Is secular stagnation in our future? lessons from the past
Is secular stagnation in our future? lessons from the past
The question of whether industrialized economies can continue to grow has been discussed in the past ten years, as growth rates have slowed down. Some economists have argued that the advanced economies are doomed to secular stagnation and that growth at high rates is over for good. This is examined in view of economic history and the determinants of past economic growth.
Edizione2019 - Globalizzazione nazionalismo e rappresentanza
i can see that they titled should be ready but actually they haven't already okay of arts in science and professor of economics and history a department of economy de la northwestern university a culture of growth origins of the modern economy in italianos moderna a phenomenon foreign well thank you uh andrea and i'm indeed very glad to be here since uh you know last year i underwent the procedure and i was told by the doctors that if that i'd had this 50 years earlier i would have been quite dead and here i am and i'm reasonable alive or you'll be the judges of that anyway um i'm going to i'm going to do today is you know violate something in the jewish tradition because it says in our talmud that since our second temple was destroyed the art of prophecy was given to the fools and i'm going to make a fool out of myself here by actually making very careful and very conditional predictions but i'm gonna say something about the future but i'm gonna do that on the basis of some kind of historical um you know experience and facts so let's get going so here's the question uh are we worried about secular stagnation and secular stagnation has been raised recently from its well-deserved ashes by none other than the great larry summers and you know is he worried about technological stagnation well it seems he is from this picture another person who's worried about secular stagnation from somewhat different point of view is my learned but misguided colleague robert j gordon there's bob and in this book called the rise and fall of american growth he predicts something akin to secular stagnation also from a somewhat different point of view of summers i should say but both have this sort of view that the best days of growth are behind us and that we have nothing but slow growth or stagnation to look forward to so this is larry's article it was published in foreign affairs a few years back and uh and he is citing as he should have the great economist alvin hansen as the sort of prophet of secular stagnation and so just give you a little bit of sort of history of thought before i get into the actual matter here is hansen who was of course most famous for introducing keynesian economics to the united states but in his presidential address published in the american economic review in 1939 he really predicted that the best days were over now and economic growth was going to slow down to a trickle so basically hanson's view was of course largely keynesian in ocean he thought that there would be inadequate aggregate demand and in part it was because of population growth it slowed down to a trickle and he said because technological progress was too slow and could not save it so here's a little bit of a citation from hans and i'm not going to read the whole thing you but you can see that he's there is a technological pessimism underlying that when he says together with the failure of any really important innovations of a magnitude sufficient to absorb large capital outlays and you know blah blah blah and investment is going to fall and not be sufficient and will all go into secular stagnation now of course that prediction as the talmud you know pointed out turned out to be spectacularly wrong um and we all basically know why right i mean in 1939 hansen failed to foresee world war ii he also failed to foresee the pent-up consumer demand that was unleashed in 1945 the subsequent baby boom the korean war the vietnam war all of which essentially implied the reverse of secular stagnation which is rapid post-war growth accompanied by most of the time by inflation and of course he also completely failed to foresee the technological progress that was going to happen in the second half of the 20th century so that of course tells us that it was wrong then but would it be wrong today oops sorry and so what i want to make a point that's actually a rather common place once you think about it and that is economic historians of course don't have a problem with the concept of secular stagnation because before the industrial revolution say roughly speaking 1800 that's all there was anywhere in the world basically nobody would have complained about secular stagnation because that's what everybody was used to and the notion of sustained growth at the kind of rates that we have experienced were absolutely uh unheard of now this is not to say there was no growth at all that would be too strong a statement but growth such as it was used to be very very slow at least in the longer term and unlike today i think it is much more reversible and vulnerable to external shocks such as political sharks and most important perhaps the growth that existed was based mostly on what we call smythian effects that is to say the kind of growth that occurs due to growing international trade better in property rights better markets things like that but not necessarily driven by sustained rapid technological progress and so what happens in the industrial revolution is more than just you know the famous hockey stick effect that we all teach in our classes it really is what the physicists would call a phase transition the whole dynamic mechanism of producing and consuming and and output changed dramatically in the sense that increasingly the engine of growth became growth in knowledge you know which is sort of a nice world of saying it's you know essentially technologically driven and what has happened is that not only growth became more rapid it also became much less vulnerable to natural or political sharks so here are some recent numbers and i'm not wild about these long-term gdp statistics for all the reasons that we teach in our undergraduate classes but you know you'll give you a little bit of an idea of what i'm talking about so you look at most of those countries and you see that growth actually happens for instance growth in the in the dutch republic is is very remarkable in the late middle ages and early modern period of time but then of course after this about 1600 it stops and there's very little growth you know for the next 250 years you look at italy it's even worse they reach a high level of course in the renaissance period but then essentially in terms of gdp per capita very little happens until the middle of the 19th century and you look at china and it's even worse they reach this peak and as is well known in the song dynasty which is instead of around in the 900 to 1100 and then essentially it declines and continues to decline until the middle of the 19th century and it's not any better in spain in italy and on and on the only country where you can sort of see sustainable growth happening and it's happening right at the time of the industrial revolution is of course in in britain but this sort of exemplifies the kind of story that i was trying to tell and so now is a very naive question that only somebody living in the 21st century who thinks of history in sort of teleological terms as my historians would call this somewhat disparagingly why is this really true you know why could there be no sustained irreversible growth before the industrial revolution and i'm going to give you three phenomena that i think matter more than anything else and then analyze them one at a time to show to what extent they hold today that's basically the outline of the talk so there are three classes of these phenomena the first two are what you'd call negative feedback essentially growth creates the conditions of its own undoing in what marxians would call dialectical terms right so you get growth and then growth creates something that undues and does growth okay so the first most obvious things and this is what you know many economies still believe is malthusian negative feedback and that's sort of the sort of standard malthusian model which we all know and some of us love and it's the basic idea of course is that you know inca per capita goes up people have more babies or more babies survive or they get married younger or something like that and then the population goes up population puts pressure on the resources and voila income goes down again and this is nothing more than essentially the iron law of wages a somewhat less well-known but equally important phenomenon is what i call institutional negative feedback and then what happens is if they have a region or a town in which growth occurs somebody looks at that and says wow these people have money let's go take it okay so this is the sort of what i call this sort of um a really certain sort of model and really something was asking why he robbed banks and the answer is that's where the money is uh and so this is um basically the story of say northern italy which was quite rich as you could see but continuously attracted predators from either france or spain or other places who in some sense tried to rob it the same happened in southern germany the same happened in flanders and muttatis mutton these very similar things happened in in china there's also internal rent seeking which in which basically you don't have to have some outside predator to come in but it's basically local tax collectors or other kind of predators who come in and take the resources and the third is slightly different but in my view equally important and that is the concept of what i call a narrow epistemic base of technology which is a fancy term to basically uh point out that people had techniques and they made things but nobody had any idea of why the things that they were doing actually worked and if you don't know why something worked because it's very hard to make it work better and it's also probably a prescription to track all kinds of things that don't work so that's basically it so the malthusian model as i said is just basically the classical iron law of wages in which and there's not much i need to add about it except there's a beautiful quote that i always give to my students which is from h.g wells in which he says humanity spent the great gifts of science as rapidly as it got them in a mere insensate multiplication of the common life you know this doesn't tell you anything you didn't know before but it sounds so good the institutional negative feedback of course is the basis of a fair amount of work i mean i can just cite of course the aston martin robinson book this is a description of what they call the extractive society or what north wallace weingast called the natural state um and this and and so this is basically that the helpful distinction i think is here one by by monster olsen and also distinguished between these roving bandits who are basically people coming in from the outside you know essentially pillaging plundering and burning and leaving and there's local people who stationary bandits and but they both basically create it's not just a destroy physical capital and kill people but they create negative incentives right so if you know that by making by making money and you're going to attract somebody who come in and take it away from you by violent means that creates a disincentive to make the effort in the first place and so as far as the narrow epistemic base of technology maybe i'll just give you one quote that i like very much and this baby will drive it home it says it was a world of engineering without mechanics iron making without metallurgy farming without soil science mining without geology water power without hydraulics dye making without organic chemistry and medical practice without microbiology and immunology so people did things but they had no good idea of why they worked and invention occurred through luck or learning by doing or endless experimentation but not by any sort of fundamental basis of understanding it the point i'm making here is that by the 19th century all those three mechanisms in one form or another were either fatally weakened or completely disappeared so the malthusian feedback mechanism is by everybody's agreement has basically disappeared by the beginning of the 19th century at least in europe the world undergoes some earlier some later a fertility transition and birth rate starts to plummet and the also the malthusian regime disintegrates in the late 18th late night early 19th century as far as rent seeking is concerned and this is not all that much appreciating appreciated after napoleon who may have been sort of the last roving bandit in fact that's what he did i mean in few italians should know this better than anybody else uh napoleon was basically a predator who stole things i mean he gets a good press in france but elsewhere we know what he was about but within the but after 1815 this kind of behavior within europe largely disappears which is to say it disappears within europe it does not disappear in the rest of the world because what the europeans did is instead of robbing one another which they had been doing for centuries they now start to rob you know other continents but at least within europe wars that where predatory in nature disappears and that of course means that you know smaller nations no longer had to worry about their more stronger neighbors who would come in and take their take their wealth and it's also true that rent seeking as a general phenomenon starts to decline in europe in the 19th century and you see this in all kinds of phenomena but the best known perhaps is the fact of the rise of free trade that basically from 1815 on until about the closing decades of the 19th century we see free trade becoming very widespread in europe and free trade of course is a response to rent seeking implied in protectionist policy so i think you can see this in all kind of phenomena in which corruption and protectionism decline in europe at least until about 1900 after that is a different story and most dramatically of course and this is not new to anybody in this room is that in the 19th century science chemistry biology physics you name it is increasingly more powerful in explaining why the things that we that work for us actually work moreover of course it generates entirely new ones and so those three reversals basically describe much of this sort of unprecedented great enrichment you know the great enrichment is a term that i like better than the great divergence because the great divergence really talks about relative gaps between europe and and the east and great enrichment actually underlines the fact that everybody got richer not just the west but the rest of the world as well also at a later stage and so using those three mechanisms what kind of predictions can we make about the future and how likely is it that we will return to the earlier days of low or negligible growth so this has done what i'm going to be doing for the rest of this talk let me first talk a little bit about population and democracy so mussolinism is actually a hearty wheat weed to eradicate so there are still some neo-malthusias in the world like this paul ehrlich at stanford for instance who wrote his famous 1968 book called the population bomb which you know that i think the the term is actually appropriate because the book really is a bomb in my viewing sense it was spectacularly wrong but he is unreformed you know he still maintains that you know there's going to be some malthusian disaster as i see it and i think most people would agree our own age the problem is the reverse much like hanson actually worried about population in the west is is growing too slowly much slower than it was growing in the time of alvin hansen and what's more of course and we all know why because it's driven by low and declining fertility which is to some extent offset by rising life expectancy but it's not good enough so eventually population is going to start uh declining but the side effect of course is this general phenomenon called population aging and so you could argue that population aging is a malthusian-like phenomenon because it's too a form of negative feedback in which growth creates the mechanism to undo itself right it's this time it's not population pressure it's aging but maybe aging is pretty bad too so here you see some data about aging okay this is the ratio of people under um of older to middle aged workers and you can sort of see that this ratio is rising uh everywhere in some relations faster some nations slower but it's clearly a worldwide phenomenon okay in in a median population age is projected to rise in some places quite dramatically in germany from 38 to 51 in china from 35 to 46 in korea to and the old age dependency ratio given current of course retirement limits will rise from 13 to 38 percent by the end of this this is a very serious uh phenomenon or or so it seems okay so in italy just not telling you anything you don't know it turns out the region of liguria is the highest ratio of elderly to use in the world i'm not certainly sure why but that's how it is um the the proportional population today is about 30 over 60 that will be 40 by 2050. so you know this is aging now i know i'm it's just the good news or the bad news um it's it's not totally obvious to me and it is the result of past economic growth and technological change right so the mechanisms are complicated but they are all related in some way to economic progress and so could aging become the driving force behind secular stagnation this would be sort of malthus as revenge if you want okay and so one thing that i guess where hansen was spectacularly wrong is that he thought it would be demand driven secular stagnation because there wouldn't be enough investment or aggregate demand my sense is that aging if aging does anything it will cause aggregate demand to rise faster than aggregate supply in part because dependency ratios rates go up so we have pensioners are dissaving and this may not be great news perhaps but it certainly mitigates any concerns that we have about secular stagnation that's driven by inadequate demand moreover as the population is aging i think the crushing expenses of both medical care and pension payments are going to create deficits in every country in which these arrangements exist and i find it hard to see how these countries will ever suffer from insufficient aggregate demand now the other thing of course is that it dependent rising dependency ratios will reduce gdp as we traditionally measure it but i'd like to remind everybody in this room that that only is the case because we do not place an economic value on voluntary leisure so retirement and you know the golden year something are a case of voluntary leisure we don't put a value that's not measured in in gdp also nordhaus and tobin told us in 1972 that that's what we should do but we haven't we haven't done that and so if you do that actually you add that to gdp it's not obvious at all that gdp as properly measured will decline and what's more of course is that you know getting old as i we were just i was saying is interact with modern technology to produce a much sharper rise in quality adjusted life years in the sense that the quality of not only the people getting older but they are much able to enjoy life and so total consumer surplus that are getting from that is vastly understated just by measuring uh their life expectancy and in any case even if you go for the traditional definition of gdp which i'm urging you not to do you know there is no good uh connection between aging and changing in gdp at least to date so this is the change in gdp and this is the uh change in the ratio of senior to middle aged workers and you really get very little very little if if if any effect at all so it's basically zero that doesn't mean it's gonna be zero in the future it just means to date it's zero now here's one more point that people often raise and i rate myself and that is well some think that because there are too many sort of old fogies in the economy this will somehow affect the dynamism of the econ of the economy because in you know we have this notion that these best the high best entrepreneurs you know people like zuckerberg and jobs and gates did their best work and when they were young and now as the ratio of young people to all people's declining we will have fewer of those well first this turns out to be a myth there's a paper by pierre zulai and others recently that shows that among the 1 0.1 of startups based on growth in their first five years the founders started their companies on average when they were 45 years old and also that's still going to be built somewhat below the median but it's not people in their sort of you know early 20s as the popular conception sometimes run now are we going to be running out of young people at age 45 or so and so you know aging will mean that the total supply in the very long run will diminish but my sense is that what really matters here is sort of upper tail human capital that's to say the the ability of the people in the very top of our engineering and scientific and ability skills and so many other factors could offset the decline in their numbers and if lower quantity means higher quality and family size actually the supply of these sort of high quality young people could actually go up even if their overall number goes down so i don't lose much sleep over over this uh it's also been being documented by a paper by assam oglin that in fact robotization is faster when they're older workers and so as all the workers become scarce expensive firms replace them by robots and so here you have some now these these some these curves the the one concern i have with aging is that if the rate of technological change will accelerate as i will argue it does aging means that the flexibility all the things equal of the labor force uh may be declining in other way it may become increasingly difficult to teach middle-aged dogs new tricks so to speak and so you know people in their 50s and 60s may still be in the labor force but it may be increasingly difficult to retrain them because your ability to acquire new skills i sad to to tell you uh does decline uh with age much as you will as you will try and so if this happens i can see serious problems there not only in you know what happens to these older workers who may no longer be able to retrain but also the fact that they will resist technological progress or feel bitter and angry about it and vote for parties that may be less receptive to progress there also is an issue of environmental uh pressure i'm not going to say very much about this except the following the new malthusian of this world believe that what has happened in the past is that we have grown by using inordinate amounts of minerals and fossil fuels and that if we continue to grow like that eventually the earth will run out of resources even if the number of people doesn't keep growing so it's just the pressure on on fixed resources but i am unwilling to accept the fact that just because in the past economic growth has been heavily fossil fuel using and metal using and so on that that is the way of the future in fact that's a matter of prices and it's a matter of incentives and it is it's in our capability to change that and change the sources of energy and in fact that is precisely what will what we will do so you know in the in the past of course uh i think ingenuity will trump malthus as it has done in the 19th century so there's all kind of of examples that i can give you about new technologies in which we you know responding to this pressure on resources you can think of led lighting which uses a fraction of the electricity of of of regular incandescent light bulbs we can think about um plastic waste which we are eventually going to have to deal with um and of course there is this growing interest in what's known as beefless beef you know and this is clearly will reduce pressure on resources a great deal all right that's the sort of malthusian story let me say something about institutions and what about institutional feedback uh will growth be done in uh by rent seeking and other forms of predatory behavior and here i wish that i could be as as unambiguously positive as i as i'd like to be but i can't okay the story is more nuanced so the international roving bandits i think that that are characterized so much of history is probably going to be uh moderate i mean the last example that comes to mind is the invasion of kuwait in 1991 which is a classic sort of roving bandit kind of action and the international order did not accept that and basically uh undid this with the usual story that you all know so i think at this point i think small but rich countries you know like luxembourg or singapore at this point don't have much to fear but i can't be sure that that will not continue and i'm not totally sure that western powers which were so so much resolved in 1990 will continue to show that kind of resolve and in fact the predatory nature may change its character and we will may see things like nuclear blackmail which is of course a major concern that everybody is worried about with north korea and and and other countries so i i can't guarantee that that will completely disappear the internal rent seeking or the stationary bandit is much more ambiguous and here the big the big question is uh corruption and you know it's a very hard question to ask if the world is the world getting more or less corrupt because we don't have of course a precise metric of corruption what we have are these transparency international and world bank data banks which give you the corruption in each country but these are all based on subjective perceptions and it's not totally clear how comparable they are among nations or over time that said you know you just look at those at those maps or those tables and what strikes you is the sort of world of sort of three kinds of nations okay there are highly successful nations where corruption is essentially negligible norway you know new zealand singapore netherlands and so on where it's not really a factor then there are countries in which corruption at least on the surface seems to be pervasive but it doesn't seem to be able to affect the rate of growth at least not to date and so you think about places like china or indonesia or in turkey illinois you know places like that highly corrupt but they're still economically dynamic but we have on this planet a large number of countries their kleptocracy and rent extraction are so pervasive and so strong that they really imperil the fundamentals of economic growth such as property rights contract enforcement they affect the supply and quality of public goods and suppress entrepreneurship and investment so you look at countries like nigeria guatemala russia and large chunks of the world just seemed to follow that and you know what you'd like to see is at least countries from class 3 slowly moving into class 2 and according to the world bank at least this has happened to a few countries like rwanda and romania hopefully it will happen elsewhere but the evidence for that so far isn't um isn't uh home and in fact it's not clear that globalization even if it survives is going to help there a great deal because the evidence that joining transnational organizations where transfer corruption is looked down upon that that will reduce corruption the evidence for that is not strong the hope was that when countries like romania and bulgaria joined the eu that somehow being part of this community would reduce uh corruption uh you know reading the latest news from romania doesn't seem to be terribly reassuring about that and it certainly has done very little for greece so um this is this is clearly something where uh where we've in fact if you look at the united states you know where we have 50 states there's an enormous degree of variation in the degree of corruption within each state it's going all the way down from minnesota and the dakotas where where corruption is very low to a large number of states ranging all the way from illinois down to louisiana where corruption is still quite serious so the one thing i would say is that at least history provides some hope about corruption because you have to remember that the world on the eve of the industrial revolution say around 1720 even britain was by our standards an incredibly corrupt country and that mercantilism really is a theory of of rent seeking and so after say 17 20 or 1730 there's a growing reaction against that you know and if you read people like adam smith and you know his entire school of people he influenced they're really um you can see that that rent seeking starts going into some kind of tailspin because it is regarded as as immoral and bad for bad for business and so at least until 1900 i think rent seeking as a whole in europe disappears not all together and not everywhere but clearly is in decline it has happened before hopefully it could happen again that said you know we talk about we can economic historians talk about technological progress but we talk about institutional change and that there's a reason for that because the evidence for institutional progress that in some sense institutions get better monotonically over time that evidence is really not very strong there have been periods which we would all agree are periods of institutional improvement but they've been punctuated by periods of sharp and institutional decline particularly the 1930s and i hate to say it but we all know it the years after 2008 until the present uh day and so if institutional progress occurs it really occurs in the way that as smog and robinson describe in their new forthcoming book in which it moves into this narrow corridor but it's vulnerable and reversible and constantly threatened by benighted forces so there's not a great deal of reason to be optimistic there all right now what about technological progress and here is you know i'm engaging directly with bob gordon and a whole bunch of of um of other economists there's a paper by nick bloom at al and now there's a literacy that basically says look um innovations are harder to come by because the low-hanging fruits have been picked and so this metaphor of a tree that has low hanging fruits that we have picked you know so we've done air conditioning and we've done antibiotics and we've done indoor plumbing and all these things that bob gordon likes and but we invented these things already so are the next inventions going to be harder and of course that's wrong because what science does is it provides us with taller and taller ladders to go to higher and higher fruits and so it does that because it widens the epistemic base of the production say the techniques that we use and so once we understand why techniques work not only that we can improve existing ones things that have been used for you know millennia like steel or fertilizer but we can design devise entirely new things that nobody uh dreamed about and the question is you know is it i don't i'm not trying to argue a very simple linear model that science drives innovation because it's we all know that technological progress still has a large component of luck of accident of dogged persistence you know try every bottle on the shelf kind of kind of methodology but it's also true as pasteur said memorably fortune favors the prepared mind and so people who are well strained and well schooled are going to do better than amateurs who just puts around in their lab um and of course there's certain things like genetic engineering or nuclear power where if you don't know what you're doing it's a complete non-starters so the important thing however and that's where my main focus is going to be is that it is a two-way street and that science advances not only because you know people know more but because they have better tools and instruments to work with and that's something that we're often sort of forgetting and uh what's actually happened is that technology improves the tools and instruments that make science advanced and in the science advances it provides knowledge that can be used for technology to go even further so in some sense technology pulls itself up in some kind of positive feedback loop and i think that's something that is often overlooked so let me uh let let me sort of explain very simply why that's the case so this is pointed out by a famous historian of science derek desola price who pointed out many years ago that you know we as humans we can't do very well science because we are limited by our senses to we can see things that are microscopically small we can see things that are incredibly far we can do very many calculations and we can sense temperature and pressure and blah blah blah you know our senses weren't designed for that we need instruments and that i think is what he called artificial revelation which is a wonderful sign and so some of these stories are are very well known so here are oops here are three of them that brought in the scientific revolution right so the one on the left is galileo's telescope it's not an uh an original it's a reproduction because there aren't any originals left on the on the middle we have hooks microscope and on the right you have this toricelli's barometer which of course led to the discovery of the atmosphere which is one of the sort of great discoveries of the 17th century and of course led eventually once you understand there's an atmosphere it leads to the atmospheric engine and from the atmospheric engine you get the steam engine so you can see the direction from these tools to knowledge to technology right there and then all right well you don't like the scientific revolution some people don't like it here's the 20th century i skipped two centuries but trust me i have many more slides that do this this is one of the great tools of 20th century technology x-ray crystallography okay that was developed the theory was developed by max for now a german theoretical physicist and on the right you have william henry bragg who built the first spectrometer the only man to win the nobel prize by the way together with his son i think to date that's probably true um but there you but but this this tool has had enormous implications for technology so this is the most famous use of it by the way this is rosalind franklin's use of this technique in order to help discover the structure of dna for which two men got the nobel prize and she got nothing but you know that's 1953 um but that's one of the famous uses of this tool and so if you accept that notion that really what's driving progress is the tools and the instruments that science has to work with now what does it predict for today and the answer must be that we science today has an arsenal of tools so vastly powerful in everything that came before us looks like toy many of them really boggled the mind and so let's first go to the tools that already existed okay so galileo never dreamed of this this is the james webb space telescope it's not quite there it was supposed to be out in the air uh uh last year but they postponed it but of course we still we still have the hubble telescope which is still a great deal more than what galileo had but this is of course a tool that makes every tool before it looks like a toy neither did louis pasteur ever dream of this so this is a basic health type of stimulated emission depletion microscope which is used in nanoscopic work okay so this is you know the in a microscope that sees things that would have been unimaginable even 40 50 years ago with electron microscopy in fact microscope technology is so important to science that a whole bunch of of microscope developers actually won nobel prize in physics which is rare because usually they don't give it to people who build tools but this is recognized to be i'm not going to go through all of those but i think you you get the point now those are tools that are old right the microscope and the telescope both derive from the 17th century but of course science in the 21st century has tools that nobody even dreamed about even a few decades ago so most perhaps revolutionary of those is lasers and you know lasers really is a fabulous research tool um you know its properties are clearly uh highly unusual you know and there's a whole list of them here i don't have time to go through all this but this is used in a wide range of scientific tools and you know you'd wonder would isaac newton not have love to have a laser and in fact as evidence that he did here it is i plucked this from the internet so it must be right but in fact when lasers were invented in 1960 the inventor theorem and said that this was basically a solution in search of a problem now it couldn't have been more wrong uh it is one involved in one of the most powerful tools that science has it's disposable so here's a whole bunch of things that it's done for us uh again i'm not going to go through all of them but this is it's critical particularly in biochemistry and photochemistry as well as in in you know in in neurology in using laser ablations the most striking findings that i find is is is this uh this thing here of course as a historian i find this this terribly interesting so that they have used lidar which is light radar which is laser based to actually re-examine these guatemalan forests and shown how vastly more large vastly larger and more sophisticated a pre-columbian maya civilization was in in guatemala um they also were used in confirming one of einstein's famous hypothesis namely gravitational waves which he predicted exactly a hundred years ago and were confirmed in 2017 by two prizes physicists won the nobel prize and of course finally and this is still in the future lasers will be essential in cracking nuclear fusion uh and if they do so this will probably stand as one of the greatest inventions ever made the other thing that is was never available in the past is of course high-powered computers and so i don't tell anybody in this room nobody here could possibly do any research without computers in fact i have students asking me you know how did anybody ever did research before you had computers and you know that's a good question poorly i think but but so we you know what it allows us to do is not only big data which many economists of course do these days and but they also allow us to do to simulate equations that really have no closed form solutions and that capability that simulation capability has created entirely new fields of research which are just just getting started so this is just the beginning of them and there's now every almost every field we have is the word computational in front of it computational chemistry computational biology and so scientists now recognize that there are sort of three ways of doing science theory experiment and computational it hasn't really hit economics in a big way but i you know it's a good chance that that will uh change now it's also important to realize that we tend to focus for some reason on digital technology so artificial intelligence and deep learning and so on is all the rage in fact i should like to cite freeman dyson here who said that when the 20th century was the age of physics the 21st maybe the age of biology and that we have analyzed we have just developed tools that can analyze and understand living beings at a level that we never dreamed about before which has huge implications for medicine for agriculture and hopefully for ecology and of course this is particularly true for this new gene drive technique which allows us to manipulate living beings like we never did before now just to to add one sentence a lot of people feel very uneasy about the development of this technique probably more so in europe than in than in the united states because of our sort of uh intuition that this isn't quite right and the reason it's not quite right is because in some we're playing god and we're manipulating life in the way nature never intended my answer to that ladies and gentlemen we've always played god we're just getting better at it and i'm reminding everybody that god did not create poodles we did that's worth remembering so you know how much time do i have five minutes now okay fine so just a few notes about productivity you know so people say well if you're right why isn't productivity rising so the productivity picture does look worrisome many of you have seen this this is the rate of labor productivity and this is very very close to zero so the last few quarters have been a little bit better um and so i would like to remind everybody in this room that productivity data that bob and others rely on really are a different thing from technological progress and in fact in my first lecture in economic history i talked about i said look we have technological progress we have total factor productivity growth here are 10 reasons why they would not move together they are not the same thing and how you measure tfp growth in an economy that's 80 services is of course a much larger a big issue now so far miss measurement hasn't solved the issue but you know i'm not sure the last word have been said about this we keep inventing things here are the patent data statistics there's no slowdown in patenting again that's a poor measure because you know patenting is is not a very good measure of technological progress for a whole bunch of reasons but at least you know the effort is still is still there so let me sum up the case for techno optimism and then temper it a little bit so where gordon and his fellow travelers i think have it wrong is what they do is they measure the direct effect of technology on output and what they're forgetting is the indirect effect that technology has on science and that then science affect technology through the technology sort of the science technology link and that way affects the economy that could be lagged by a decade or by 50 years we don't know but eventually it is vastly more uh powerful and so what eventually has happened in the last 250 years ladies and gentlemen is that technology has to a large extent pulled itself up by the bootstraps and this is i think a a a positive feedback loop that may not necessarily converge at all and therefore there is no room for techno pessimism so to put it technologically we ain't seen nothing yet so all the same here's the question if everything is so good why is everything so bad why do we have all these pessimists out there telling us you know that growth will end and that you know things are going to be awful so i have a whole bunch of reasons here one of them already mentioned economic week on a mistake to these tfps growth figures too seriously and there also is i think a built-in nostalgia for the good old days and i must say i've always regarded it one of my duties as an economic historian to point out that the old days may have been old they weren't good they were terrible in all kind of dimensions that i could spend the rest of the afternoon here describing you if you don't believe me pick up steve pinker's new book with all his flaws and all its and he points this out in in you know in multiple dimensions the other thing which i'm really fighting against but i'm a victim like everybody else as we grow older it seems the past looks better not because it was really better but we were younger so things look nicer in some in some way this is something you have to resist and i'm resisting it with great effort and finally i think uh not finally there's a lack of imagination from which which i do blame gordon for an inability to envisage new technology and what you should really do as a historian is place yourself in 1900 and say look it's conditional on what the world was like in 1900 how likely would our world have seemed to them okay and if you know that's not good enough put yourself in the time of julius caesar and ask that question and then i think use that ratio to predict the future and finally there is an argument by psychologists which i'm not sure i believe is that there's by natural selection we are hardwired for excess pessimism because that's the way to survive in the jungle rather than who knows anyway so what keeps me up at night if i'm such an optimist and i think this concern i have is that you know that one of the things that modern history shows more than anything else is that you can have a mismatch between our technological abilities and our political abilities and that's what happened in to some extent we have interpreting what happened in 1914 it's what happened in 1939 and what almost happened in 1962 and had it happened we wouldn't be sitting here right so this is something that does keep me up at night and so let me sort of maybe wind this up okay the there's no room for unbridled optimism even if you believe in the power of technology to keep accelerating and the i'm quoting here from the imf you know the greatest threat to the political uh to the world economy is not technological stagnation it's political risk okay and we all know the things protectionism no nothingism anti-intellectualism uh populism uh fear-mongering demagoguery you name it i mean all these things obviously closely intertwined and the last few years have not been encouraging on that front and so if i may end with what i think is the understatement not of the century but of the millennium okay i'm quoting here from freud's future of an illusion in 1927 where he says while mankind has made continual advances in its control over nature and maybe expected to make still greater ones indeed it is not possible to establish with certainty look at the understatement that a similar advance has been made in the management of human affairs to which all i can say is you're not kidding ziggy thank you very much so um i would like to thank professor marquette for one probably on the most fascinating lecture we had at the festival honestly and i i didn't miss any of the editions um so there are so so many uh suggestions hints and you know the professor has put together literature different strengths and suggestions from the you know technological uh word so i will like to open up two questions from the from the audience and uh of course please keep the question short so that we can have more questions i have mine as well so grab one there right just wait for the microphone please here we go it's coming it's gonna be in italian or in english no good sorry about it yeah it works works um i just i just wanna it's pretty interesting to be so optimistic in this country now and my question comes from ethan from our situation right now and the situation of uh the politics how usa too how much can the wrong choices of our polish politicians influence these the future and and this and the progress well you know i i i wish i had a simple answer to that but let me give you pick an example okay which is close to my heart and everybody's heart in this room i'm sure and that's american policy vis-a-vis climate change or clearly on climate change we have an administration that is completely you know off-base and you know whether they are clueless or pretend to be clueless nobody can tell but clearly they they're doing everything that's wrong but does that really mean okay that they will affect the trend the technology has to steer away from fossil fuels into reproducible forms of energy i don't actually think so so trump talks a good game about keeping coal miners in business but it's quite clear that he cannot do that that is not going to happen that people are going to switch to renewable energies for reasons that have nothing to do with government policy that said the speed at which things happen even if they will happen in any case really matters because with global warming okay time is of the essence you know if we do things 10 years earlier we may be able to stop the temperature rising by half a centigrade which sounds like a little bit a hell of a lot and so you know i think in the end the incentives uh toward doing this will be strong enough even in the absence of government policies now had we had a more sensible government in the united states this thing might have been a lot faster and there may have been uh you know some some of the worst effects might have been uh prevented but i want to add something to to what you since you asked this question and make make a very brief point about how technology really works and so well you know a great historian of technology called nathan rosenberg once wrote the classic paper talking about focusing devices and he points out that what the way technology often advances is that society recognize recognize that there is a problem that they need to solve and they put the best minds and the best managers to solve this problem and if it's within their technological capability even if it's not quite in the set they do it project manhattan is a classic case if you want okay the war against aids is another one uh the invention of nitrogen fixing in 1912 is the third one i mean these these are many of these cases right now the world is recognizing climate change as a focusing device that is where scientific and technological engineering efforts is going to move and now it's not a simple problem it has to advance on many fronts but you can sort of see all the work that's going on all the way from producing you know cowless meat through synthetic biology all the way to carbon capture and back because this is on the agenda and no no trump will be able to change that and in that sense i think the concern about policy may be a bit overstated having said that of course you know i wish we had somebody as everybody else that that that recognized the problem and didn't try to deny it thank you if you if you don't mind just on this uh what about appropriation of the benefit from technological progress private appropriation rent-seeking uh use of patents and so oh no no i need to that's that's not an easy nothing easy so what has evolved in the western world over the last 300 years or 400 years i should say is the following property rights intellectual property rights have bifurcated into the two two groups one of them is essentially ownership so patents give you some kind of property rights on a on a on technique even for a temporary time but for most useful knowledge that we produce we don't actually claim any property rights i mean if i write a paper you know i don't make money of the paper i want it published why do i want it published because reputation mechanisms and much of our knowledge world is driven by reputation mechanisms we go to we go to academics and we say produce knowledge what do you get for it well you know you get certain rewards but it's nothing proportional to what you have invented and there's no proportionality there what you get is this you know a safe and secure existence but not great riches and some kind of reputation of your peers and that is what now that actually was invented in europe in the 16th and 17th century and um it was and many people created science for something which was is known as patronage so you know everybody knows the story about galileo who you know who wrote this wonderful book called the starry messenger and six months later he was offered this wonderful patronage job at the court of the grand duke of florence where he spent you know many years you know basically having a good life and writing writing books so today we don't call it patronage anymore we call it tenure but it's the same thing you know essentially and we have this all these wonderful incentives of membership in scientific societies and at the very peak of the pyramid the nobel prize and this motivates a great deal of work but people don't own the work in fact they do the reverse as soon as they have something and sometimes when they don't have anything they put it in the public realm because they want to publish it right away so they give away ownership they expose expose it to the public and they go here anybody who wants to read my paper can read it and of course ninety percent of the papers they don't get read by anybody but that's the difference that's another issue the question here and one the other one here see yes hello person can i ask my question first um i'd like to ask we we know you have done a lot of research on the intellectual rules of industrial revolutions so china is passing through or the east passing through is a kind of um different let's say process and they're performing really good on some new kind of technologies like iot or ai so what do you think can we explain the framework of enlightenment for a chinese explain chinese case or do they have a kind of different route or way of understanding the signs or maybe some kind of different intellectual roots that was the first one and the second one which is pretty much related with that one maybe the new is it possible that maybe new technologies may allow to create different kind of intellectual routes for example like like a blockchain or iot it's not possible to take patent like when you publish it's it's online and everyone can see it so maybe this may change this following the same intellectual route from you you got what i mean let me take those two questions one at a time you're absolutely right about china in fact i have argued repeatedly that one of the things that sets china apart from the west is that the west very early on in the 15th 16th century develops these notions of intellectual property rights in one form or another but that in china that concept is completely absent china never had a patent system and in fact the reason it has a patent system is because much of the innovation and the invention was carried out by mandarins by people who were members of the imperial bureaucracy and so this was really part of their work in europe you know innovation and science really are almost completely farmed out to the private sector and always have been so that's why you needed it and so today even today even though china has some formal structure of intellectual property rights but i don't think it's in their culture yet and so when you know trump is railing a bit the chinese are stealing this the chinese don't think they're stealing it i think you know these intellectual property rights don't really exist and if it's once it's and then and they get intuitive the non-rival rivalrousness of knowledge right so if i give you my knowledge i don't have any less myself so it's it's okay for you to steal it because i don't have any less that's sort of the the underlying the underlying notion and i think that's part of the of the disagreement today between the american administration the chinese administration that you know we have america has had intellectual property rights and patents since it was born since the american republic was founded and it's always been very critical to it's the way it's proceeded and this has not been the case in china or in non-western societies um your other point is actually rather interesting and i i don't have much time to go into that but you're absolutely right you know there may be other forms of protecting intellectual property rights the most important one has always been in addition to patent system is secrecy so people kept trying to keep things secret and there are cases in which reverse engineering isn't possible right the most classic case which i'm sure everybody here knows is coca-cola so coca-cola has never been patented but this the formula is sitting in atlanta in a vault on the 24-hour you know guard and nobody quite knows how to make coca-cola because the recipe is is kept secret you know it can't be reversed engineered or at least nobody has succeeded so far and there are many cases in history in which people try to use secrecy as a way of protecting their property rights and what you're pointing out is i think correctly is that new technology will allow maybe different things to make reverse engineering particularly difficult but remember one thing as technology improves to protect your property rights so does the technology to hack it and you get this constant race between protectors and hackers and you know this is this is probably going to end up in some kind of tie so you know in some sense i don't think i don't see on the horizon a clear substitute for patenting even so everybody understands what's wrong with the patenting system but my main point is that scientists and intellectuals in general don't use intellectual property rights by excluding others it's the other way around we want to include us i don't want not only that i want don't you want to i want you to read my paper where intellectual property rights comes in once you've read it and you use it you cite me and if you don't cite me i get very angry and if you don't believe that you haven't talked to any of the academics in this room that's the worst thing if i work i want a citation i want credit not profit i don't want your money i want your footnote but if they buy your book is fine anyway uh there was a question there and that is the last question because we are running out of time i'm sorry excuse me video i thank you for your presentation it's very interesting i have a very simple uh not a question i know there is not a point of secular stagnation but don't you think that your theory of uh this technological optimism is not actually what is necessary to to save the planet at the meantime having the growth so in a way combining these talks of reducing growth but in a way to preserve the planet i don't want to reduce growth i think we need growth to save the planet not to stop growth i mean this is a terrible misconception because not all forms of growth are created equal we will not be having if we're having the kind of growth we had in the 20th century in which we burned huge amount of oil huge amount of coal huge amount of natural gas we use vast amounts of iron and other metals and we dumped vast amounts of fertilizer on fields then the planet would be in trouble what i see on the horizon are ways to substitute away from those resource intensive techniques into ways in which we can save resources we can save energy and we can and you know in fact undo some of the myths we made because look i mean the way technology proceeds ladies and gentlemen it is not a nice monotonic path almost every new technique that's ever been invented has had unforeseen unanticipated and unintended consequences by definition right because it's something novel so when people first learn to burn coal in in manufacturing process during the industrial revolution they had no clue that burning this coal eventually would lead to climate change and so what do you do when you discover that the technique you had screwed up the answer is you come up with a technological fix you do a technique that that not only doesn't do that but fixes what you've done so carbon capture would be a technique a form of growth that would save the planet it wouldn't do you know led lighting or you know bacteria that eat plastics think of it you know you've all seen those pictures of these vast islands of plastic refuse floating around in the pacific suppose somebody built a bacterium that ate plastic how many things would slowly melt away that would be growth but it would be growth of the right kind that's what i'm thinking of with the correct incentives both government and private now these techniques are within reach because we have the tools to develop them that's the kind of growth i want to encounter would you mind maybe to talk a little bit with somebody coming down if they like prepared oh