His argument is about traditional growth theory growth (capital and labour yields growth, i.e., you should invest in infra-structure), versus Romer-style growth (ideas and capital and labour yields growth, i.e., you should create knowledge and institutions).

Until the Great Stagnation, the US was undergoing Romer-style growth: new institutions, new ideas, and a lot of capital. Recently, it switched to something that is better explained by traditional growth theory: you apply more capital (having run out of extra labour to apply) and you get a bit of growth, but there are no radical new ideas. We have not been creating new intelectual infra-structure (is the thesis).

Therefore, the comments that the internet has never stopped growing strike me as not reaching the heart of the matter. Of course, email is much more valuable now that everybody is using it. However, this is traditional-growth-theory-growth (more computers, faster computers, faster connections, everything gets cheaper). There are no conceptual leaps to switching from a command line cryptic command editor to a gmail text box. Once you have email and the idea of a graphical interface (which was a true conceptual leap and was presented at mother of all demos in 1968), getting to gmail is just application of capital.

1. I love the format. Much better than the traditional way of handling these books, which is to add filler text to make them 150 pages long, then print them in large type with a few illustrations and finally sell them for $15.99. I also see this text as an essay, which is geared at pushing one idea and starting a discussion rather than trying to be the final word on the matter.

2. I applaud Tyler for just confronting the GDP/wage stagnation data face on. Too many free-market economists just deny the data (you can point out its many flaws, but still accept that there is signal there). The signs of stagnation in GDP growth wages are there and need to be addressed (the other free-market economist who has done the same is Scott Sumner who points out that, yes, after the 1970s, everybody had slower growth, but relatively speaking the free-market countries still did much better).

3. The main thesis is that this is a real phenomenon: the US has grown more slowly since around 1970. This is because previous growth was support by low hanging fruit such as free land, small government, and scientific progress that ran out without being replaced. Over the last few decades, the only real new thing has been the internet.

4. Let me comment on the internet. It is the exception that Tyler gives to his general thesis. I respectfully disagree. There are very few things on the internet that are new. Most of them are simpler, more colourful, versions of functionality that existed in the 1980s or even before. Blogs were part of the original idea for the web (which was inspired in pre-existing systems). Instant messaging, email, discussion groups, all of those have always been with us. The one exception might be wikipedia (the precedents are the 1945 description of it by V. Bush and open-source software [early 1980s], but I still think that no one was predicting it would work so well if anyone could edit). What feature does today’s internet have that was not present in 1980s internal university Unix systems (which were used by many internet “innovators”)?

5. A few weeks ago, I read another book, Coders at Work, which has a long interview with Bernie Cosell. He describes a system at a hospital in Boston where doctors and nurses use electronic prescriptions and medical records so that every time a patient walks into another part of the hospital the data is already there (your doctor prescribes an exam, you just go to the exam room and they already know what you’re coming for). Compared to the top university hospital I have the most interaction with (UPMC, here in Pittsburgh), where everything is still on paper and you need to check in everytime you cross a hallway and talk to several different people, this sounds like a marvel of efficiency. The amazing part is that this was the job that B. Cosell had before he went on to develop the first internet routers. This was a live, running, system in the early 1960s! There are other examples of regression (rail service in the US is another good example: it doesn’t run nearly as fast as it did 100 years ago—the US does not need 2011 trains as much as 1911 ones).

6. Interestingly, much of the thesis of Great Stagnation is contradicted by another of T. Cowen’s books, Create Your Own Economy. In it, Tyler had glorified the non-measured wealth of variety and small intelectual pleasures.

7. The discussion of the current crisis I felt as the weakest part of the book. I think it commits from the Junker Fallacy when it argues that too many resources were diverted to finance (maybe a few people would have been better employed doing something else, but you cannot measure it by dollars). It is fine to disregard this whole discussion as it is ancillary to the main argument of the book. The crisis is still too recent for anyone to be able to say where it fits with more secular trends.

8. As a scientist, I support the call to give more status to scientists.

Predictioneer’s Game

Rating: 3/5

It’s a nice introduction to de Mesquita’s modeling approach to predicting the output of protracted human negotiations (be it negotiating with North Korea on nuclear weapons or in Congress about health-care reform or in the boardroom to prevent your rival from getting the CEO spot). de Mesquita claims to have a very high (90% is often mentioned) success rate.

It’s important to note that de Mesquita’s approach is immune to the Taleb critique of statistical model. Nassim Taleb’s argument works against phenomenological approaches which relate multiple variables statistically (such as if in the past, inflation has been correlated with low unemployment, then in the future it will be so or some similar rule, see also Goodhart’s Law). De Mesquita’s approach is mechanistics, it is based on the mechanics of the situation. If human nature were to change, then the model will be invalidated, but there is more permanence to the pursuit of self-interest, which is the basis of de Mesquita’s models, than to the statistical flukes that form the basis of the models that Taleb tears down. I have been looking for a good critique of de Mesquita, but am actually yet to find one which understands that saying Taleb doesn’t cut it. (For the record, I really like Nassim Taleb’s ideas. They just seem inapplicable to de Mesquita.) An attack on de Mesquita would have to go to his weak points: can his models really capture the essence of the problem? where are his high accuracy statements coming from? how often is the model completely side-tracked by an outside event (one of the major players dying or, in an example from the book, getting arrested on corruption charges)? This might be one of those cases where the weakness of the existing critique has taken away some of the skepticism I had after first reading the book.

It’s pop-science, so it doesn’t bring in the models, or the math, or the details, or the critique. It does make it want to go back and read the original papers though.

A couple of little details from the book: on and around page 40, you get a very informative discussion of why Herman van Rompuy is President of the European Council (the discussion is phrased as if it was about getting a guy named Curly nominated CEO). The interpretation of the Catholic prohibition of charging interest as a way to keep economic growth down was new to me (even if am I taking it as an interesting hypothesis until I have independent confirmation that it is a reading supported by the facts).

On the down-side, the prose is sometimes patronising. He doesn’t really need to repeat his arguments 3 times: once as if it was a intro undergraduate class, one as if it was a high-school class, and a third as if he was trying to explain it to his 4-year old daughter. The graphs out of Excel could have used some work too (even Excel does better graphs nowadays).