On the Comparative Advantage of Being Young

Joerg has written to me raising some interesting points, among them:

"You also have a page with graphs done by Ray Kurzweil which show how fast things get faster, i.e., the degree of acceleration inherent in technological progress. This points to accelerating growth and thus an offsetting effect in terms of overall future growth. In my view, combining an increase in the retirement age with pro-immigration policy and an innovation-friendly incentive structure should do the trick. However, obviously there is no way to ever remove the growth advantage a "younger" society has during the brief period that it stays younger. Why should there? But maybe your thesis is more pessimistic and refers to increasing resistance against technological change in "older" societies?"

The page in question is ( here ).

I think Joerg has understood me, it's not just how fast things get faster, but how much faster they are getting faster. Kurzweil calls it the law of accelerating returns. My gut feeling is that we are talking about an underlying power law type process here: cooking, agricultural revolution, industrial revolution, informationalism....then what? The first point I would make is such change, linked as it is to fundamental uncertainty and absence of visibility (sound familiar??), is by its very nature destabalising, at least for a society which is nicely adapted to a far slower rate of change. Of course I think that economy and society are complex adaptive systems so we will learn eventually, but there is going to be a transition period.

And this transition period occurs when, guess what, our societies are ageing rapidly. Of course whether there is a connection between these two things, or put differently what is ergodic and what is non-ergodic (incidentally I am grateful to Cosma Shalizi for pointing out in his blog that chaotic sytems are generally ergodic, though 'subject to positive destabilising feedback' : ( here )

So this is the first point. We are, in principle, going to have trouble handling all this change, and I think we are already seeing signs of that. Now on the more mundane economic level whether tthis process of technological change produces growth as we conventionally measure is a hard question, as is, as Joerg notes, quatifying what is happening. You mention the comparative advantage of a young society for the 'brief period' it remains younger. May I remind you that in the case of the UK this brief period lasted from the end of the 18th to the end of the 20th century, during which time enormous transformations in relative rankings in the global economy occured. In particular India and China got stuck on the starting block. But now much of this seems to be unwinding, and I think it is worth trying to investigate some of the consequences. Especially since some of the previously young societies haven't yet been convinced of the comparative advantage of younger societies and may be in some sort of denial. Also the brief period may well be much briefer for some newly developing economies, and this tends to suggest a much more roller coaster type ride as we move forward (again I suggest China is going to be a very clear example of this: something like having a Tsunami passing through your front garden).

Getting really mundane, we need some ageing metrics both in age and relative value terms. Theoretically it is possible to have declining labour forces and rising economic values produced. It is also possible to have the contrary case. It depends, and we don't even have tractable models yet. Again it is possible to have rising gross product values and rising per capita incomes, or one without the other. Ditto, it depends and we have no adequate models. One of the key theoretical problems here is what exactly productivity is, and what exactly that nebulous component TFP is. Falling prices are not necessarily bad, this is clear. It all depends on the rate of expansion of the whole economy and the relative elasticities of the different product sectors. You could argue that the rapid productivity advance in the US and the recalcitrant growth rate was an example of bad sector-lead disinflationary pressure, but I am not convinced we have the picture clear enough on this one yet to assert even that.