Technologies of Control and Resistance: Making Sense of our Stagnant Dynamism

I’ve just read Race Against The Machine, a new Kindle Single by Erik Brynjolfsson and Andrew McAfee, which argues contra Tyler Cowen’s The Great Stagnation that we are witnessing not a slowdown, but a positive acceleration of technological change. Brynjolfsson and McAfee argue that the fast pace of innovation is creating mismatches between humans and new technology, which has resulted in a lot of technological unemployment. The jargon is skill-biased technical change (SBTC). All recessions bring unemployment, but recent recessions have resulted in “jobless recoveries” that are the result not of cyclical forces but of deep structural change in the economy.

Brynjolfsson and McAfee are not wrong, but I think a better picture emerges if we attempt to reconcile their argument with Cowen’s rather than viewing them as contradictory. As Tyler argues, we have not had the kind of growth we might have expected 40 years ago if we had extrapolated based on the prior 40 years. See this chart on total factor productivity by David Beckworth. I think McJolfsson’s view and Cowen’s view are complementary if viewed from a sufficiently “big picture” perspective; the slowdown in TFP and the speedup in SBTC are, after all, decades-long trends.

Here’s my model. First we need to differentiate between two kinds of innovation and think about their effects. The first kind of innovation is geared toward brute maximization of production. It is typically centralized and makes use of economies of scale. Examples might include an assembly line factory or a big, coal-fired power plant. Because these innovations tend to be centralized, they introduce points of control. The capital is typically fixed and therefore easy to tax and regulate. It’s well known in the development literature that it’s really hard for governments to control rural peasants who live off the grid. Once they move to the cities and plug into centralized services, it is easier to require them to send their children to school, for instance. Because these innovations introduce points of control, I will call them technologies of control.

On the other hand, not all innovations are about brute maximization of production. Some are about producing things that we already know how to produce in ways that have ancillary benefits. An important ancillary benefit is evading control. Examples of these innovations include 3D printers and solar power. The evasion of control that is possible with 3D printers is the subject of Cory Doctorow’s short story Printcrime. And portable solar power cells can make people harder to control by supplying electricity without the need to register an address, have a bank account, stay put, and so on. These are obvious examples, but control can be evaded through more subtle innovations as well. I will call innovations that circumvent points of control that can be used by governments or monopolies to exploit, tax, or regulate technologies of resistance.

Now, postulate some background rate of innovation. How many resources will be devoted to technologies of control and how many to technologies or resistance? The answer is that it depends on how invasive the state (or other monopolies) are. When the state is invasive, at the margin the incentive is to find ways to circumvent the points of control; a greater proportion of resources will go into technologies of resistance. When the state is non-invasive, at the margin the incentive is a purer maximization of production; a greater proportion of resources will go into technologies of control, which results in higher growth.

What determines how invasive the state will be? Call me a cynic, but I think it correlates strongly with the availability of points of control. When factors of production are fixed, when demand for government supplied public goods is inelastic, when there are lots of points of control, the government will exercise more control. When the opposite is true, when there are few points of control, the government is unable to act invasively.

As you can see, there is a system of feedback. But the countervailing forces need not push outcomes to a stationary equilibrium. As we all know, time-to-build can result in cycles. Since technologies take time to change direction and develop, and since politics is slow to adapt, we should expect a non-stationary equilibrium. I think this is consistent with the broad facts. A hundred years ago, at least as it concerns white males living in the US, the government was relatively non-invasive. As a result, they developed centralized technologies that created a lot of growth, technologies of control. As new points of control were introduced, the government became more invasive. The modern state was born. At some point, innovation gradually increased toward technologies of resistance. The low-hanging fruit from the prior era eventually petered out, and sometime around 1974 we began to see lower TFP growth. As technologies of resistance improve relative to technologies of control, I can’t say exactly what will happen. A lot depends on whether government becomes gradually less invasive as points of control disappear or whether it continues to overreach; if the latter, we could observe some kind of interesting political turmoil.

So far, I’ve been pretty general about technologies of resistance, but I want to tie it back into McJolfsson’s story about rapid skill-biased technical change. The key point is that labor is extremely regulated; firms that use labor are subject to intense government control. In part this is because policies that give labor a “bigger piece of the pie” are popular with voters, and in part it is because labor can complain and enforce its rights in a way that machines cannot. If you own a business and you are subject to intense government control, you are going to invest resources in circumventing the points of control. In our economy, that means getting rid of lots of labor as cheaply as possible, which means skill-biased technical change. As Arnold Kling has said, “if a job can be defined, it can be automated or outsourced.” But it’s because there is so much control exercised in the labor market that the incentive to automate and outsource is so high.

On the other side of the labor market, I wonder if post-materialism is not also part of an attempt to evade control. A lot of talented people are scaling back their labor efforts, and while surely not all of this is due to taxes and regulations, some of it may be. And other innovations which seem truly new, such as the development of autonomous vehicles, are the result of control of which we may not even be aware; for instance, how profitable would it be to develop autonomous vehicles if Pareto-improving trade with immigrant drivers were not made impossible by immigration and labor restrictions?

The Internet has been somewhat insulated from the kind of political control that I am claiming leads to the cycle of control and resistance. As a consequence, I think we observe an epicycle there. Internet technologies can be centralized at the company level or standardized at the protocol level. Email is an example of a technology that is standardized at the protocol level, and it was developed in the early days of the Internet, when market power was a serious concern. Today, there are so many competitors in the online messaging field that market power is not a real problem. Consequently, we observe services like Facebook and Twitter, which are centralized and can provide “higher production” by reducing spam, for instance. If Facebook and Twitter ever abuse their market power too much, that is when distributed, protocol-based substitutes such as Diaspora and Status.net will take over. And when the government starts exerting more control over the Internet, we’ll observe the adoption of new technologies to circumvent that control, such as encryption and mesh networking.

In a strange way, this theory is a partial vindication of Ayn Rand; the only problem is that she was too literal. The productive people do not go on strike when they are over-controlled. Instead, they innovate around the points of control. They go on strike at the margin. And it doesn’t take a big, dramatic exit. A little bit cumulatively over decades is sufficient to both be noticeable in the data and to reduce the amount of control that can be exercised.

At the risk of being accused of now-more-than-everism, I’ll point out that the problems associated with a greater focus on technologies of resistance and with skill-biased technical change could be much ameliorated by a government that dramatically reduced its control over its citizens. Stick to supplying public goods and providing a small safety net. It won’t fix everything overnight—technology has momentum—but it will make things better than it otherwise would be. However, I think there is little chance of this happening. It requires out-of-equilibrium political play. Instead, if my theory is correct, we will find out what happens when large, invasive governments overextend and are forced to shrink.

26 replies to “Technologies of Control and Resistance: Making Sense of our Stagnant Dynamism

  1. Pingback: Assorted links — Marginal Revolution

  2. Indy

    My model of “The Great Stagnation” (which I’m still researching for “The End Of Ideas” when my employer gives me a spare moment) is very different but also can be roughly partitioned. I split “technology” into three general fields: IT (hardware + software + communications, to include automation and robotics), Complex Natural, and Mature Physical.

    With regards to IT – I regard the amazing progress in speed, size, and capability over the last half century to be largely resulting from the process hypothesized by Richard Feynman in his famous 1959 lecture “There’s plenty of room at the bottom”. The Value [Cost/(Quality*Capacity)] of some items, like digital storage, have literally increased more than 10 orders of magnitude within a single lifetime – a “Trillioning”, as I like to call it. The general idea, and even the theoretical program architecture, of things like Siri or Watson or Google-Auto-Car have been around for a long time, but the Trillioning makes them suddenly feasible for development. This phenomenon, and certain iterative build-ons from these new tools and capabilities, tend to support the B&M thesis. On the other hand – the very mine that Feynman referenced as a reason for hope over the next half century may be running out of gold.

    Feynman noticed how gargantuan computing components were compared to the atomic structure of matter, and figured (correctly) that a rapid process of progressive miniaturization could go on for decades. Today components, such as transistor gates, are already under 40 atoms wide – so, it’s entirely possible there’s no more “room at the bottom” (or “low hanging fruit”, to use the alternative phrasing). The good news is that it is now the software that seems to lag the hardware with regards to some of the imagined paradigm-shifting technologies mentioned above, and we may not need another Trillioning to get them.

    Complex System Natural technologies – like Biotechnology and Genetic Analysis / Specific Medicine, have been less fruitful (or less rapidly so) than recently anticipated, and the slowing pace of new drug discoveries and FDA approvals is somewhat worrisome. On the other hand, maybe a stagnation in medical progress will coincidentally “bend the cost curve” of health care in a passive mechanism as new expensive drugs stop being made and the patents expire out on all the “old” ones which start getting sold at generics and marginal cost.

    There are many problems in the field, but the two major fundamental limitations are that, while they seem almost infinite to a new Organic/Bio Chemistry student, there are only so many small molecules, and that we’ve been actively investigating the biological effects of most of them for many decades. What is needed is some kind of *systematic* way of working backwards from a diagnosis to safe and effective symptom-neutralizer substances – and my guess is that the computational power necessary to accomplish that from Quantum first principles would require another Trillioning in IT, which, as I said, we may never get. Even if we do – Biotech may just have to wait another generation or two – like the AutoCar did – to experience a resurgence of progress. A similar argument holds for climate science and other inherently computational complex problems. It would really be tragic if solving the most interesting computational problems may just exceed our limited capacity to keep building radically faster computing devices themselves.

    Finally there is “Hard Physical”, Major and Mature 20th Century industries like Energy and Electricity, Construction, Textiles, Materials, Petroleum-Burning Engine Transportation (including aviation), and Modern Mechanized and Chemical-Intensive Agriculture. My TEOI research indicates that these fields have seen much starker stagnation over the last half century than the others. Things like [horsepower-hours / (engine cost*miles per gallon] or (Bushels / Acre), which once trebled, haven’t budged much at all in decades. I regard these stagnations and “maturities” as being largely due to the limitation that nature imposes on us both in terms of physics and the effort required to extract our sometimes scarce natural endowments.

    So, in my view, we have three categories of “tech”. Stagnant and Mature “Hard Physical”, Explosively Accelerating (but with some chance of petering out) IT, and maybe slowing, or maybe exploding-but-over-the-horizon Natural-Complex-Systems fields like Biotech. I suppose since it’s such a large part of the economy you could also throw in “Government” as a fourth category, which opens up some room to ponder questions of government “productivity” in terms of labor and tax money. My hunch is that by reasonable measures you’d find “stagnation” here too.

    And to me the current-economic-situation question becomes, “But on what do most people spend most of their money, and on producing what do most of them find employment?” And I think the answer in “Hard Physical” (and, with employment, also “Government”. Most people spend most of their budgets on Housing, Food, Clothing, Cars, Gas, Utilities, Taxes, Education, and Health Care. There is a certain portion for IT/Communications/Entertainment depending on the person, but, I believe, still a small fraction of their total budget that mostly goes to the other items in my list. Certainly I consider myself an IT-consuming person, but my expenditures on it are much smaller than on the other categories.

    If most of the GDP and most employment is still orbiting around fields which have *recently become fully mature and entered a status of perpetual stagnation* and *the situation stays that way* – then maybe we’re in some serious trouble. We’re in more serious trouble if, as I think it is reasonable to accept as a possibility, that some of these items – such as exhaustible fossil fuel resources, might become larger parts of people’s budgets as they become increasingly scarce and as production fails to keep pace with a growing global economy and population, and alternative energy technologies also stagnate and fail to produce “cheaply”, becoming competitive only because the cheap fuels become expensive. Then we’re in bigger trouble.

    We’ll see. One thing about the next few decades – they won’t be dull.

  3. OkSure

    Interesting post. One thing, though: I’m surprised you’d be calling for only a “small safety net” in a world where most human labor is going to be unnecessary. The only way to deal with that is going to be a much, much larger redistribution scheme, which is likely to wind up being a guaranteed income, per Friedman and Mr. Cowen. There’s basically no way around it at this point.

    Otherwise, good work.

  4. Alan Robinson

    I have been working in freight, and parcel transporation and and postal policy for over 30 years during that period we have seen the types of technological transformations that have significantly reduced jobs through the shifting of freight from one mode to another, communications from one mode to another, and the introduction of software that allows companies to optimize distribution channels that reduce logistics costs. The shift is also evident in the development of e-retailing as well.

    Almost all modal changes have resulted in a shift from high labor content modes to low labor content modes. (i.e. shift from truckload freight to Trailer on flatcars rail and a shift from physical communications to telephone and later web and mobile based communications)

    The expansion of e-tailing, while creating delivery jobs in the postal and parcel delivery industry, eliminated many more jobs in brick and mortar retailing and the entire real estate infrastructure that supports the building and maintenance of brick and mortar retail space.

    The software impact is probably even bigger as optimization has allowed companies to develop logistics strategies that control costs by using the lowest labor content mode possible. Software has also made optimizing inventory and ordering to minimize warehouse needs while still ensuring that customers get what they want when they want it.

    The only place where technology has cut labor is in the physical handling of mail or parcels in a sortation facility or warehouse. Automation and better picking software and warehouse design has reduced the need for labor to pick items for orders and pack the orders for shipping.

    However the biggest impact has been the shift between modes and the optimization of the entire network from factory to delivery to the consumer.

  5. Doc Merlin

    “Stick to supplying public goods”

    Part of the problem is that /anything/ and /everything/ can be cast as a public good.

  6. Pingback: Assorted Links « azmytheconomics

  7. Harry D.

    Have you by any chance read the paper by Parente and Prescott on ‘Monopoly Rights: A Barrier to Riches” [http://www.minneapolisfed.org/research/sr/sr236.pdf]? My mind is too muddled at the moment to identify the relevant differences between your argument and theirs. I’ll have to come back to your post when I get more clearheaded.

    Parente and Prescott identify a mechanism by which monopoly rights hinder growth of TFP. Monopoly over the use of a productive technology can stifle innovation in new technologies and prevent efficient use of the existing technology. The monopolists are a coalition of factor suppliers in an industry. The industry can perhaps be thought of as a point of control.

    Perhaps their paper doesn’t relate to your point very much.

  8. Pingback: Caplan on the ZMP Hypothesis // Eli Dourado

  9. Veronica

    I find Oksure’s comment interesting in that it ignores the obvious. In a world were most human labour is unnecessary, most humans will be unnecessary. These will people will have to go away. Society will need to change such that human production will need to be managed just like all other production. Society will see little benefit in extravagant redistribution schemes so that a pair of unnecessary humans can produce another unnecessary human to bring to the collective table. This model of the unnecessary experiencing exponential growth can be observed in all its glorious failure at work in Africa today. What do you still need to understand?

    Cheers

  10. Pingback: Some links « Belligerati

  11. Pingback: The Utopia of Infinite Elasticity // Eli Dourado

  12. Pingback: Homesteading the Open Web | Adam Gurri

  13. Pingback: Etsy and the Business Cycle // Eli Dourado

  14. Pingback: Stories of Progress and Stagnation | Adam Gurri

  15. Kevin Dick

    I know this is an old post, but I Adam Gurri linked to it this week. I posted a question there that he recommended I ask you directly.

    At first blush, this hypothesis seems really convincing. It also seems like it should be testable. If it’s true, people with access to technologies of resistance should be more and increasingly mobile. Middle class, with “builder” backgrounds, maybe? I wonder if there’s a good instrument for that demographic.

    Do you know of any work in this area?

  16. Eli Post author

    Thanks for the comment, Kevin. I am not sure about testing the hypothesis econometrically. If you come up with a way to do it, I would certainly be interested in it. I think that the best way to “test” the hypothesis is to assemble a mass of cases that are consistent with it. Some of these elements may benefit from econometric testing, but I don’t know if there is a good econometric test of the whole idea.

    In any case, this is part of my dissertation, so I will write a lot more on it. Some of my Mercatus colleagues are doing research on what they call “information control,” how people adapt to laws that attempt to restrict the free flow of information. I see a lot of the recent labor market trends, inequality, ZMP, etc., as reflecting adaptations to labor market regulations. So there is a lot of work being done in a number of areas that are not explicitly labeled “resistance,” and I view part of my job as to tie it all together.

  17. Kevin Dick

    Thank for the reply Eli. We’re thinking along the same lines. I was envisioning coming up with a dozen or so implications of the overall theory, a handful of which might be econometrically testable.

    On the mobility front, I was thinking that an implication of the theory is that STEM, econ, and business majors should be better positioned to take advantage of resistance technologies. So they should be more mobile both than college graduates in humanities and non-college-graduate. Therefore, they should have a higher rate of emigration form more statist states like California to less statist ones like Nevada. Controlling for other factors like relative economic growth rates, of course.

    In any case, I look forward to reading more on this front!

  18. Pingback: The Most Important Issue of the 2012 Election? TacoCopters | Eli Dourado

  19. Pingback: Assorted Links « azmytheconomics

  20. Pingback: » The Future of Immigration Economics Open Borders: The Case

  21. Pingback: Can We Engineer for Liberty? | The Ümlaut

  22. Pingback: Towards a Probabilistic Libertarianism | The Ümlaut

  23. Pingback: The Most Powerful Force In the Universe | The Ümlaut

  24. Pingback: Ratchet Roulette: A Probabilistic Theory of the Growth of Government | The Ümlaut

Leave a Reply