We are witness to the end times. Some economists believe the staggering increases in wealth experienced by Western nations during the last century were one-off events. They argue that there are only a few truly fundamental innovations—the ability to use power on a large scale, to keep houses …
I do not believe that we are seeing a drop in innovation. I see a period of consolidation as we change from one economic state to another – from an Industrial Age of capitalist exploitation of dwindling resources to an Information Age exponential economy of abundance.
Many people do not seem to understand what happens during a change of state. When boiling water, the temperature rises until the water begins to boil. Then as the water changes state from liquid to gas, the temperature changes not at all, even though energy is going into the system.
The temperature does not begin to rise again until all the liquid has been converted to steam. So even though there is a pause in the temperature rise, it is still having an effect.
As technology disrupts virtually all aspects of society, it is not unexpected that inefficiencies would develop but anyone who has seen the huge effect technology has had on employment must see the inherent efficiencies of an exponential economy.
The price of almost anything that can be digitized drops every year. This means that people can do things that required large numbers of intermediate workers to accomplish. What used to take 100s now takes 10s; what took 10s can now be done by 1.
So the productivity may not seem to be going up but that is because it is now being done by fewer people. That is one reason we see such a slow recovery from the employment losses. Productivity has not gone down because the work is being leveraged by technology. That is why those jobs will never come back.
It used to be that 90% of Americans were farmers. The Industrial/Green Revolution meant that all the production could be done by 5%. We had to find other work for those people and it took over a generation to accomplish that, mostly by creating manufacturing jobs.
We again see ourselves making a transition. Robots now can do most of the manufacturing. If we only need 1/10th the manufacturing numbers we did, then what happens to everyone else?
That will be the question of a generation. What will the economy look like and what will people do to earn a living when robots and technology can replicate so much of what people used to get paid for?
That will be the real innovation.