Stagnation and Beyond: Economic growth and the cost of knowledge in a complex world

In scientific prognostication we have a condition analogous to a fact of archery--the farther back you are able to draw your longbow, the farther ahead you can shoot. – R. Buckminster Fuller, Critical Path

“The interests of humanity may change, the present curiosities in science may cease, and entirely different things may occupy the human mind in the future.” One conversation centered on the ever accelerating progress of technology and changes in the mode of human life, which gives the appearance of approaching some essential singularity in the history of the race beyond which human affairs, as we know them, could not continue.
–Stanislaw Ulam, from a tribute to John von Neumann

We’re in one of those great historic periods…when people don’t understand the world anymore…when the past is not sufficient to explain the future.
– Peter Drucker

I've got a new working paper. Title above, abstract, table of contents, and introduction below:

• Academia.edu: https://www.academia.edu/39927897/Stagnation_and_Beyond_Economic_growth_and_the_cost_of_knowledge_in_a_complex_world
• SSRN: https://ssrn.com/abstract=3426761
• Research Gate: https://www.researchgate.net/publication/334683808_Stagnation_and_Beyond_Economic_growth_and_the_cost_of_knowledge_in_a_complex_world

Abstract: What economists have identified as stagnation over the last few decades can also be interpreted as the cost of continuing successful engagement with a complex world that is not set up to serve human interests. Two arguments: 1) The core argument holds that elasticity (ß) in the production function for economic growth is best interpreted as a function of the interaction between the economic entity (firm, industry, the economy as a whole) and particular aspects the larger world: physical scale in the case of semi-conductor development, biological organization in the case of drug discovery. 2) A larger argument interprets current stagnation as the shoulder of a growth curve in the evolution of culture through a succession of fundamental stages in underlying cognitive architecture. New stages develop over old through a process of reflective abstraction (Piaget) in which the mechanisms of earlier stages become objects for manipulation and deployment for the emerging stage.

DOI: 10.13140/RG.2.2.33987.96803

C O N T E N T

0 Introduction: Cognitive architecture, humans, and the world 2
1 Stagnation: Are we running out of ideas? 9
2 Exploration, the endless frontier, and cognitive ranks 14
3 Two cases: Semiconductor fabrication and drug discovery 28
4 Recap: Information, contingency, and emergence in a complex universe 36
5 Coda: Why economic growth cannot be like compound interest 39
6 Appendix 1: Krugman and Cowen on economic growth in the developing world 41
7 Appendix 2: Cultural evolution through four cognitive ranks 43

0 Introduction: Cognitive architecture, humans, and the world

This working paper is about stagnation in the production of new ideas, something that’s concerned me for awhile, though not framed in that way. I have the term “stagnation” from many posts by Tyler Cowen at Marginal Revolution, a blog he runs in conjunction with Alex Tabarrok [1]. Both are economists.

My purpose is to induce a gestalt switch in thinking about The Great Stagnation [2], as the title of a book by Tyler Cowen calls it. It is costing more and more to obtain a given increment of economic growth. In particular there seem to be fewer new ideas and coming up with them is becoming ever more expensive. Growth doesn’t stop, but it is becoming more expensive. (What if it becomes too expensive to sustain?)

Gestalt switch? Look at the image, is it duck or a rabbit? One can see it either way depending on the ordering you impose on the lines and shading. The markings don’t change, but the way we read them does.

How do I induce you to read the evidence in another way, a way that suggests that this “stagnation”, far from being a sign that something is amiss, is a sign of success, albeit costly success? I could reanalyze the data, but I won’t. I don’t have the tools. Nor do I have any reason to think that the economists are doing it wrong. What I am going to do is suggest that this stagnation is simply the cost of learning more about the world, the inevitable and inextricable cost. To understand where that cost is coming from we have to look as deeply into the world as we can.

Short of that, I’m going to provide some new information, a wider context for thinking about the problem. Consider this passage from an article[3] by Charles I. Jones:

It is somewhat natural to imagine that productivity in goods production is monotonically increasing: technologies get better and better over time. In this respect, the productivity of research effort may be very different. We do not know what the “universe” of ideas looks like. It could be that the discovery of past ideas makes future research more and more productive. Or this could be true, but only up to a point: the age of scientific discovery may accelerate right up until the end, and then end. Or perhaps the universe of ideas is laid out such that there are punctuated periods of discovery followed by periods of extremely slow, gradual advance.

It would be hubristic to claim that I know, positively know, what the universe of ideas looks like. But I know something about it – I have been studying the universe of ideas in various forms for some decades – and that knowledge is what I bring to bear on this problem. I can point in a fruitful direction.

First of all we must accept that this phenomenon somehow inheres in the nature of the world. We’re not looking at local historical contingency. What is that nature? There is a philosophical answer to that question, which I indicate in section 4 below, “Recap: Information, contingency, and emergence in a complex universe” (pp. 34 ff.). That answer centers on remarks Nobelist Ilya Prigogine made about the confluence of classical macro forces (gravity) and micro forces (quantum mechanics) at the scale of biological molecules. That, he argues, is responsible for the complex texture of the world.

How do we get from that micro world to the macro world of economic growth in the post-industrial world of the 20th and 21st centuries? Well, there is one very long historical story that goes from the emergence of life to the emergence of human beings with full powers of speech. That story is in the realm of evolutionary biology. There is another somewhat shorter historical story that goes from early hunter-gathers up with the present time. That is a story of cultural evolution, some of which I have indicated in this paper.

It is one thing to tell those histories – any many people are telling them in various ways. What we would like, though, is some general principle, or set of them, that explains what is going on at each step of the way in that long progression. In the context of this paper, that general principle would provide a deep and satisfying conceptual link between section 3, “Two cases: Semiconductor fabrication and drug discovery”, and the molecular world at the heart of the Prigogoine suggestion in section 4. THAT’s something (well) beyond my capability. But if you want to understand what is behind this stagnation, how it inheres in the nature of the world, that is ultimately where you are going to have to look.

The upshot is that it is best to think of this as an exercise in natural philosophy, to use a term that went out of fashion a two centuries ago. Note, however, that I now apply it to the human as well as the natural world.

0.1 The universe of ideas

Over a period of some two decades near the end of the previous century I collaborated with the late David Hays on an account of the longue durée of cultural evolution. The story we tell is one of cultural paradigms existing at four levels of sophistication, which we call ranks. In the terminology of current evolutionary biology, these ranks represent major transitions in cultural life. Rank 1 cognitive architectures emerged when the first humans appeared on the savannas of Africa speaking language as we currently know it. Those architectures structured the lives of primitive societies that emerged perhaps 50,000 to 100,000 years ago. Around 5,000 to 10,000 years ago Rank 2 architectures emerged in relatively large stable human societies with people subsisting on systematic agriculture, living in walled cities and reading written texts. Rank 3 architectures first emerged in Europe during the Renaissance and gave European cultures the capacity to dominate, in a sense, to create, world history over the last 500 years. The late 19th century saw the emergence of Rank 4 architecture [4].

Crudely considered, it appears that transitions from one rank to the text are decreasing by an order of magnitude from one rank to the next:

	Informatics	Emergence, years ago
Rank 1	Speech	50,000 [5]
Rank 2	Writing	5,000
Rank 3	Computation	500
Rank 4	Computing	50

The numbers, of course, are very rough. My point is simply that the time between transitions is going down precipitously.

One does not have to look at those numbers for very long before wondering just what started emerging five years ago. While there is nothing in our account that forbids the emergence of a fifth, or a sixth rank, and so on, it doesn’t seem plausible that the time between ranks can continue to diminish by an order of magnitude. The emergence of a new system of thought, after all, does not appear by magic. People have to think it into existence: How much time and effort is required to transcend the system of thought in which a person was raised? THAT limits just how fast new systems of thought can arise.

I have no intention of even attempting to review that whole story.

Rather, the purpose of this working paper is to review aspects of it in the context of intellectual stagnation as set forth in these two papers:

Patrick Collison and Michael Nielsen, “Science Is Getting Less Bang for Its Buck”, The Atlantic, Nov 16, 2018, https://www.theatlantic.com/science/archive/2018/11/diminishing-returns-science/575665/.

Nicholas Bloom, Charles I. Jones, John Van Reenen, and Michael Webb, Are Ideas Getting Harder to Find? March 5, 2018, https://web.stanford.edu/~chadj/IdeaPF.pdf.

They have a very different character. The first is written for a general audience while the second is for professional economists. This working paper is like both and neither. It is a bit more demanding than The Atlantic, but it approaches that level of generality. Yet its demands are not those of economics. The demands are of a more philosophical nature.

After examining two case studies (of three) recently published by Bloom et al. I have concluded that this stagnation is best conceived as function of the relationship between our conceptual systems and the world: We have to work harder and harder to understand the world, which, after all, is independent of us. To call it “stagnation” seems a bit off to me, for the term implies that our efforts are flawed and if only we could rectify matters the stagnation would go away. The term fails to take proper account of the difficulty involved in deepening our knowledge. What the economists are calling stagnation, I will argue, is better interpreted as the shoulder of an ogive growth curve.[6]

Still, whatever the cause, one wonders: can we keep going or are things going to grind to a halt? Patrick Collison and Michael Nielsen offered two metaphors for thinking about the matter, exploration and the endless frontier. Exploration suggests that we live in a limited world; when the territory is been completely explored, no more discoveries remain. The endless frontier implies, on the contrary, an unlimited world; there are always more things to discover. Both of these metaphors, however, fail to take explicit account of our capacity for conceptualization, our cognitive architecture.

A given set of intellectual tools gives access to a certain range of phenomena, a phenomenal world, where we use “phenomenon” in more or less its usual philosophical sense. We don’t simply see the world directly or act in it however we will. What we know is a function of our sensory-motor system and its cognitive elaboration. The visual system is limited to a certain range of the electromagnetic spectrum; our hearing is sensitive to a certain range of frequencies, and so forth. Our basic equipment is given by a long history of biological development, which we have been extending through a process of cultural evolution over the past 100,000 years or so. The cultural evolution has extended the range of phenomena within our grasp.

At any given time, however, it is a particular phenomenal world that is explored and that world is limited. When we’ve exhausted a phenomenal world, what then? Perhaps we mark time. Or perhaps we create a new and more effective set of perceptual and conceptual tools. A new and more effective cognitive architecture will give us a new phenomenal world to explore. A new frontier. While each phenomenal world is limited, we have no reason to think that the population of phenomenal worlds is finite. In THAT context “stagnation” is merely indication that we’re exhausting the present phenomenal world. What’s next?

For extra credit: How many phenomenal worlds are contained within the universe?

0.2 Section Summaries

Note: The coda, on compound interest, is outside the main argument, but it does explain why stagnation is such a conundrum for economists. Also, it gives me an opportunity to quote Keynes. The first appendix, transcribed from a conversation between Tyler Cowen and Paul Krugman, is also outside the main argument, but it address the more general problem of economic growth. The second appendix elaborates on the theory of cultural ranks that I employ in the main argument.

Stagnation: Are we running out of ideas? – A wide range of studies over the past few decades indicate that it is taking more and more research effort to come up with effective new ideas. This is true for basic science and for industrial research. It’s not so much that we are running out of ideas, but that they are harder and harder to find.

Exploration, the endless frontier, and cognitive ranks – In an article published in The Atlantic in 2018 Patrick Collison and Michael Nielsen explore the problem of stagnation in scientific research. They propose two metaphors with which to examine it: exploration and the endless frontier. Exploration suggests a limited world; when the territory is been completely explored, no more discoveries remain. The endless frontier implies, on the contrary, that there are always more things to discover. Both of these metaphors, however, fail to take explicit account of our capacity for conceptualization. I introduce a theory of cultural evolution through a succession of four cognitive ranks, that positions these two metaphors in the overall process of cultural evolution. A given set of intellectual tools (rank) gives us limited access to the world – we’re exploring that world. But we can create a new and more effective set of tools (a new rank). A new cognitive architecture gives us a new world to explore. In this theory stagnation can been seen as a transitional phase between the culmination of one rank (exploration is complete) and the gestation of the next rank (opening a new frontier).

Two cases: Semiconductor fabrication and drug discovery – Bloom, Jones, Van Reenen, and Webb (2018) examined three cases of productivity in research and development: 1) Moore’s Law in semiconductor production, 2) crop yields, and 3) drug discovery for cancer and heart disease. In each case R&D costs rise more rapidly than increases in productivity. I consider two of their cases: 1) In the case of Moore’s Law we face process re-engineering costs imposed by the fact that the character of physical phenomena change as scale decreases (with different physical laws coming into play in the quantum realm). 2) With drug discovery we’re up against search through a high dimensional space sparsely populated in an irregular pattern. These two factors seem rather general and not specific to these particular cases. Thus in both cases the elasticity parameter (ß) of the production function reflects the relationship of research and development to basic aspects of the physical and biological world.

Information, contingency, and emergence in a complex universe – Ilya Prigogine has pointed out that molecular life exists at a physical scale where they straddle the macro world (dominated by gravity) and the micro world (where quantuum effects dominate). The universe is thus complex in its very fabric. Increments in computational capacity can yield survival benefits to the organism because that capacity consumes less energy than the organism can acquire through using that capacity. The same is true for information processing in culture. Industrial research and development is, of course, a society-level investment in information processing.

Coda: Why economic growth cannot be like compound interest – Because compound interest exists in a protected world “interior” to a bank in its relationship with depositors. To survive and maintain that protected world the bank must engage in business with the external world of commerce, which is not protected. Sometimes, for whatever reason, that relationship collapses and depositor’s accounts are in peril. A growing economy does not exist in a protected world. On the contrary, it must engage with the larger world, with all its complexity and uncertainty.

Appendix 1: Krugman and Cowen on economic growth in the developing world – Things just aren’t going they way they’re supposed to and we don’t really know why.

Appendix 2: Cultural evolution through four cognitive ranks – My overall argument is based on an account of the cultural evolution of cognitive capacities that David Hays and I developed through a series of papers in the last quarter of the previous century. While I have used substantial quotations from the core paper, “The Evolution of Cognition”, it seemed useful to provide more materials. Accordingly I have included some passages from The Evolution of Technology Through Four Cognitive Ranks (1993) by David Hays, a book-length exposition whose technology orientation is congruent with the economic concerns of this working paper.

References

[1] This link is a search of Marginal Revolution on the term “stagnation”, https://marginalrevolution.com/?s=stagnation.

[2] Tyler Cowen, The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better: A Penguin eSpecial from Dutton, Dutton, 2011.

[3] Charles I. Jones, “Sources of U.S. Economic Growth in a World of Ideas,” American Economic Review, March 2002, 92, 1, p. 234.

[4] The basic paper is, William Benzon and David Hays, “The Evolution of Cognition”, Journal of Social and Behavioral Structures 13(4), 297-320, 1990, https://www.academia.edu/243486/The_Evolution_of_Cognition. A guide to the work: William Benzon, Mind-Culture Coevolution: Major Transitions in the Development of Human Culture and Society, Version 2.1, Working Paper, 2018, https://www.academia.edu/37815917/Mind-Culture_Coevolution_Major_Transitions_in_the_Development_of_Human_Culture_and_Society_Version_2.1.

[5] There’s been a fair amount of thought and speculation in the last decade or so suggesting that speech, in some form, may be considerably older. That’s fine and certainly doesn’t alter the central point, that major transitions are ever closer together.

[6] Much thinking about economic growth seems animated by the spirit of compound interest. I explain why that is misleading in section 5, “Coda: Why economic growth cannot be like compound interest”.