The Future Has Been Called Off, Says Venture Capitalist Peter Thiel

Over at National Review, venture capitalist Peter Thiel is downbeat about the future. Why? Because innovation seems to be stalling and without innovation economic growth slows to a crawl as do increases in living standards. Thiel cites flat income growth as evidence for dramatically slowed Progress:

If meaningful scientific and technological progress occurs, then we reasonably would expect greater economic prosperity (though this may be offset by other factors). And also in reverse: If economic gains, as measured by certain key indicators, have been limited or nonexistent, then perhaps so has scientific and technological progress. Therefore, to the extent that economic growth is easier to quantify than scientific or technological progress, economic numbers will contain indirect but important clues to our larger investigation.

The single most important economic development in recent times has been the broad stagnation of real wages and incomes since 1973, the year when oil prices quadrupled…

Taken at face value, the economic numbers suggest that the notion of breathtaking and across-the-board progress is far from the mark. If one believes the economic data, then one must reject the optimism of the scientific establishment.

So how to jumpstart innovation? Thiel offers a surprising solution: 

Let us end with the related question of what can now be done. Most narrowly, can our government restart the stalled innovation engine?

The state can successfully push science; there is no sense denying it. The Manhattan Project and the Apollo program remind us of this possibility. Free markets may not fund as much basic research as needed.

Wow. However, in economics the effect of innovation on economic growth is measured by total-factor productivity [PDF].TPF accounts for effects in total output not caused by inputs, making it a measure of an economy's long-term technological change or technological dynamism. Recent research reports that U.S. TPF in the 1960s grew at 1.9 percent per year; the rate dropped to 0.9 percent in the 1970s; bumped up to 1.1 percent and 1.3 percent in the 1980s and 1990s respectively. TPF rose only 0.7 percent during the first decade of the 21st century.

George Mason University economist Tyler Cowen (author of The Great Stagnation) uses figures from the San Francisco Federal Reserve to derive the TPF graph below: 

The whole Thiel article is a depressing but worthwhile read.