I’m writing this in 2021. Early this year a mob stormed the Capitol to overthrow democracy. Thoughtful people were rightfully outraged but this is part of a pattern of change, a pattern of progress. The US has gone through three earlier transformations that were wrenching, violent and frightening affairs. Out of each one came something better. Optimist that I am, I think that this current transformation will never get as violent or tumultuous as those past transitions and out of this will come something great.
I’m predicting this based on a pattern I see in history. Once I point this out to you, a few things will happen. One, you’ll see even more than I do. That is, given what you know and have experienced, you will be able to see things that I’ve missed. Two, you’ll have a big picture for making sense of these events that take years and decades to play out but are reported on daily. Three, you’ll have a better sense of what you can do. It gives you an option to become a participant and not just a spectator in helping to create what is next.
***
So, what is the pattern?
A political party champions a set of economic policies that drives progress. Until it doesn’t. And then a new political party comes along to repeat that pattern with a new set of policies.
NEW POLITICS -> HELPS TO CREATE A NEW ECONOMY -> THESE POLICIES EVENTUALLY OVERCOME THE OLD LIMIT -> THE LIMIT TO PROGRESS SHIFTS
NEW POLITICS -> HELPS TO CREATE A NEW ECONOMY -> THESE POLICIES EVENTUALLY OVERCOME THE OLD LIMIT -> THE LIMIT TO PROGRESS SHIFTS
NEW POLITICS -> HELPS TO CREATE A NEW ECONOMY -> THESE POLICIES EVENTUALLY OVERCOME THE OLD LIMIT -> THE LIMIT TO PROGRESS SHIFTS
That’s it. This pattern that has played out three times is about to begin again. The limit to progress has already shifted.
The first time this pattern played out in the US was in our founding. It’s hard to think of a politics more dramatically new than the world’s first modern democracy.
FIRST
NEW POLITICS: American Democracy, particularly Thomas Jefferson’s Democratic Republicans (eventually just called Democratic) Party’s policies
HELPS TO CREATE A NEW ECONOMY: An Agricultural Economy dependent on land
THESE POLICIES EVENTUALLY OVERCOME THE OLD LIMIT: The limit of this first economy was land and Democrats were focused on getting more of it. They did it by purchase (Jefferson’s Louisiana Purchase from Napoleon), war (most notably the Mexican War that greatly expanded the US) and some combination of genocide, war and simply pushing the first tribes and nations into marginal regions of the continent. By 1860, the US was roughly its current size. (Save for Alaska.) Land was no longer the limit.
THE LIMIT TO PROGRESS SHIFTS: If you’re on a farm in Iowa or Minnesota in 1860, the value of your crop would be less likely to go up with more acreage than it would with a tractor to work your acreage or a train to take your crop to market. You already have more land than you can work on your own. What adds value are tools that help you to work more land and tools that give you access to markets, letting you sell your crops or livestock to towns and cities where people would pay good money. That is, the limit to progress has shifted from land to capital.
SECOND
NEW POLITICS: Lincoln’s Republican Party
HELPS TO CREATE A NEW ECONOMY: An Industrial Economy dependent on capital
THESE POLICIES EVENTUALLY OVERCOME THE OLD LIMIT: The limit of this second economy was capital and Republicans were focused on creating more of it. They did it by creating a national currency that made it easier to buy and sell. They did it at the state level by creating a new kind of corporation that made it easier for investors to provide corporations with capital. They did it with the most ambitious infrastructure project – a massive investment in the midst of the huge expense of the Civil War – in the young nation’s history, the transcontinental railroad. They did it by unleashing a flurry of inventions and investments that led to a proliferation of new products like tractors, radios, lightbulbs, cars, and telephones – each transforming reality and the imaginations of the next generation of inventors.
THE LIMIT TO PROGRESS SHIFTS: These capital markets were incredibly volatile. Between 1900 and 1933, the American economy was in recession 48% of the time. Each recession plunged workers into unemployment and ruined families. Labor was at the mercy of capital and no one quite seemed to understand the volatility of capital markets, how they would soar and crash, creating and destroying wealth and jobs. Eventually, communities made louder demands for protections for labor than they did for more capital. 10-year-old children working 12-hour days in factories. Families making just enough each month to buy groceries and pay rent suddenly facing layoffs. The next generation of politicians to win elections would offer policies that made life better for labor.
THIRD
NEW POLITICS: FDR’s Democratic Party
HELPS TO CREATE A NEW ECONOMY: An Information Economy dependent on labor
THESE POLICIES EVENTUALLY OVERCOME THE OLD LIMIT: The limit to the third economy was labor and progressives first focused on the rights of workers to form unions and strike for higher wages. Curiously, getting children out of factories led to a new kind of labor: the knowledge worker. Instead of going into factories, children went to school and that investment in minds combined with continued investment in machinery meant that labor was less about applying our brawn to tasks (it was increasingly nonsensical for labor to compete with machines when it came to tasks that required strength) than it was about applying our brains to tasks. Also, by the second half of the twentieth century, the magic of machinery was being applied to processing information. From this combination of education and evolving machinery came the knowledge worker who manipulated the symbols of things rather than actual things, working at a computer rather than factory line.
THE LIMIT TO PROGRES SHIFTS: By the early 2000s, there were various signs that we had overcome the limit of labor. As more young adults invested in college, student debt went up. This was partly a failure of governments that shifted an increasing portion of the investment in education onto teenagers. It was also partly a signal that the marginal returns to this investment in labor was dropping. A growing percentage of college graduates were working jobs little different than what they could have worked with only a high school education; those low wages coupled with student debt payment meant that college education was worsening, not improving, their economic prospects. Returns on information technology, too, were reaching their limit. By 2020, households were consuming 344 gigabytes of information per month, 38X more than they had been in 2010. The trickle of information that was so small and vital when the telegraph first emerged had become a flood that did less to inform us than distract us. In 2020, studies suggest that attention spans are about 8 seconds long, the time it takes before we distract ourselves with the next text or swipe of the internet’s infinite scroll. Additional education and information promise far less in increased prosperity than it did in 1933.
FOURTH
NEW POLITICS: In 2021, the divide in American politics is between Trump’s Republican Party still promising to bring back the industrial economy and the Democratic Party still promising to protect and invest in the labor, investing in the R&D and education that has helped to create the information economy. A choice between an industrial economy reliant on fossil fuels or an information economy reliant on knowledge workers is easy to make but it is the wrong choice. The question about what sort of economy we need to create should start with the issue of what now limits our economic progress. No party has yet defined themselves in this way but the transition would be much easier for Democrats than Republicans. It’s also conceivable that this new limit creates a new party.
HELPS TO CREATE A NEW ECONOMY: An entrepreneurial economy dependent on the popularization of entrepreneurship
THESE POLICIES EVENTUALLY OVERCOME THE OLD LIMIT: And here the pattern could end. If we successfully address the limit of entrepreneurship, we will be at the end of communities defined by market economies. Or more to the point, economics will no longer be our limit. There are only four factors of production in economics: land, capital, labor, and entrepreneurship. If we successfully overcome the limit of entrepreneurship, we will have successfully overcome the last limit of economics.
In the West, we shifted from traditional to market economy around 1300. That sounds like an arbitrary date but one of the reasons to choose that is that before 1300, organized trips east from Europe were literally religious crusades into the Holy Land that ended in 1291. The purpose was partially political, partly economic but mostly religious. Marco Polo traveled from Venice along the Silk Road to Cathay – now China – and the accounts of his adventures were captured in a book that was released after he was released from prison in 1299. Columbus had a copy of The Travels of Marco Polo when he sailed across the Atlantic. Marco Polo and 1300 mark a shift from organized expeditions for religious reasons to organized expeditions for business reasons. That is, the shift from communities organized by religious forces to communities organized by market forces.
Even though markets have done so much to define humanity in the 7 centuries since, there is no reason to believe that they will always be what defines us. Overcoming the limit of entrepreneurship suggests it won’t be economic limits but instead economic abundance that defines our policies, options, and lives. That changes everything. Even more dramatically than the first three economies have.
A political party champions a set of economic policies that drives progress. Until it doesn’t. And then a new political party comes along to repeat that pattern with a new set of policies.
NEW POLITICS -> HELPS TO CREATE A NEW ECONOMY -> THESE POLICIES EVENTUALLY OVERCOME THE OLD LIMIT -> THE LIMIT TO PROGRESS SHIFTS
NEW POLITICS -> HELPS TO CREATE A NEW ECONOMY -> THESE POLICIES EVENTUALLY OVERCOME THE OLD LIMIT -> THE LIMIT TO PROGRESS SHIFTS
NEW POLITICS -> HELPS TO CREATE A NEW ECONOMY -> THESE POLICIES EVENTUALLY OVERCOME THE OLD LIMIT -> THE LIMIT TO PROGRESS SHIFTS
That’s it. This pattern that has played out three times is about to begin again. The limit to progress has already shifted.
The first time this pattern played out in the US was in our founding. It’s hard to think of a politics more dramatically new than the world’s first modern democracy.
FIRST
NEW POLITICS: American Democracy, particularly Thomas Jefferson’s Democratic Republicans (eventually just called Democratic) Party’s policies
HELPS TO CREATE A NEW ECONOMY: An Agricultural Economy dependent on land
THESE POLICIES EVENTUALLY OVERCOME THE OLD LIMIT: The limit of this first economy was land and Democrats were focused on getting more of it. They did it by purchase (Jefferson’s Louisiana Purchase from Napoleon), war (most notably the Mexican War that greatly expanded the US) and some combination of genocide, war and simply pushing the first tribes and nations into marginal regions of the continent. By 1860, the US was roughly its current size. (Save for Alaska.) Land was no longer the limit.
THE LIMIT TO PROGRESS SHIFTS: If you’re on a farm in Iowa or Minnesota in 1860, the value of your crop would be less likely to go up with more acreage than it would with a tractor to work your acreage or a train to take your crop to market. You already have more land than you can work on your own. What adds value are tools that help you to work more land and tools that give you access to markets, letting you sell your crops or livestock to towns and cities where people would pay good money. That is, the limit to progress has shifted from land to capital.
SECOND
NEW POLITICS: Lincoln’s Republican Party
HELPS TO CREATE A NEW ECONOMY: An Industrial Economy dependent on capital
THESE POLICIES EVENTUALLY OVERCOME THE OLD LIMIT: The limit of this second economy was capital and Republicans were focused on creating more of it. They did it by creating a national currency that made it easier to buy and sell. They did it at the state level by creating a new kind of corporation that made it easier for investors to provide corporations with capital. They did it with the most ambitious infrastructure project – a massive investment in the midst of the huge expense of the Civil War – in the young nation’s history, the transcontinental railroad. They did it by unleashing a flurry of inventions and investments that led to a proliferation of new products like tractors, radios, lightbulbs, cars, and telephones – each transforming reality and the imaginations of the next generation of inventors.
THE LIMIT TO PROGRESS SHIFTS: These capital markets were incredibly volatile. Between 1900 and 1933, the American economy was in recession 48% of the time. Each recession plunged workers into unemployment and ruined families. Labor was at the mercy of capital and no one quite seemed to understand the volatility of capital markets, how they would soar and crash, creating and destroying wealth and jobs. Eventually, communities made louder demands for protections for labor than they did for more capital. 10-year-old children working 12-hour days in factories. Families making just enough each month to buy groceries and pay rent suddenly facing layoffs. The next generation of politicians to win elections would offer policies that made life better for labor.
THIRD
NEW POLITICS: FDR’s Democratic Party
HELPS TO CREATE A NEW ECONOMY: An Information Economy dependent on labor
THESE POLICIES EVENTUALLY OVERCOME THE OLD LIMIT: The limit to the third economy was labor and progressives first focused on the rights of workers to form unions and strike for higher wages. Curiously, getting children out of factories led to a new kind of labor: the knowledge worker. Instead of going into factories, children went to school and that investment in minds combined with continued investment in machinery meant that labor was less about applying our brawn to tasks (it was increasingly nonsensical for labor to compete with machines when it came to tasks that required strength) than it was about applying our brains to tasks. Also, by the second half of the twentieth century, the magic of machinery was being applied to processing information. From this combination of education and evolving machinery came the knowledge worker who manipulated the symbols of things rather than actual things, working at a computer rather than factory line.
THE LIMIT TO PROGRES SHIFTS: By the early 2000s, there were various signs that we had overcome the limit of labor. As more young adults invested in college, student debt went up. This was partly a failure of governments that shifted an increasing portion of the investment in education onto teenagers. It was also partly a signal that the marginal returns to this investment in labor was dropping. A growing percentage of college graduates were working jobs little different than what they could have worked with only a high school education; those low wages coupled with student debt payment meant that college education was worsening, not improving, their economic prospects. Returns on information technology, too, were reaching their limit. By 2020, households were consuming 344 gigabytes of information per month, 38X more than they had been in 2010. The trickle of information that was so small and vital when the telegraph first emerged had become a flood that did less to inform us than distract us. In 2020, studies suggest that attention spans are about 8 seconds long, the time it takes before we distract ourselves with the next text or swipe of the internet’s infinite scroll. Additional education and information promise far less in increased prosperity than it did in 1933.
FOURTH
NEW POLITICS: In 2021, the divide in American politics is between Trump’s Republican Party still promising to bring back the industrial economy and the Democratic Party still promising to protect and invest in the labor, investing in the R&D and education that has helped to create the information economy. A choice between an industrial economy reliant on fossil fuels or an information economy reliant on knowledge workers is easy to make but it is the wrong choice. The question about what sort of economy we need to create should start with the issue of what now limits our economic progress. No party has yet defined themselves in this way but the transition would be much easier for Democrats than Republicans. It’s also conceivable that this new limit creates a new party.
HELPS TO CREATE A NEW ECONOMY: An entrepreneurial economy dependent on the popularization of entrepreneurship
THESE POLICIES EVENTUALLY OVERCOME THE OLD LIMIT: And here the pattern could end. If we successfully address the limit of entrepreneurship, we will be at the end of communities defined by market economies. Or more to the point, economics will no longer be our limit. There are only four factors of production in economics: land, capital, labor, and entrepreneurship. If we successfully overcome the limit of entrepreneurship, we will have successfully overcome the last limit of economics.
In the West, we shifted from traditional to market economy around 1300. That sounds like an arbitrary date but one of the reasons to choose that is that before 1300, organized trips east from Europe were literally religious crusades into the Holy Land that ended in 1291. The purpose was partially political, partly economic but mostly religious. Marco Polo traveled from Venice along the Silk Road to Cathay – now China – and the accounts of his adventures were captured in a book that was released after he was released from prison in 1299. Columbus had a copy of The Travels of Marco Polo when he sailed across the Atlantic. Marco Polo and 1300 mark a shift from organized expeditions for religious reasons to organized expeditions for business reasons. That is, the shift from communities organized by religious forces to communities organized by market forces.
Even though markets have done so much to define humanity in the 7 centuries since, there is no reason to believe that they will always be what defines us. Overcoming the limit of entrepreneurship suggests it won’t be economic limits but instead economic abundance that defines our policies, options, and lives. That changes everything. Even more dramatically than the first three economies have.
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