A lengthy, interesting essay. A brief quote:
In the future we are going to want to spend a greater share of our incomes and attention in areas where the market system works less well: information goods, public goods, increasing-returns goods, pensions, health care, education. The market works less well in these areas. But our alternative modes of collective organization, product [sic?] take some bureaucracy, not exactly cover themselves with glory in these areas either. Thus I suspect that not innovation exhaustion but rather institution design will be our big problem in keeping the pace of true economic growth going into the long-run future.
This is where I use my line: “Markets fail. Use markets.”
That is, I do not think that replacing markets where competition works imperfectly with technocrats shielded from competition entirely is the way to go. So while Brad and I might agree that institutional arrangements matter, we disagree on which institutional arrangements are likely to be most promising. I wish we could arrange it so that he lives in his technocratic utopia while I live in a messier decentralized system without having to create an impermeable boundary between us.
But do not let that deter you from reading Brad’s entire essay. One thing that he does well, compared to other discussions I find in the blogosphere and in the press, is wrestle with the meaning of “stagnation.” Too often, I see demand-side stagnation lumped in with supply-side stagnation, even though to me it seems that they are mutually exclusive. You cannot have both excess supply and excess demand at the same time in the aggregate (you can certainly have excess supply in one market and excess demand in another, but that is not what the sloppy thinkers are describing). Of course, I am willing to forget about demand-side issues altogether and just look at everything in terms of PSST.
As Brad also points out, you need to clarify which problems you think are temporary and which problems are embedded in long-term trends. My own view is that the decline in the value of unskilled (and some skilled) labor is embedded in a long-term trend. If there a lot of low GDP-per-worker folks out there, one has to ask whether the best use of their time is working (I think Brad hints at this issue, but perhaps he means something different).
This brings us down to the issue of whether pure innovation is going to be a favorable long-term trend going forward. I am optimistic, but I go back and forth between being more optimistic about information technology vs. biotechnology. I think that improvements in information technology and its applications are easier to achieve but less dramatic. Human biology strikes me as really complex (and perhaps more complex than many researchers were expecting 20 years ago), but the potential payoffs from biotech strike me as huge. For example, I expect chemicals to do much more to improve cognitive ability than any educational tools.