Over the New Year's Day weekend, Kim and I drove up the coast to see Eureka and the southernmost coastal attractions in Oregon. I was inspired to learn a little bit about what had made Eureka successful initially, and what kept it from being a major coastal city today. At first it was a gold rush port, then it became a logging and fishing town, ultimately nearly consuming these resources. Not a very complicated story, then: unsustainable consumption of natural resources yields a short-term boom and a long-term bust. It's the same story as the gold rush, but with trees and fish.
This led me to do some research about what exactly kept towns from Eureka from reinventing themselves and finding new ways to be successful. Living and working in such close proximity to Silicon Valley for over a decade now, I admit that my perspective is no longer one of "how is this area so successful?" but rather one of "what is everybody else doing wrong?"
It may seem unfair to compare a post-industrial economy with a pre-industrial one, but that's exactly my point. If you identifed that there was in fact some kind of Moore's Law equivalent for logging (based on labor inflows, steam powered logging technology, or better transportation via boat or rail), you'd still end up with an industry collapse as soon as the trees were all gone. Theoretically you could halt growth at a sustainable level before that happened, but in practice this doesn't happen. Only after the collapse, when there's no surplus left to consume, does the industry stop growing and stabilize at a rate that's sustainable. You get whatever you can cultivate, because there's nothing else left. For fishing and logging this is just large-scale agriculture; for resources that replenish on a geological timetable such as gold or fossil fuels, it's game over.
If an economy is to grow sustainably, it obviously can't be pegged to the rate of consumption of raw materials. We industrialized, and got a better equation: number of workers times productivity per worker. More workers equals more work produced, but the number of workers can't sustainably increase. Fortunately, increased productivity is another option. It may be encumbered by a connection to raw materials via energy consumption, but even that can be optimized.
Consider the industry of home construction. It is tied to raw materials, but the specific materials can be changed, assuming you have people who are smart enough to figure out how to build a house out of new materials. Redwoods grow slowly but bamboo grows quickly, and it's probably possible to find (or genetically engineer) some kind of super bamboo that grows 10 times faster, if that ever became the limiting factor on construction productivity. Individual productivity has also been boosted by materials that are easier to work with (drywall is much faster to install than wet plaster over wood slats) and of course advances in tools. But better techniques can also increase productivity; instead of manufacturing a home on-site outdoors, you can buy a really nice pre-fab house and have it delivered to and assembled at your site.
The lesson here is that while it probably takes a fixed number of house builders a similar amount of time to build a house now as it did 150 years ago, you get a much better house because of technology improvements and industrialization, which make the workers more productive. That productivity growth is what allows the economy to grow, but only if someone somewhere is figuring out how to build a cordless drill or a bamboo house, and if the skill to use them is acquired by the construction workers.
That better house translates to economic activity. Whatever the reason (safer materials, better energy efficiency, more space, better decor, higher quality, more conveniences), once it's sufficiently desirable, people will move up. Older houses will devalue and eventually be demolished. This has been happening for millenia. Yes, you can live in a yurt, and you can make calls on a rotary land-line phone. But would you?
I'll skip the philosophical issues of "do we really need new things" and "what happens to the old things" for now. I'll just say that landfill space is another kind of exhaustible resource, and if we can't at least agree that having indoor plumbing and bicycles is better than walking all day to get water for your family, then you're too radically anti-technology even for an ecovillage. They even have internal-combustion cars!
So far I'm basically stating the obvious: every politician and CEO loves to talk about how innovation and education are great. But we don't want innovation if it costs anybody a job, and we don't want to educate people if it means that we have to change what we teach and how we teach it.
The innovation argument is very well addressed by Dr. T. J. Rodgers in his testimony before the Senate Judiciary Committee in 1998. He's talking about labor protectionism in the form of anti-immigration policy, but his argument also touches upon the shortage of U.S. citizens with engineering degrees. Another study of backfiring regulation is the Wall Street Journal's Texas v. Ohio. These are not radical anti-regulatory wingnuts claiming that thalidomide and lead paint ain't so bad. These are simply arguments that trying to legislate a healthy economy by mandating the outcome is equivalent to applying a clamping force: when you limit the bottom end of the scale you inevitably limit the top end, and when you remove any variation in either direction, there's no reason for anyone to take a risk because the outcome will always be the same. And risk is the heart of innovation.
Education in the US has a similar innovation problem, in that we are obsessed with teaching in a specific industrialized way that hasn't changed in decades, except to add some mandatory tests that show how ineffective it is. The mode of teaching hasn't changed, but the material has; even the textbooks must now reflect the material convered in the test instead of the material that the teachers think their students should actually be learning. More than ever, students are learning that to succeed they must learn to conform to a single definition of a good student, which is the student who can memorize a large amount of data and retain it for a few days. Acquiring obscure knowledge, understanding the data, questioning accepted wisdom, drawing new conclusions, and taking a risk on a different approach are skills which are actively discouraged. Teachers are painfully aware of this but are not empowered to take risks themselves to improve the system. Again, hyperregulation of outcomes leads to a clamping force preventing both failure and success. We are left with teachers who fall into one of two categories: ones who are so passionate that they are willing to teach within this system out of a sense of civic duty, and the ones who are glad to have found a job where their performance has no impact on their career as long as they don't break any rules.
In both cases, we agree that we want good results, but we're so afraid of bad results that we eliminate risk, and in so doing we eliminate any chance of improvement.
Stagnation is not an option; if we're afraid to compete against ourselves because that would mean not everybody gets to be the winner, we're nevertheless still competing at a global level. Somebody out there is willing to work more hours for less pay at an unskilled job than you are. The only way to win at that game is to move up to a higher level where the people who can compete with you had to get a decent education and won't settle for a house that has a dirt floor.
Fortunately for us, other countries that may be growing faster than the United States are not necessarily more nimble than we are; they may have stumbled onto an advantageous situation (such as a billion farmers who would rather work in a factory) by chance. They may be stuck in an inflexible situation that happens to be working well for them. All we need to do is to adapt and learn from their successes faster than they do, and we'll beat them. But we shouldn't have to wait for other countries to prove to us that they had it right and we had it wrong. We should be leading.
How do we do that? Simple, but not easy: by competing with ourselves. It has to be possible for us to fail, and to succeed, and we have to have control over the decisions that lead to our success or failure. If we're not allowed to improve the way we do our jobs, if our employer keeps getting rescued by taxpayers every time they screw up, and if the folks who keep screwing up are the only ones who get a bonus when things aren't so dire, at some point you just give up, or you leave (or get fired for rocking the boat). There's a reason that the economic powerhouse of Silicon Valley is full of companies that give all of their employees stock options, and is also full of stories of startups that cratered. It's not just a matter of making people work harder; people with skin in the game are less willing to keep their mouths shut when they have a big idea or when they see someone about to run the company off a cliff. They're less willing to hang around at a company that's dying if they know that there won't be a soft landing or last minute rescue. Better to abandon ship and get working for a healthy company whose stock options won't turn out to be worthless.
The Texas vs. Ohio article shows how we can compete at a meta level: by setting up competing systems in which competition takes place. Overarching federal regulations result in a monoculture that allows only one option to be tried at a time. By contrast, when states are able to try a variety of different approaches, we can see what works far more quickly.
Unsurprisingly, auto makers like states that have lower taxes. But surprisingly, they like this so much that they're willing to overlook the labor pool of unemployed experienced auto workers and the existing heavy industrial infrastructure in states like Ohio, choosing to start over from scratch in Texas. It's just not worth it. And in TJ Rodgers' testimony, he shows that increased immigration actually raises average wages, and creates more jobs than the immigrant workers filled. In both cases we needed a variety of data points to figure out what the right decision was. If every state had the same labor laws as Ohio, all we'd know is that all of our auto manufacturing jobs were gone. But with the counterexample of Texas, we know what Ohio did wrong and how to fix it.
Any stockbroker can tell you that risk is tied to reward; if you want absolutely zero risk, you actually have a tough time keeping up with inflation. No risk is actually a recipe for a slow decline. If you take bigger risks you might lose everything, but on average over a long period of time, you win more than you lose, and end up with more than if you had chosen a less risky investment for the same period. Everyone has to decide how much risk they're comfortable with, but zero risk is not a viable long term strategy.
That same metaphor applies to governance. There are plenty of unacceptable downsides to a completely ungoverned world, but we have more choices than just communism vs. anarchy. There's a lot of leeway in between Mad Max and 1984. We need to try out a lot of different things, and we can't do that if we're still using the federal government to force everyone to do the same thing.
I generally agree with the idea of limited government, but I don't think most people agree on exactly what that looks like. We don't need to agree, though; we just need to let our ideas compete. There's no faster way to get the country back on track.