Technology cycles and marginal productivity improvements

A thought prompted by The Breathless Rhetoric (and Prosaic Economics) of Virtual Reality by David Sax.

Sax says, in the context of the current excitement over virtual reality technology,

As Robert J. Gordon, an economist at Northwestern University, pointed out in his recent book “The Rise and Fall of American Growth,” past digital panaceas have not even tended to lead to economic progress, let alone to transformative leaps. Though we may view the ability to summon warm cookies to our doors with the tap of a finger as a great advance, in reality, Gordon cautions, the greatest economic benefits Americans are likely to see from digital technology may already be behind us.

Curious, I called Gordon up, to ask whether he thinks virtual reality will be any different. He was predictably skeptical. “We had a period of about thirty years where we went all the way from offices filled with typewriters and reams of paper and file cabinets to the modern flat-screen, paperless office,” he told me. That transformation spurred productivity, and, in turn, growth, in numerous ways, for instance by freeing workers from some repetitive tasks and jobs. “I don’t see V.R. as [bringing the] same kind of productivity gain as that,” Gordon said.

Why not? Because, he argued, V.R. only has the power to incrementally shift existing practices. Gordon cited the steady introduction of new classroom technology in Northwestern’s lecture halls as an example. It has slightly changed the way he teaches, he said, but not what, how, or how much his students learn. “The reality is that students are learning the same material, and getting the same scores on tests as ever before,” he said. He saw little to suggest that the results would be different if his students were learning from home with V.R. goggles on.

The fleshy truth, it would seem, is that the business world’s great challenges are challenging precisely because they’re complex in ways that individual technological solutions cannot adequately address. V.R. may provide a boost to the entertainment industry, or, as Zuckerberg hopes, to social-media platforms, but translating these gains into widespread progress will be another matter. The problems that businesses and economies face involve a messy nexus of data, culture, circumstances, and human behavior—problems that, for now at least, must still be wrestled with in actual reality.

A couple of related but separate thoughts.

I have long argued that we do not focus enough on productivity as an end goal in itself. We focus on improving education, improving our transportation infrastructure, improving our governance, all with very specific end goals in mind. That is fine as far as it goes. It i, however,s not entirely coincidental that the outcomes are, aside from their particulars, an increase in overall productivity. But few, if any, of these projects/policies are, in their own right, justified solely on their impact on productivity. I think that is a conversation we need to have. It will save us from empty promises and overheated rhetoric (to some degree.)

The second thought is to do with cycle times. Out technology cycle times have shrunk dramatically from 45 years (at the beginning of 1900) to fifteen years and they are on track for even shorter cycle times. I wonder, though, whether this is in part because any individual technology platform is unlikely to lead to the type of aggregate productivity improvement we have seen in the past. In those days, a new technology, such as electrification, came in and spread across all sectors of the economy and private life. It was a pervasive technology that yielded productivity improvements everywhere.

Today, I suspect, our "new" technologies often only touch some segment of the economy. Yes, they increase productivity but only in a narrow sliver. Perhaps we are experiencing shorter cycles because each platform is pertinent to a narrower and narrower range activities and therefore have a declining marginal impact on overall productivity?