The Speculist

Tech Central Station columnist Arnold Kling sees Kurzweil's "The Singularity is Near" as a new theory of economics.

Being an economist, Kling would tend to see many of Kurzweil's insights in that light. And a sociologist might think the book is about sociology. Cosmologists, biologists, and computer scientists will no doubt see the book as derivative or illuminative of their work. It looks somewhat like a legal treatise to me. Everybody's right. Most fields of study deserve some credit for moving our civilization forward. And the Technological Singularity impacts us all.

In his column Kling demonstrates that most economists are still depending on linear models to project economic growth.

Economists routinely forecast annual growth in U.S. labor productivity of roughly two percent for the next several decades.

That's actually worse than linear thinking. We passed that level of annual growth in productivity years ago.

...since 1992, productivity growth has sped up. As this article from the Federal Reserve Bank of San Francisco points out, "The performance of productivity in the U.S. economy has delivered some big surprises over the last several years. One surprise was in the latter half of the 1990s, when productivity growth surged to average an annual rate of over 3%, more than twice as fast as the rate in the previous two decades. A bigger surprise has been the further ratcheting up...productivity growth averaged around 3.8% for the 2001 through 2004 period.

Kling makes clear that if an exponential growth in productivity holds, many of the fiscal problems that worry us today can be easily paid for by the economy of tomorrow. If the average income moves from $35,000 today to $250,000 in 2025 in real spending power as predicted by the exponential model, then all fiscal problems become manageable. The national debt, social security, medicaid, etc.

Kling is cautiously optimistic:

...I am still not comfortable watching our government accumulate obligations to future entitlement recipients at the current rate. As of now, however, the data on average productivity growth over the past decade is reasonably consistent with the hypothesis that the economy is winning the Great Race.

Read the whole thing.

UPDATE from Phil: The productivity numbers that Kling mentions seem particularly encouraging. I speculated about how encouraging these numbers might be last year in response to some earlier Arnold Kling TCS pieces about productivity.

But what struck me about Kling's analysis in light of Kurzweil's book is what it might have to say about the Solow computer paradox. In 1987, economist Robert Solow made his famous observation:

You can see the computer age everywhere but in the productivity statistics.

For years, productivity lagged while industries were being computerized. While the new technology should, in theory, have brought about marked increases in productivity, those increases were not forthcoming. No shortage of theories were offered up to account for the productivity lag, including what might be called the Tetris/Porn theory. But hindsight now shows us that the lag was a temporary one, and productivity really does seem to be growing in leaps and bounds as a result of the computer revolution.

In an e-mail exchange, I asked Kling whether these productivity numbers mean the end of the Solow computer paradox. He said that many economists agree that it does, including Brad DeLong, but that Solow himself may be maintaining a skeptical position on the matter. Time will tell. Meanwhile, Kling recommends this as a good backgrounder on what's been happening with productivity.