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- The Alchemy of Growth & Innovation
The Alchemy of Growth & Innovation
Generative Innovation and Property rights
Over the last century, there have been years of boom and years of bust. This cyclical behavior is called the business cycle. Economists don't agree on the causes of the business cycle. But since economies are made up of humans, it is logical that emotions play a role. It stands to reason that the irrationality of prosperity and a lack of risk management lead to booms and busts. The Great Depression was the worst we have seen, and much of the classical solutions didn't seem to help. Giving rise to the belief that only through increased consumption can we climb out of the valley of doom. Increased spending, or lower taxes could be the solution to smooth business cycles. That governments must 'print' their way out of the recession to restore confidence. Worse yet, some believe the best way to achieve this is through military spending. Citing that innovation often comes from it. It is true that the internet, nuclear technology, GPS, and many others exist today because of military technology. But to suggest it is the only way to bring innovation and, by extension, growth, is a falsity. The economy is not some game that only countries can play. And I'd argue that we are stuck in this loop because of it. Governments often involve themselves in markets in ways that only make them more inefficient. Producing bloat, creating unintentional monopolies, and stifling innovation.
Before the printing press, much of what we know about science, mathematics, and technology comes from the patron. The Waqfs (endowments) of the Islamic world, the patron bankers of Florence, monasticism, and royal courts made up most of the funding for the advancement of civilization. Education in the modern sense would not exist until the 20th century. The pursuit of knowledge was not to become a member of the working class but rather to be a person of culture and refinement. It was devotion to God and his laws and the development of tools to make practice simple. Such as the development of algebra to calculate inheritance under Islamic law. Ideas and technology were spread primarily through trade and cultural exchanges. But the printing press was a democratization of knowledge. It raised the human capital of all. Literacy begets knowledge, and the increased access to knowledge spurred innovation. Governments ought to realize it was this that first gave rise to innovation, not their funding of it. Innovation is the result of human capital formation, not government capital formation. It’s about human input, not human output. A robot may replace human output, but it can never replace human input. A government's job should be to encourage the growth of human capital, not its destruction.
The Industrial Revolution was the result of the human pursuit of knowledge. It was a time of immense exploration, thanks to the widespread access. Further the development of legal protections for property, both physical and intellectual. Lead to an entrepreneurial spirit of innovation not seen before. Cities before the industrial revolution were a place of living for much of the world. The productive world is centered outside of cities on farms. With the advent of factories, productivity moved to where the most people were, and with it, ideas. The industrial revolution also increased the standard of living for much of the world. It was through the organization of labour and development that industries boomed. When individuals are given autonomy, they are allowed to create new and novel solutions. When governments interfere with this, they trample on innovation. That is not to say that the government has no role to play, but rather that their role is different. They should allow open innovation and punish bad actors rather than industries. They should enforce ownership over property, but in a way that doesn't create monopolies. During the advent of the computer age, we saw a new phase in the industrial revolution. It further removed barriers to education, especially in a global sense.
Today we are heading for yet another era of innovation and modern technology, which could be compared to that of the printing press. A new industrial revolution, digital transformation, and the rapid computerization of industry. Industries that relied heavily on people will see transformation. The two areas that I find most interesting are those of AI and crypto. I fear these technologies will suffer the same issues as in the past. Sound policies must be in place, but not at the expense of innovation. AI and crypto have parallels with the printing press, albeit in different ways. AI will become foundational in synthesizing information. Crypto is permissionless, much like the printing press; no policies can control what it generates. Both crypto and AI will converge, and you will see AI models rewarding crypto and crypto AI. Further, the use of cryptography has the ability to radically shift ownership rights. In ways we cannot and will not understand. The full power of these two technologies is yet to be revealed. As much as people would have you believe, they are still far from full adoption. Like the early days of the computer or even earlier the printing press. The printing press was often used to print what we would call a meme today.
Jean-Ignace-Isidore Grandville and Eugène-Hippolyte Forest: Artillerie du Diable(published in La Caricature), lithograph, 265×360 mm, 1834; The National Gallery of Art, Washington, DC
Likewise, generative AI is being used to generate images we couldn't imagine. While crypto has meme coins and NFTs, true innovation is foreign to the eyes of a normie. When the iPad first came out, much of the public thought it was ridiculous. Why would I want a large iPhone? But today, iPhones look more like iPads. When computers first came out, most thought, Why would I need one of those? Now you'd hardly find someone claiming they are useless. I say this to point out that innovation is generative. We don't consume it.
Consumption alone cannot account for innovation. Real and lasting growth cannot be created through consumption. If more money exists, it doesn't mean more innovation will exist. Often times, the same products will only be consumed. Generative AI can generate images and art. AI will take over small tasks and simplify your life. Crypto transforms ownership and will revolutionize finance. These are innovations that are not a result of more consumption but rather a stretching of abilities. Seeking to transform industries by breaking down barriers to entry and making firms more competitive. If you can bootstrap a mobile network with a community, you can take on the banking establishment. Likewise, if generative AI can help create images, individuals can focus on what they do best. Robots can manufacture. It allows for greater separation of labour. These are the foundations that sparked the first industrial revolution. I predict the coming revolution will have far greater consequences. In a lot of ways, these technologies will help us return to printing press-based innovation. This generative power is what makes it so powerful. Sifting the world to a greater productive capacity than we have seen. Bringing about a per capita basis we cannot fathom.
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