By James M. Hohman, Mackinac Center for Public Policy
Eli Dourado on the hard problems facing hard technology
It may feel like America has gone through a lot of technological change in the past few decades. But the chief economist at the Abundance Institute, Eli Dourado, argues that we’ve gone through stagnation. And he’s got ideas to revitalize the kind of progress that help us all live better. I spoke with him about it for the Overton Window podcast.
“Over the last several decades, we’ve had a ton of progress in a narrow set of industries,” Dourado says.
Tech sectors have done well. But housing, health, energy, transportation and other industries have not changed much, and these industries make up a huge part of the economy.
A bit part of this is because many technological improvements have been outlawed by federal, state and local policies. Dourado cites housing as an example. “We have the technology for stacking housing units on top of each other, and we’ve had that for a long time,” he says. “But there’s local zoning, local opposition to multifamily housing, and a range of land-use restrictions that make it hard to have denser and cheaper housing.”
He looks at the data and notices that progress isn’t what it used to be. “What we want is the free lunch that comes from improvements in ideas and institutions, and that is the total factor productivity,” Dourado says.
Total factor productivity, the amount of output the economy gets based on input, has slowed from what it was prior to the 1970s.
“If you look at the time series, what you see is a marked change in 1973. We had total factor productivity growth of 2% before that period,” Dourado says. “From 1973 to around 1995, it was about half a percent. We had a decade from 1995 to 2005 when I thought we were back. And then since 2005 — you can think about it as the smartphone era — it has been abysmal.”
Dourado knows that the slowdown is surprising. “I think people see this massive change and think it’s a huge economic boost. And it just isn’t,” Dourado says.
“My poster child is supersonic air travel, which I personally spent some time on. We instituted a speed limit on flight over land in the 1970s and that has limited the market and prevented the deployment of supersonic aircraft,” Dourado says.
“We can do supersonic travel with a softer boom than in the past, which is possible with today’s technology,” Dourado says. “Presumably the FAA would change its rule if someone had built that plane. But investors are not going to want to put money into a project where there’s this huge regulatory risk outstanding.”
This limits supersonic air travel to planes that fly over oceans, which limits the market to commercial airliners.
“You could set a limit on how loud the noise can be as the planes are cruising. We don’t ban slamming car doors. In fact, there’s a lot of noises in the environment today that are more annoying than a sonic boom,” he says.
Instead of innovating on speed and sound dampening, incumbent jet makers economize on fuel efficiency and others factors. “A lot of the investment over the last several decades has been in eking out one percent efficiency gains in subsonic aviation rather than developing the technology that we need for faster travel,” Dourado says.
It means that we’re missing out on gains that come from faster travel. Dourado says that reducing the time it takes to get from one place to another also reduces the personal costs people pay to travel. “When the cost of going from place to place goes down, you go there more often. You trade more. You have more economic activity between those places,” he says. “I think you can do simple extrapolations that if we got to Mach 3, 4, 5 or whatever, then trillions of dollars could get unlocked by this.”
Changing the rules is often met with resistance. “Somebody will object because they’ll be inconvenienced. Somebody could get hurt; there are safety concerns. And somebody might lose their job. I think those are the three biggest themes I run into on why it’s hard to deploy new technologies in the physical world,” he says.
Still, it’s his goal to overcome that resistance. “I am using the tools that I have available to me. I am writing a lot of things. The other piece of this is cultivating new entrants in these industries. What can I do to support them? Sometimes it’s investing my own money. Sometimes it’s just advising and sharing ideas. And sometimes it’s understanding what they’re doing and translating it to a broader audience,” Dourado says.
“There is a ripe opportunity for us to expand the Overton Window to include ideas that would privilege productivity growth,” he says.
James M. Hohman is the director of fiscal policy at the Mackinac Center for Public Policy.