TCS Daily


What You Don't
Know Can Hurt You

By Nick Schulz - January 6, 2003 12:00 AM

In 1930, the economist John Maynard Keynes declared that mankind was well on its way to "solving its economic problem." Perhaps so, although decades of postwar Keynesianism probably didn't help. Joel Mokyr, an economist at Northwestern University, thinks that mankind solved its economic problem well before Keynes's pronouncement. Mr. Mokyr goes back to the Industrial Revolution of the early 19th century.

For most economists, Mr. Mokyr included, the Industrial Revolution is categorically different from everything that preceded it. As he explains in "The Gifts of Athena," (Princeton, 359 pages, $35) it constituted a moment when the "knowledge-induced component of economic growth increased markedly." This knowledge base (symbolized by Athena, reason's goddess) was crucial, since it helped to overcome "negative feedbacks" that militate against a strong economy.

And what are these feedbacks? There are several, among them Malthusian "traps" and, even more important, "predators and parasites in various forms and guises." These include tax collectors, rent-seeking coalitions "such as guilds and monopolies," and entrenched interests bent on serving their own limited concerns by stopping technological progress.

Let's see - tax collectors, rent-seekers, entrenched interests squelching progress. Sounds like Washington! So what happened to allow economic growth to proceed, from the Industrial Revolution to the present day?

For starters, knowledge made Malthus irrelevant. Modern agricultural techniques, grounded in science, increased crop yields to feed the growing population spawned by industrial growth. (Malthus had predicted chronic food shortages.) Meanwhile, the science and technology behind the Industrial Revolution transformed old economies into inorganic and mineral-based ones, in which stored-up resources, such as fossil fuels, were unlocked for mankind's benefit. This transformation, in turn, helped make possible the modern factory system, as well as electricity grids and the intricate networks for travel and information that are essential to the functioning of modern economies.

There was a religious and cultural shift, too. "Since the Reformation, the notion that different ideas could compete with one another and be chosen by some criterion meant that old truths were increasingly questioned," writes Mr. Mokyr. This skepticism yielded intellectual and cultural dynamism that welcomes the entrepreneur, the innovator and the risk-taker. (As Bernard Lewis has noted, the lack of such openness partly explains the inability of large swaths of the Mideast to innovate, change and grow.)

Still, negative feedbacks persist. In a certain way, they are only natural. Economic systems are dynamic; a feedback loop is part of their design. Thus critics will always be with us, in the form of unions, monopolists and intellectuals who lobby for the technological status quo. Their animus is evident in the objections of California longshoreman to the use of efficiency-enhancing machines; in the resistance of Europeans to genetically modified foods; in the hostility of environmentalists to the internal combustion engine; in the campaign of anti-globalists against free trade and capitalism; and in the attacks by small-town traditionalists on Wal-Mart and commercial culture. There is no shortage of Luddism today, from all over the political and economic spectrum.

And of course, the critics aren't always wrong. It is true, for instance, that new technologies carry the potential for unintended consequences. Mr. Mokyr cites the unanticipated problems with thalidomide and birth defects to bolster his point that the realized fear that "something could always go wrong" is a "legitimate source of fear and concern."

But proponents of a precautionary, zero-risk approach must grapple with Mr. Mokyr's trump card: No single "unintended system effect" has been so large that it has offset the net benefit "of technological progress in the past century." This fact places a heavy burden - both economic and moral - on those who lobby to restrict technology and the changes wrought by newly acquired knowledge.

Some restrictions are built in, although they vary from culture to culture. In the 1990s, Silicon Valley fought free of inertia and risk-aversion to reshape the way things were done and to create wealth in the bargain. But the cultural "brakes" that stifle development and innovation remain firm elsewhere, from Paris to Khartoum.

But any brake can only do so much. As Mr. Mokyr puts it: "Cars with their handbrakes on can move, if at a slower speed, and doing so for a prolonged time does wear the brake down." This suggests that, over time, growth will win out, if only because the power of certain ideas is greater than the resistance to them. So much the better. Keynes himself hoped that "the economic problem will take the back seat where it belongs, and the arena of the heart and the head will be occupied and reoccupied, by our real problems -- the problems of life and of human relations, of creation and behavior and religion."

A version of this article appeared in the Wall Street Journal.
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