Friday, May 01, 2009

One Idea, One World, One Market

Alex Tabarrok sees growth coming from new ideas. He believes that future growth comes from ideas that have high R&D costs, but low production costs. He quotes Jefferson, with the wonderful maxim about knowledge, that he who lights his candle at mine receives light without darkening me. As he phrases it, “One apple feeds one man, one idea can feed the world.”

If you had to choose between having two deadly diseases, one common and one rare, you’d want to have the common disease. There are more incentives to produce solutions to common diseases - “Larger markets save lives. Misery truly does love company.”

“If China and India were as rich as the US was today, the market for cancer drugs would be eight times what it is now.” We’d have far more scientists and engineers able to work on these problems and increased incentives to conduct research. It’s similar to the ways in which action films have larger budgets than comedies - action films do better in overseas markets and therefore impact more sales, and can cost more.

“One Idea, One World, One Market” is the solution for the future, Tabarrok tells us. We need more idea creators. Less than 0.1% of the world’s population are scientists and engineers. A large percentage of those people are in the US. The US is now losing idea leadership… and that’s a good thing, he tells us. Around the world, there may be geniuses, like the Indian mathematician Ramanujan, toiling in poverty and obscurity.

“It’s as if we had a supercomputer and billions of our processors had been offline.” India, China, and Africa are coming online, and we will see an Einstein in Africa this century. We need to build investments in education that increase the supply of new ideas.
Video of the whole TED talk here. Hits on some themes I have written about previously in my Top 1% of Humanity, The Moral Case for Globalism and How Much Research Is Being Done In The World posts.

Basically he is saying that standard of living is determined by technology, and the larger and richer the global population becomes the more researchers and scientists and the faster technology improves. Because technology is not a zero sum game, we in the US are made richer the stronger the Indian and Chinese economies become. It does make me wonder if rather than praising Obama for his pledge to raise research and development budgets, I should have prodded him to use the US commitment as a way to get other countries to match the pledge, as the benefit of the American research will be shared by all in the world.

One implication of this is that the standard of living of the next generation of Americans will be based as much by what happens outside the US as what happens inside it. The education systems in 3rd world countries will impact the standard of living of the next generation of Americans almost as much as the education system in the US. Makes me wonder if the stimulus package would have had a bigger impact for the standard of living of the next generation of Americans if it were distributed outside the US, as a dollar spent in a 3rd world country would have a bigger impact than one spent in the US.

While I agreed with most of the talk, I did disagree with is his use of GDP/capita as a measuring stick for these advancements. The first issue I have is that many of the advances due to increased knowledge are part of the commons wealth (such as Wikipedia or drugs that aren't patented) and aren't captured by GDP. The second issue I have, is that I don't think GDP/capita really captures how things have changed between generations. A person making $30,000 in 1900 is very different from a person making an inflation adjusted $30,000 in 2000. The person in 2000 would have access to a car, TV, air conditioning, 100+ channels of TV, the internet, a cell phone and advanced medical care. What would the person in 1900 have instead to have an equal standard of living? I don't know. Maybe you could ask people today making $30,000 how much money they need to prefer living in 1900 and take the average value.

Instead of looking at equal incomes, you could see compare how much the average GDP/capita increased between 1900 and 2000. But, if you found that it increased 10 times, what does that really mean? That you are able to eat 10 times as much food, or eat 10 times as much meat, or have a house 10 times as large? It could also mean that the goods you purchase are 10 times better. But how exactly is that measured? At a certain point these numbers become almost meaningless and all you can really do is describe how people lived then and now and then make a judgment as to how much better life has become. Personally I would rather be dirt poor but have access to the Internet in 2000 than be the richest man alive in 1900. You couldn't pay me enough to go back and live in 1900, which means for me the increase in standard of living has been infinite. Likely people in 2100 will think the same.

via Ethan Zuckerman

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