Where Did The Future go?

Unpacking The Great Stagnation

Last week, we spoke about Luddites — people who are worried technology is ruining the world and want to turn back the clock, or at least slow things down. 

This week, we’ll talk about people who are worried we don’t have enough technology, want to speed up its growth.

If Luddites think tech is harmful and advancing too quickly, this group thinks tech is good, but it’s advancing too slowly

Luddites are scared the future is happening too fast, this group is asking “Where’d the future go?”

“We were promised flying cars, and all we got is 140 characters” read Peter Thiel’s famous manifesto that captures the ethos of this thinking.

Tyler Cowen’s “The Great Stagnation” and Robert Gordon’s “The Rise and Fall of American Growth” details the specifics of how economic growth rates have been slowing. 

Why does this matter? If we kept economic growth rates the same, our country would be 40% richer than we are today. Millions of people would be out of poverty. Sometimes these numbers can seem a bit abstract on their own, but their effects are very real. 

The Great Stagnation

Imagine someone who was born in the early 1900s and lived until the 1970s. Their adult life would have been radically different from their childhood. They’d have lived through the invention of antibiotics, the airplane, the atomic bomb, the car, the telephone, and much more.

Now take someone born in 1970. Besides the internet, mobile phones, and social media (which are real innovations, to be sure), their life would not be as different as in the prior example. 

Anecdotally, that’s The Great Stagnation. Statistically, it’s the fact that our growth rate, and more specifically, Total Factor Productivity, has slowed the last few decades. 

From 1970-1973, TFP grew about 2% per year. The next few decades it dropped to 1% a year. From 2005-2015 it jumped back up to 2% a year. And now it’s back down to about 0.3% per year.

If output is a function of capital, labor, and everything else we can’t measure, TFP is that “everything else”, which usually comes down to either technology or the quality of our institutions.

Technology is pretty straight forward — it’s the idea of doing more with less.

Institutions, however, are a bit more complicated, making it harder to see the cracks unless you’re in a place where institutional trust and legitimacy is very low. In Venezuela, for example, the same labor and capital couldn’t produce the same amount of output as it could in, say, the United States. 

To be sure, a society can still have growth without increasing total factor productivity (improving technology or institutions), by just throwing more people and more labor hours at the problem, which is what we’ve been doing to maintain our meager growth rates. The challenge with this, though, is that both the amount of people and the amount of time we can throw at a problem are fundamentally capped. Additionally, our demographics are shifting as aging populations dominate the workforce, and labor shortages keep young people from taking jobs that could push society forward. This is why we need increasing TFP for long-term growth: we need to do more with less, even if our goal is just to keep our current growth rates.  

What explains the TFP slowdown?

I’ve heard several explanations for the decline in Total Factor Productivity:

  1. All the low hanging fruit has been picked.

  2. There’s too much government regulation in the private sector.

  3. Our culture doesn’t appreciate economic growth as much as it should.

Low Hanging Fruit

Robert Gordon makes the low hanging fruit argument — that perhaps we’ve done everything we could with powerful machines, fossil fuels, internal combustion engines, pharmaceuticals, and indoor plumbing that there’s just not much left from an innovation perspective. Perhaps we squeezed all the juice out of those lemons.

One counter-argument would be to debate the premise — maybe we are innovating, but it’s not showing in the statistics because either (a) it takes a few decades for new tech to show up in the stats or (b) there’s something fundamentally different about new innovations like software, green energy, and disease-curing pharmaceuticals.

As an example, Google Maps has been foundational, but it doesn’t show up anywhere in the TFP figures, the reason being that new technologies need to be applied somewhere before they appear in the productivity stats. After all, inventing electricity didn't show up in the productivity stats initially, but putting electricity in factories did. So just because we haven't seen massive productivity growth from computing doesn't mean it won't come eventually.

That said, economists have claimed for decades that TFP & GDP are mismeasured. So it’s not enough to say it’s mismeasured, you’d have to specify why it’s mismeasured relative to previous decades.

Regardless of whether it’s mismeasured or it’s just too early for new tech to show up in the productivity stats, another argument says there’s diminishing returns even from software and IT. John Luttig wrote a great piece about how certain tailwinds are running out, begging the question: How long will it be until everyone has an internet connection and a smartphone, or until all enterprise businesses become SaaS-ified?

Even if the low-hanging fruit argument is true, it’s probably in our best interest to ignore it, in the same way it might be in our best interest, if we want to see ourselves as having high agency, to avoid studying how free-will doesn’t exist if we want. You couldn’t prove it either way, so all things equal might as well believe the most empowering interpretation.  “Whether you think you can, or you think you can't—you're right”

Regulation hinders progress

Another explanation for the lack of productivity growth? Maybe regulation. 

Over time, we've accumulated a bureaucratic, regulatory state, and any time there's any sort of "disaster" we start adding rules. To be sure: the intent is good, but the cure is sometimes worse than the disease.

Take the FDA: 100 years after its establishment, it now costs well over $1B to develop a successful drug. Why would anyone even try producing new medicine if it's that capital intensive? Without meaning to, our government has disincentivized innovation and growth in pharmaceuticals.

A more timely example: Though we’ve been researching the efficacy of mRNA for over 20 years and our COVID vaccines were developed in 3 days, it still took a year to roll them out on a national scale.

Why did it take so long? Well, one reason is the FDA (and our government more broadly) is more worried about approving an unsafe drug than it is about not approving a safe drug. We're too focused on preventing deaths we can see with our own eyes vs preventing (many more) deaths we’ll never see by inventing cures. Classic type 1 vs type 2 errors.

Anecdotally, China seems to regulate technologies several years after introducing them. What if we did the same? We'd regulate technologies only after seeing their effects. We'd thoroughly warn customers of risks, but let them opt in or out on their own volition.

As we explored last week, most new technologies come with new risks; they just need new safety mechanisms to be invented with them too. When we invented the X-ray, we also realized its radiation could be harmful to our health. Nowadays when you get any sort of scan, you wear a lead vest to block some of the radiation. Is that too much of an inconvenience that we shouldn’t have created X-ray machines? I don’t think so.

Yes — safety concerns are real. But so are the trade-offs to regulation.

We need to acknowledge there’s a trade-off between safety and speed, efficiency, progress, and long term breakthroughs. We’re currently optimizing for the short term at the expense of the long term.

Could America suddenly re-build the interstate highway system we have today? Could we do a massive renewal of an energy grid? How about a new Manhattan Project, if necessary? Not with this amount of regulation, that’s for sure. 


Maybe the TFP slowdown can be explained by regulations slowing down progress. Maybe we’ve just picked the low-hanging fruit and it’s harder to find new growth levers. Or, maybe our innovation culture has deteriorated as we’ve gotten richer and more complacent.

The conservatism mentioned earlier, as it relates to drug development within the FDA,

also connects to a broader cultural NIMBYism. Cities don’t want to build new housing, universities don’t want to expand enrollment, and local politicians alienate entrepreneurs by saying they extracted their wealth from the cities and states that “gave them so much.”

Our cultural stagnation can be illustrated by comparing Chinese and U.S. science fiction:

In China, they show enormous geo-engineering projects; it's an indication of the country's ambition. In the U.S., however, our sci-fi is mostly dystopian (e.g. Black Mirror). This, in turn, affects what careers people pursue (and possibly explains why much of our society is so anti-tech).

We’ve absorbed this in our perceptions of ourselves too. We used to call countries first world and third world, but now we call them “developed” and “developing” — the implication behind developed being that there’s no more growth to go.

We've been culturally brainwashed to think growth and innovation are bad, and this mindset has led us to the period of stagnation we now face.

There’s also a more niche discussion as to whether science is slowing down. Moore’s law is tougher to keep up with, crop yields are going up at diminishing rates, and it takes more scientists today to achieve a breakthrough than it did years ago.

Or maybe it's not the science, but our ability to commercialize that new technology. CRISPR was invented in 2012, and we still haven’t seen any of its applications. We don't even have any approved treatments for diseases that have gone through the approval process yet...

Nuclear costs are six times as expensive in the US as they are in South Korea. It's not like there's a fundamental breakthrough necessary to drive lower nuclear costs — it’s the regulatory and cultural landscape in the U.S. that shapes these discrepancies. We’re technologically optimistic, and yet culturally pessimistic — we just don't want to, or can't, bring these new things to life.

Suffice it to say, if we were in the 1960s, and we could see where we’d be today, we’d probably be quite underwhelmed by our “futuristic” selves. The 60s brought us the flight of the Concord and a man on the moon, but we haven’t seen much since then. We don’t have nuclear power, nor do we have high speed railways. And forget about energy that’s too cheap to meter. We’re too worried about the small side-effects that don’t really matter in the grand scheme of things.

The End of The Great Stagnation?

Realizing our incredible nation is not as technologically savvy as we once hoped is a painful conclusion to come to, but there are still signs of hope. In a future piece we’ll explore the cracks in The Great Stagnation and what’s ahead. 

Read of the week: Interview with Marc Andreessen

Watch of the week: Peter Thiel predicting the future in 1999

Listen of the week: Balaji Srinivasan on On Deck’s new podcast

Until next week,