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Wealth and Prosperity

December 28, 2012

What is the cause of the wealth of nations?  Adam Smith examined the question centuries ago, yet we’re still trying to figure out how we can lift people’s lives out of poverty and misery.  Outside of the deep questions of existence, consciousness, and the nature of our universe, I can’t think of a more important topic to discuss.  Everyone should, at least once in their life, deeply think about why poverty exists and consider the source of mankind’s wealth and prosperity.  Dr. Robert Gorden, an economics professor from Northwestern University, just recently published a paper related to worldwide economic growth.  In it, he takes a historical look all the way back to the year 1300 examining the causes of our wealth and prosperity and whether or not those trends are going to continue.  I’d like to discuss some of the paper’s contents.

Looking at this question from a large scale is mesmerizing.  Mankind has lived in abject poverty and misery throughout almost all of our species’ existence.  Take the year 1700 as a baseline.  If you look at how people lived in 1700, you’ll find them very poor, struggling to live day by day.  They’re toiling out in the fields, they’re slaving away, and they die at a very young age.  They have no political power of any sort.  The kings and feudal lords dictate every aspect of their lives.  Their teeth rot out, the slightest infection or sickness does them in, and their clothes are dirty and stinky.  They go to bed in straw beds filled with vermin.  They itch, they’re tired, and their lives are short.  There’s constant wars, conflict, and superstition is everywhere.  Everything from a shooting star to an eclipse is interpreted as a divine warning.  People suffering from mental disorders like epilepsy are thought to be possessed by demons and are forced to endure all kinds of tortures.  You go to town and the entire place is dingy and smelly.  Farm animals and horses are walking the streets, pooping in the middle of the road.  Their lives are pretty much miserable.  If you read the history books all you hear about is the kings and the nobles.  You don’t hear about the peasants and the everyday men and women who lived in the era.

If you go back 300 years before 1700, it’s basically the same.  Go back another 300 years, still the same.  Go back 300 years before that, it’s all basically the same.  There were some really minor advances but nothing really noteworthy.  For the most part, people were uneducated, superstitious, and lived hard lives filled with toil and misfortune.  People changed religious ideas all the time, and all kinds of wars were fought over which was the “true” god or goddess.  Popes, prophets, and mystics ran around babbling nonsense.  The religious virgins took pride in their abstinence and went to great lengths to fill people’s mind with guilt just for having a natural sexual attraction to one another.  Kings, nobles, and warlords played God with people’s lives, sending them off to fight wars to defend fictitious territorial lines.  It’s just depressing.

I have a whole book here at the house filled with maps of the world in different eras.  You flip through it and see all the different empires and their territories. I try to be an educated scholar, and I’ve read the story of the history of mankind many times from different historians, but it’s never been a subject which truly grabs me.  When I try to honestly assess why I feel this way, I think I’m ashamed of my species.

But let’s jump back to the year 1700.  This is roughly the period when human progress explodes.  There were these Enlightenment philosophers like John Locke, David Hume, Blaise Pascal, and others, who looked at the world objectively.  They acknowledged how bad things were, and they basically said, “It’s up to us to change the human condition.”  When everyone around them was superstitious about everything , these great men and women argued that we should be free to think as we please.  They minimized the role of religion in our lives and told us to look for naturalistic causes to things.  Instead of looking to divine authority to give us ethical rules and guide our society, they told us to think for ourselves and carefully consider the best ways to live based on reason and evidence.  They’d stumbled upon a recipe for success.

Dr. Jeff Borland of the University of Melbourne is offering a good Coursera (take it!  they’re free!) course called Generating The Wealth Of Nations, which I’d highly recommend to anyone interested.  Here is the course description.

If you had been alive at the start of the eighteenth century, your material well-being would have been much the same whichever region of the world you lived in, and it would almost certainly have been a precarious existence.  Go back 300 years before the eighteenth century, and not much was different.  But come forward 300 years to the present, and we see a startling transformation.

Incomes in some parts of the world have increased more than ten-fold; and now it most certainly does matter where you live – with income differentials of 50 times between the world’s richest and poorest countries.  What has changed in the past 300 years is the development and application of new technologies at a pace unprecedented in human history – the steam engine, electricity and the computer, to name just a few.  With these developments, for those who have access to them, have come huge gains in living standards.

In this course we’ll explore the spectacular (but uneven) story of economic development – beginning with the Malthusian era, moving on to the take-off of growth in the Industrial Revolution and the Great Divergence in living standards that followed, and finishing in the present with the Global Financial Crisis.  We’ll cover the main episodes and events in the development of the world economy in the past 300 years, and have something to say about most regions of the world.  As well as dealing with ‘what happened’, the course will emphasise what is known about ‘why’ – and what lessons historical experience can provide for understanding how some countries today are so rich yet others remain so poor.

Progress was exponential.  As Dr. Gorden points out in the paper, and Dr. Borland mentions in his course description, there were three great industrial revolutions.  The first happened in the years between 1750 and 1830.  Research in thermodynamics led to the creation of engines which led to the first steam trains and railroads.  A network of rail began connecting the world and products could be shipped cheaply all over the world.  Next was the discovery and mastery of electricity during the late 1800s.  This led to running water, indoor toilets, telegraph communications, indoor lightning, and so on.  It was huge.  By 1920 you start seeing modern cities powered by electricity.  Old horse wagons were also replaced by cars running on similar thermodynamic engines, but now powered by petroleum.  The last great revolution began somewhere in the 1940~1960s which was the advent of computers, the internet, and mobile communications.

Those three great revolutions made a mockery out of all that came before.  People used to pray and wail before deities in temples and nothing happened.  They sacrificed their loved ones on the altar to no avail.  Nobody came to save them from their sicknesses and diseases.  They tried drinking one another’s blood, hoping it somehow contained the “life-force”, but they couldn’t stop the aging process.  Now matter how many times they prostrated themselves in the dirt, the rains came when they wanted to, and they still had to labor in those dry fields with hand tools, barely able to eek out an existence.  Then a few hundred years later an explosion happened.  It’s amazing.

Increases in technology aren’t the only thing important to prosperity, but I’d say they’re the most important.  You can have a really efficient and just government, but if you can’t produce anything in any sort of abundance, you’re not going to get anywhere.

Speaking of which, our social institutions are going to need some major overhauls in the future.  Wealth inequality is a huge issue today.  The Nobel laureate economist Paul Krugman commented on recent developments in automation in a blog post.

Consider for a moment a sort of fantasy technology scenario, in which we could produce intelligent robots able to do everything a person can do. Clearly, such a technology would remove all limits on per capita GDP, as long as you don’t count robots among the capitas. All you need to do is keep raising the ratio of robots to humans, and you get whatever GDP you want.

Now, that’s not happening — and in fact, as I understand it, not that much progress has been made in producing machines that think the way we do. But it turns out that there are other ways of producing very smart machines. In particular, Big Data — the use of huge databases of things like spoken conversations — apparently makes it possible for machines to perform tasks that even a few years ago were really only possible for people. Speech recognition is still imperfect, but vastly better than it was and improving rapidly, not because we’ve managed to emulate human understanding but because we’ve found data-intensive ways of interpreting speech in a very non-human way.

And this means that in a sense we are moving toward something like my intelligent-robots world; many, many tasks are becoming machine-friendly. This in turn means that Gordon is probably wrong about diminishing returns to technology.

Ah, you ask, but what about the people? Very good question. Smart machines may make higher GDP possible, but also reduce the demand for people — including smart people. So we could be looking at a society that grows ever richer, but in which all the gains in wealth accrue to whoever owns the robots.

- Dr. Paul Krugman, Is Growth Over?

As Jaron Lanier points out in this video below, there was a strange drop in middle class wealth during the third industrial revolution (computers and the internet).  Why is that?   Wealth is concentrating in fewer and fewer hands.  As more things are automated, human workers are less needed, and Big Data is giving elites an almost unfair competitive edge, creating impossible barriers to entry.

Take a company like Walmart.  They have such a powerful information network, small companies could never organize themselves or get the sorts of deals they can.  Local shops are all pushed out of business.  Combine this with the fact that Walmart’s warehouses are nearly completely automated, and their stores use automated checkouts, they take much more out of the community than they put back in.  In the short-run, the people think, “Woohoo, cheaper prices.”  Then in the long term, job prospects in their community dwindle.  Eventually Walmart will become a complete vacuum, providing no jobs but sucking lots of money out everywhere they’re located.  The circular flow of money doesn’t happen and their stores are a negative impact on the local economy.

Machines are still a long way from thinking as clearly as we do, but progress in AI is on an exponential climb.  You can’t write it off.  I think we’re going to have  to eventually reexamine our notions of private property and whether or not it’s ethically right for a handful of business owners of a company like Walmart, which will eventually be completely automated (they’re getting close now), to keep all of the profits which were once paying people’s wages.  This is especially true considering that most of the AI and robotics research took place in public labs funded by universities and the government.  We can’t let these rich Wall Street tycoons run everything and reap all the benefits just because they own the corporations, the information networks, and the automated factories producing everything.  All the wealth will concentrate in a few people’s hands and the rest of us will be left without.

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