Eye of Siva

Ars longa, vita brevis

Roger Farmer: Idiopathic Tardus Augmenti

You have to read this if only because of the wonderful header. Translated from latin loosely says, “I don’t know why growth is slow.” Farmer asks why growth has suddenly slowed and he is not satisfied by the state of research into the matter. This is the secular stagnation hypothesis of Larry Summers and others.

I think that one needs to start by asking why American growth was so strong during the 20th century (and late 19th for that matter). I would argue that unbridled animal spirits of the American innovator was a key reason. At the turn of the last century there was no reason to see why the United States would do so well while the richer country of the time Argentina would do so badly. I think there is a larger role that freedom to innovate played.

The US was one place where anyone could get rich on the back of an idea – living the American dream. To some extent this was helped by the lack of enforcement of many protections for intellectual properties. For example the music industry (recorded sound) initially was founded on the basis that US copyrights were only on the sheet music and performances were exempt from paying royalties. US radio stations even today enjoy the right to play music without paying royalties.

To some extent this “public domain” type of thinking allows for rapid innovation. A wild west for intellectual property if you will. This leads to short life for exploitation but more stuff can be built on previous innovations.

Today on the other hand the US is the leader in protection of intellectual rights. Copyrights since the Sonny Bono acts, the Mickey Mouse trademark, patent rights on pharmaceutical products with marginal innovation, the list goes on. The worst of the lot is patents on business practices. Yes you read that right, the US recognizes patents on business methods. For example Amazon has the patent (and consequent monopoly) on 1-click buying. A US bank claimed that a method of hedging against weather movements was a protected patent. There is a crazy amount of such stupidity in the US now.

What this does is create inefficient monopolies. Success is defined as having lawyers to defend your innovations. Pharma companies spending time and money on fighting generics on expired patent drugs are an example. Oracle is claiming billions from Google for using bits of software code (which it publishes as open source).

Larger companies effectively kill off new innovators.

There is some evidence of lower social mobility in the US already. Perhaps the American dream is not realizable any more for most people.

And innovation suffers as a result.

Perhaps it is not that America is facing secular stagnation, it is just losing its special sauce. Now it is no different from the rest of the world. Crony capitalism and state socialism may have won after all.

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