Growth and Civilization

Ref: Economics Prof Tyler Cowen says our overwhelming priorities should be maximising economic growth and making civilization more stable. Is he right? An interview with Cowen, by Robert Wiblin and Keiran Harris.

On Getting Growth

Robert Wiblin: All right, let’s move on to the book, Stubborn Attachments... How would you summarize the key messages of this book? And how did you come to write it?

Tyler Cowen: The underlying message of the book is simply, we’re capable of making rational judgments about what is better for society. In my own discipline, economics, there’s a long-standing thread of skepticism about that. Kenneth Arrow developed an impossibility theorem. There are a lot of results that imply you can’t say much about what’s actually better.

I agree with Cowen that economic growth is good. But his "underlying message" makes me nervous. He seems to think that all we have to do is is sit down and be rational, and all will be well. I think the economy is a system, and our task is to understand how the system works. And I think Cowen's underlying message is an example of not doing that.

I think you have to look back in time to when the problem started, and see where it started and what happened. Then you have some clues about what the problem really is and how to solve it. The necessary first step is to understand the problem. We skipped that part. We assume that we understand the problem.

So you've got a bunch of guys who think "you can’t say much about what’s actually better". And you've got Tyler Cowen who throws out that baby with its bath water, stomps his foot on the floor, and says Yes you can! And here I am, saying stop all this nonsense, swallow your pride, and figure out what the damn problem is.

"Exponential compounding growth"

Robert Wiblin: Let’s talk about a couple of the key ideas. One is the Crusonia plant and compounding growth. What would you talk about there in the book?

Tyler Cowen: The Crusonia plant is a somewhat obscure reference. It’s taken from the works of Frank Knight, University of Chicago economist. Knight postulated there was such a thing as a Crusonia plant. It was a hypothetical. It would simply keep on growing forever, so it would be of very high value. It’s like an apple tree. Seeds fall. You get more apples. Those seeds, in turn, get you more apple trees, and so on and so on.

That’s exponential compounding growth. So if you don’t discount the future at a very high rate, if you had such a thing as a Crusonia plant, it would be very valuable.

A ridiculous comparison! Compounding is like apples. It's more like weeds that keep on growing and spreading and taking over your yard... and have a very low value.

Tyler Cowen: Then if you ask, “What, in fact, is a Crusonia plant?” It’s a modern, well-functioning economy that does generate more output every period at something like an exponential rate of growth, and it’s highly valuable. So we want to cultivate, again, economic growth.

Robert Wiblin: Why do you think the economy grows in this way where shocks or improvements seem to be permanent or at least semipermanent?

Tyler Cowen: People generate new ideas, and most new ideas don’t disappear. You can lose a new idea or have a Dark Ages. But if you have good institutions, you build upon those new ideas.

Cowen makes it sound simple: If you want good growth, you just need good institutions, which build on good ideas. Presto! No more Dark Ages.

Cowen drives me to Arnold J Toynbee, who writes:

When a civilization is in decline it sometimes happens that a particular technique, that has been both feasible and profitable during the growth-stage, now begins to encounter social obstacles and to yield diminishing economic returns; if it becomes patently unremunerative it may be deliberately abandoned.

When a civilization is in decline things go downhill. Cowen is saying all we have to do is push them back up the hill and all will be well.

I say you have to figure out the reason things are going downhill. I say that if you're not solving the right problem, your solution won't solve the problem. And it may end up making things worse. This is the story of the last 50 years.

Toynbee continues:

... if it becomes patently unremunerative it may be deliberately abandoned. In such a case it would obviously be a complete inversion of the true order of cause and effect to suggest that the abandonment of the technique in such circumstances was due to a technical inability to practise it and that this technical inability was a cause of the breakdown of the civilization.

It is not that a loss of skills (or institutions) leads to abandonment of technology (or ethics and morals) and causes the decline of civilization. Rather the opposite: the decline of civilization is part of a business cycle that can endure for millennia; during the decline, some technologies (ethics, morals) become unprofitable and are therefore abandoned; the loss of skills (and institutions) follows.

Cowen says all we have to do is push our skills and our institutions back up the hill and presto our problems are solved. That's wishful thinkin.