🚀 Faster, Please! Week in Review #59
Please check out some great highlights from my essays and interviews!
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➡ This is important: I have a book coming out on October 3. The Conservative Futurist: How To Create the Sci-Fi World We Were Promised is currently available for pre-order pretty much everywhere, including Amazon. I’m very excited about it!
Melior Mundus
In This Issue
Essay Highlights
— California shows decline and degrowth is a choice, not destiny
— Can AI prevent a US recession?Best of the Q&A
Best of the pod
— My chat with CNBC space reporter Michael Sheetz on the space industry
Essay Highlights
🍊 California shows decline and degrowth is a choice, not destiny
California has been blessed with some amazing natural assets, including the Pacific Ocean and lots of temperate sunny days — the latter of which helped draw the film industry to Southern California — along with plenty of arable land. Another blessing: lots of luck. There was no master plan at either the state or federal level to transform the apricot orchards of Northern California’s Santa Clara Valley into the world’s most innovative and productive technology hub. Yet all those blessings and all that luck hasn't been enough to offset bad governance that persists thanks to a degrowth attitude. As NYT Los Angeles Bureau Chief Corina Knoll writes in “Shrinking California Still Dreams, but More Modestly,” the state’s once-bright allure as a place of endless economic opportunity and upward social mobility has faded in the shadow of a housing crisis, a widening economic divide, and the COVID-19 pandemic. Imagine if California were to fully regain its optimistic national leadership, embrace pro-abundance policy, and help lead America to a more prosperous future. That would be a wonderful surprise.
📈 Can AI prevent a US recession?
Even without a deep dive into the current economic data, there’s good reason to think the American economy won't avoid slipping into recession over the next year or so: history. In a recent report, JPMorgan economists Bruce Kasman and Joseph Lupton note there are just three episodes over the past 60 years in which a Fed tightening of 250 basis points or more was followed by three or more years of US economic expansion. In each of the three successful soft landings, the JPM economists note, the Fed quickly reversed course and started cutting, which helped avoid a hard landing. Also important: Each soft landing saw the emergence of a “growth impulse.” I think you see where JPM and I are going here: AI-related tech spending could be the supply-side growth impulse that helps the Powell Fed manage to stick a soft landing today. If what economists term “total factor productivity” should also accelerate, then we really would have a 1990-style soft landing + a subsequent economic boom combo. A valid counterargument: History shows it takes a surprising amount of time for businesses to adopt and efficiently use technologies such that the gains show up in labor productivity data, from electrification to the PC.
🤚 Yes, the pandemic-era school closures were a disaster
School is more than just a place where younger students stay while their parents work, or a way for older students to get a certificate that helps them find better jobs. Deep economic research has shown that education really matters in helping kids grow into productive adults, including as workers in a complex, globalized economy. Keeping kids in school was a national emergency worthy of massive funding and massive policy imagination. Now we’re living with the failure to treat school closures as the tragedy that it was. And we’re going to be living with the long-term impacts for decades. Thanks to a literature review from the Richmond Fed, we now have a pretty good, albeit unsurprising, idea of the impact of the move to online learning and hybrid schedules. One depressing highlight from that report: “Lower levels of learning due to fewer years of effective schooling translates into deficient development of cognitive skills (measured by scores in standardized tests). In turn, lower cognitive skills will likely reduce the future earnings potential and labor-market opportunities of the students affected. All of this could eventually translate into lower economic productivity for the nation as a whole.”
Best of the Q&A
Michael Strain is the director of Economic Policy Studies and the Arthur F. Burns Scholar in Political Economy at AEI.
Do you see climate change as an area in which more innovation is needed to avoid environmental catastrophe or where markets are unlikely to provide sufficient technological improvement within the necessary timeline?
I don't know about environmental catastrophe, but I certainly think that we should want to see steps taken by the public sector and the private sector to attempt to address climate change. And I think the question is how best to do that. I think your question is framed correctly: We should be thinking much more about how to foster innovation to deal with climate change than we should be thinking about how to restrict the behavior of businesses and households with respect to the use of fossil fuels.
Then the question becomes, how best do we get that innovation? How best do we get innovation that is as successful as it can be? I don't think it's through subsidies. I think that there are all sorts of problems with designing those subsidies and with enacting them. I think instead it would be much smarter to increase the relative price of fossil fuel use. And the way to do that would be a straightforward carbon tax. A carbon tax is justified under standard economic logic regarding externalities in markets. And the advantage of a carbon tax is that it would raise the relative price of using fossil fuels, and that in and of itself would increase the benefits from innovation. But you don't have the United States Congress attempting to figure out how best to foster that innovation. Markets would do that automatically. And I would trust market outcomes over what Congress thinks is best.
Best of the pod
🌌 My chat with CNBC space reporter Michael Sheetz on the space industry
Michael Sheetz is a space reporter for CNBC where he also writes the "Investing in Space" newsletter.
Much of the conversation among regular people, to the extent they're aware of really what's going on, what you've just described so wonderfully, is SpaceX. Maybe they've heard of Jeff Bezos and Blue Origin. How far behind is Blue Origin of SpaceX? Do we have a feel for where that company is?
I, at this point, wouldn't even put it as really a competition, because SpaceX is very much in a league of their own. Blue Origin has so dramatically taken a different approach to development, very much more akin to the aerospace and defense contractors of the past. It's fascinating because both companies are actually very similar sizes in terms of personnel, but SpaceX has taken this approach of, let's just get one win after the other and try to just break things a little bit at a time and keep pushing further that way. Whereas Blue Origin is taking the route of, we want everything to work the first go, the first launch, the first landing on the Moon, all these other nuances in there. And so far, SpaceX's strategy has been dominant. Now, the United States is not looking at United Launch Alliance, one of the existing providers for rocket launches, as its primary source of both getting astronauts and satellites in orbit, they're looking to SpaceX. There's a flipping of the head that's happened in the last decade.
In this next decade, and even just in the next three to five years, it's a really critical point in Blue Origin's history where the company has been around longer than SpaceX, albeit they took a very different approach at the beginning and have taken a very different approach in recent years as well. But they need to show not just for the customers that they signed contracts for—such as United Launch Alliance, delivering engines for them, or different contractors like NASA, providing services to the Moon—they need to show that they can start delivering on those contracts and start actually competing. Maybe not head to head right away, but at least start to get some actual performance and execution as opposed to basically at this point saying, “Here's our grand architecture of everything that we want happen over the next 100 years,” which would be amazing. I can totally see where Jeff's vision for people in research laboratories and living in Lagrange points and all these kinds of things could happen. But you have to make some first inroads, and they haven't yet done that. It's a one-horse race right now.