Escaping the Great Stagnation

Reasons to be optimistic about the 2020s

What might an end to the Great Stagnation look like?  

Tyler Cowen thinks we should look at total factor productivity (TFP) and see if it is growing. Total factor productivity measures how much output you can get from a given set of inputs. Technology allows you to do more with less—it increases productivity. 

If we look at total factor productivity, we see that it has grown over the last decade. In fact, in  2021, TFP growth increased to 3.2% for private non-farm businesses. This is more than total factor productivity rose between 2010 and 2017, and the single largest YoY growth in TFP since 1983. If we can keep up this pace for the rest of the decade, we could gradually escape the Great Stagnation. If TFP growth slumps back down to late 2000s levels, we might be in for a reckoning. 

That being said, there are a lot of reasons to be hopeful about the next decade. Many technological and scientific innovations we developed over the past twenty years are very close to bearing fruit. The preconditions for creating a great wave of innovation in the 2020s are there. There has been an explosion in capital available to startups, and more people than ever are interested in becoming founders.

Downstream, we've also seen a meteoric rise in the number of Unicorns (startups valued at $1 billion or more). There are now over 1,200 unicorns. This is a good sign. A disproportionate share of economic growth comes from startups, and if we can get enough of them, we can escape the Great Stagnation.

Short-term market sentiment is quite bearish, but I wanted to write this as a reminder that long-term prospects for technology look good. Particularly in transportation, agriculture, biotech, energy, space, IT and machine learning. 

In transportation tech, I think we'll see a lot of innovation in passenger aircraft, autonomous electric cars, and urban air mobility technology. 

Commercial air travel is set to get a lot faster in the next ten years. Companies like Boom are building new supersonic passenger jets. They plan to make their first test flight this year. We haven't had a supersonic passenger jet since the Concorde was decommissioned in 2003. Supersonic passenger aircraft would allow you to get from Seattle to Tokyo in 4:30 hours or from Montreal to Paris in 3:45 hours.

Autonomous and electric cars are also set for a major wave of innovation and adoption over the next decade. By 2030, as many as 15% of new cars sold could be fully autonomous. However, I think it is important to note that the rollout of autonomous vehicles will most likely depend more on "where" than "when." Certain aspects of driving will become autonomous long before the entire driving experience is automated. 

In addition to autonomous cars, we have seen steady growth in the adoption of electric cars over the last 5 years. This trend will continue, with estimates that more than half of US car sales will be electric vehicles by 2030. 

Urban air mobility technology could also see a renaissance in the 2020s. Urban air mobility is the use of small, automated aircraft to carry passengers around urban and suburban areas. Urban air mobility technology could allow individuals to sidestep traffic and quickly get to their destination. Several companies are working on urban air mobility, including Joby, Wisk, and Hyundai. It's not quite flying cars, but it is close!

Agriculture is another area with many potential innovations for the next decade, particularly lab-grown meat. The price of cell-cultured meat is dropping precipitously. At the current pace of innovation, cell-cultured meat will reach cost parity with farm-raised animal products in just 10 years. The advent of lab-grown meat will be an enormous boon for animal welfare. It will also, over time, drive down the price of protein, as we will no longer need the infrastructure to support the 19.6 billion chickens, 1.4 billion cattle, and 980 million pigs raised as livestock. 

Construction tech is also ripe for innovation in the 2020s. America faces a shortage of housing stock, particularly entry-level homes. Entry-level home construction collapsed after the great recession and has never recovered. We'll need new solutions to meet market demand, particularly entry-level housing. Modular, factory-built housing represents a great opportunity in this space. For example, companies such as Boxabl are building a $50,000 modular home that can be set up in a day and plans to start making deliveries next year. 

Additionally, biotech has many innovations that are very close to becoming widely available. The success of Operation Warp Speed and the development of novel mRNA vaccines for COVID allows us to now encode and deploy mRNA in our bodies. CRISPR is coming online, and we may see the first set of longevity drugs become commercially available.  

We can now program our cells to make whatever proteins we want. mRNA technology can be used for other ailments as well, not just COVID-19. mRNA cancer therapy seems to work in Mice, and the NIH just launched a clinical trial of three mRNA vaccines for HIV. The next decade has a lot of promise for applying mRNA to all kinds of novel health problems humans currently experience. 

CRISPR is another area of innovation in biotech that is close to being ready for use in humans. We will most likely see CRISPR finally get approval for use in people, particularly in treatments targeting genetic disorders. We've seen an explosion of CRISPR-related patent applications over the last ten years, and many of them will likely bear fruit over the next decade.

Longevity technology also has the potential to see a large wave of innovation. The first real anti-aging technology could come to market by 2030. Parabiosis, exchanging blood plasma with younger patients, will likely become commonplace. Funding for the longevity space has seen a large boom and will likely result in at least some practical applications.

In addition to advances in biotech, we are also likely to see lots of innovation in energy storage and production. Particularly in Geothermal, Fusion, and battery technology.

Geothermal energy will allow us to create energy for a price as low as 3.4 cents/kWh almost anywhere in the country. The technology is close to being ready and only requires minor advancements in deep drilling technology (such as millimeter-wave drilling) to work at scale. This approach is being pioneered by the startup Quaise, which plans to have a working prototype of the system by 2025. 

Geothermal is not the only field of energy production that shows promise, however. It is possible in the next decade, we will make significant technical progress on nuclear fusion and that we will finally get a demonstration of energy-positive fusion. The energy created through fusion can be 3-4 times as powerful as the energy released by traditional fission reactors. If it works, a fusion reactor could be small enough to fit on a truck but provide enough power for a city of up to 100,000 people. Startups in the fusion space have raised significant sums of capital. For instance: Commonwealth fusion out of MIT has raised $1.8 billion. 

Energy storage also has several big advancements on the horizon. The price of lithium-Ion batteries has dropped precipitously over the last decade. However, traditional lithium-ion batteries are quickly approaching their physiochemical limit of efficiency. We still have demand for more extended range and faster-charging batteries. The answer to this is solid-state batteries. Companies such as Toyota claim that they will be selling vehicles with solid-state batteries as early as 2025. 

Space is another area on the cusp of immense commercialization. Launch cost per kilogram will continue to drop thanks to the advent of reusable rockets, enabling innovations like Space Factories. Space factories will allow the creation of various products that can't be created here on earth. These include products like more powerful fiber optic cables to new, life-saving pharmaceuticals. Several companies are working on space factories, such as Delian's Varda space.

In information technology, the vast proliferation of 5G will enable a wide range of applications such as remote surgery. Instead of requiring surgeons to be on-site, 5G will allow surgeries to be managed remotely and performed with robotics. This has tremendous promise for areas not served by Level 1 trauma centers and for military applications. 

Machine learning and artificial intelligence will continue to improve. Language models will continue to get better. The current state of the art, GPT-3 (Generative pre-trained transformer 3), is a language prediction model that is so good, it can often be difficult to determine whether or not a human wrote a piece of writing. The next version, GPT-4, will have 100 trillion parameters, 500x that of GPT-3, and is set to be released in 2022. As a rough analogy, the human brain has 100 trillion synapses. Language model complexity is increasing in a fashion analogous to Moore's law.  

As we can see, many areas that have previously been relatively stagnant have technologies that are very close to being deployed in the real world. None of these are a given, but the next decade of technological progress looks bright. If most of these innovations bear fruit we will be able to push TFP back up to pre-1971 levels for the next decade and escape the Great Stagnation. 

Thanks to Will Jarvis and Eli Dourado, who’s work heavily inspired this piece