels, in his State of the Union response, offered a very different take: “The late Steve Jobs—what a fitting name he had—created more of them than all those stimulus dollars the president borrowed and blew.”
Paul Krugman shot back, citing the New York Times’ exposé of Apple’s Chinese manufacturing operations, which reported that “almost none” of the 700,000 people who design and build the iPhone and iPad work in the United States. “Steve Jobs designed great products,” Krugman wrote. “It’s very, very hard to make the case that he created large numbers of jobs in this country.”
In February, Congress finally approved auctions of some underused spectrum.
Real technological advance always delivers better value to consumers and, yes, usually displaces some forms of existing work. Today, the Internet cloud is roiling old industries and creating new ones. In the fourth quarter of 2011, Netflix streamed 2 billion hours of Web video. Total U.S. Internet traffic last year, according to my estimates, may have reached 12 exabytes per month, continuing its annual growth rate of around 50 percent. Mobile data traffic grew even faster—130 percent.
Smartphones and tablets get the headlines—they are the first fundamentally new consumer computers since the PC. Software, however, is the biggest market. U.S. fixed investment in software for 2011 was $272 billion. In the last week of 2011, 1.2 billion apps were downloaded onto mobile devices—43 percent by U.S. consumers.
Software development is messy and inefficient, but successful digital products often scale across the globe. True, Indians and Chinese can write software for us. But we, too, can write software for the world. Economist Michael Mandel estimates that since the introduction of the iPhone in 2007, the “app economy” has created 466,000 U.S. jobs. Like the shortsighted “Auto vs. Horse” analysis, the Obama-Krugman view is far too narrow and pessimistic. Mitch Daniels was right. Software coding and data analysis should be mass American employment engines for decades to come.
Broadband, wireless, and data centers are the platform on which our entire digital—and increasingly non-digital—economy are built. U.S. broadband is healthy—we generate more data traffic per user than any nation but South Korea. And yet the innovation cycle craves ever more bandwidth.
However, the government owns 61 percent of the best airwaves, while mobile providers own just 10 percent. In February, Congress finally approved auctions of some underused spectrum and warned the Federal Communications Commission not to micromanage who can bid on spectrum, how much a bidder can buy, and what business models buyers can pursue. Economists Robert Shapiro and Kevin Hassett estimate that advances in mobile Internet technologies boosted U.S. employment by 400,000 per year between 2007 and 2011. In the best circumstances, auctions take years, so further FCC spectrum mischief could slow one of America’s fastest-growing industries.
At 1.57 cents per passenger mile versus 1.84 cents, the auto beat the equine—by a nose.
Tyler Cowen and Peter Thiel say we’ve had little technological advance at all, that we’re in a four-decade “Great Stagnation.” You may disagree, as I do—I think the information revolution is broader and deeper than they do. But at least Thiel and Cowen are pushing us to think bigger. In their new ebook, Race Against the Machine, MIT’s Erik Brynjolfsson and Andrew McAfee grasp the central importance of innovation and how to achieve it: “Parallel experimentation by millions of entrepreneurs is the best and fastest way.”
We need decentralized experiments to disrupt and remake the unproductive education and healthcare sectors—and to create new industries. More bureaucracy in healthcare, education, finance, energy, and the Internet is exactly what we don’t need. An economy at the technological frontier needs ever more flexibility to try new things and take new risks. Developing nations can copy. The United States must innovate to grow.
The rate of sustainable, long-term economic growth should be the towering consideration in all of our policy debates. Compound growth of 3.5 percent over the next two decades versus today’s 2.5 percent would yield a 2032 GDP around $5 trillion larger. Looking at the revenue picture out to 2050, a mere 3 percent growth rate versus the consensus 2.5 percent estimate would produce around $25 trillion more federal revenue over the period.
Kenneth Rogoff is the latest economist to ponder if there’s more to life than GDP, like happiness. No doubt so. As Greece is learning, however, the Aegean breeze may warm the soul, but it won’t pay for bloated pensions.
Compound growth, spurred by technology and entrepreneurship, is so vital that no policy that imperils it should be tolerated.
Bret Swanson is president of the technology and innovation research firm Entropy Economics LLC.
FURTHER READING: Swanson also writes “Obama Administration Snatching Defeat from the Jaws of Victory.” Edward Tenner discusses “The Dismal New Science of Stagnationism” and “Wizards: Cupertino vs. Menlo Park.” Norman J. Ornstein says “Spectrum Auction Deal May Haunt Congress.” John Steele Gordon admires “The Henry Ford of Our Time.” Nick Schulz contributes “The Obama Administration Creates a New Political Market.”
Image by Rob Green / Bergman Group