Saturday, January 2, 2021

Running Faster and Faster Just to Stay in Place

The headline seems to be true in economics whether you are looking at lower middle class households or national economies. In the case of the latter, if credit growth were to stop tomorrow the economy would collapse. Whether you call it debt saturation or diminishing marginal productivity of debt or bang-for-the-buck, it takes more and more debt to maintain growth. And this is not a new, Covid-19 related phenomena.

In 2019 it took $1.41 of stimulus (also known as new debt) to generate $1.00 of GDP growth.

And apparently the same thing is going on in R&D.

From the National Bureau of Economic Research, September 2017:



 In many growth models, economic growth arises from people creating ideas, and the long-run growth rate is the product of two terms: the effective number of researchers and their research productivity.We present a wide range of evidence from various industries, products, and firms showing that research effort is rising substantially while research productivity is declining sharply. A good example is Moore's Law. The number of researchers required today to achieve the famous doubling every two years of the density of computer chips is more than 18 times larger than the number required in the early 1970s.Across a broad range of case studies at various levels of (dis)aggregation, we find that ideas — and in particular the exponential growth they imply — are getting harder and harder to find. Exponential growth results from the large increases in research effort that offset its declining productivity

And the TL;dr:

Our robust finding is that research productivity is falling sharply everywhere we look. Taking the US aggregate number as representative, research productivity falls in half every 13 years—ideas are getting harder and harder to find. Put differently, just to sustain constant growth in GDP per person, the US must double the amount of research effort searching for new ideas every 13 years to offset the increased difficulty of finding new ideas.

....MUCH MORE (54 page PDF)

HT: See Professor Joshua Schwartz writing at Quillette: "The Future Is Already Here" for an interesting discussion of why your smartphone ain't all that and the failed promise of the internet to generate exponential growth in the economy.

In fact it sometimes appears that the growth curve is not just not exponential but is logarithmic:


Personally I believe those hopes and predictions from 25 years ago didn't come to pass because the early dreamers did not account for the creative destruction aspects: As delivery systems improved costs and revenues in the wider economy decreased. Add in the concentration of both wealth and income and the decreased velocity of money that results (just one of the reasons for velocity dropping) and we appear to be heading toward a steady-state economy but a steady state that entrenches and concentrates power.

Regarding steady-state, at least back in Coco Chanel's day she could say:

"Money is money is money; it's only the pockets that change"

Now the pockets may not even be changing