Academia and the decline of wealth in America
For those of you under about 40 years of age, it wasn’t always like this.
In the US, it used to be that every year you could expect to be wealthier. Your purchasing power grew over time: you could afford things you couldn’t the year before. Your salary increase every year outpaced inflation. If there was something you wanted and couldn’t afford, all you had to do was wait. Give it a year, or two, or ten. You would be able to afford it, no problem.
No, really, go ask your parents. I’m not making this stuff up.
You can even see it in things like the government’s long-term programs, for example Social Security — who in the hell in their right mind would start a long-term program without an appropriate plan for funding it? Were our forefathers irresponsible? Short on brains? No, of course not — for centuries, yes centuries (it goes back to the 1700s, basically as far back as our government has tracked the data), the US economy had been on a three-point-something percent growth curve, while the world’s greatest economies were on a two-point percent curve.
Bottom line: every individual in the country became wealthier over time.
I’m not talking about companies, I’m talking about individuals. This is why, for centuries, every American child fully expected to do better than his/her parents. Every parent’s dream of seeing his/her children do well (financially) came true. It just happened; that’s the magical thing about growth curves. The infinitesimal 1% difference between us and the rest of the world, when compounded over several centuries, is what took us from being a pissant backwater in the 1600s and 1700s to a leading economic power by the early 1900s.
Then, in the mid 1970s, we fell to a two-percent growth curve. We’ve been on it ever since.
I’ve read a bunch of accounts, and I have yet to read a really compelling explanation for why it happened. All explanations I’ve read are overly complicated or artificial or specious, etc.
[if you have suggestions for reading, please send them to me, seriously]
At the time, our then-president Jimmy Carter remarked about it, said that it was perhaps the most important issue facing America at the time. He was right. However, his challenger, Ronald Reagan, dismissed Carter for criticizing America. Basically played the nationalism card, to national appeal, and the rest is history. That’s the last time any politician has mustered the courage even to mention the issue; it’s a sure-fire way to get yourself kicked right out of office.
The effect of the change wasn’t felt until the 1980s, at which point people realized that, for the first time in centuries, they couldn’t afford to purchase the house they grew up in. Since nobody had talked about the economic slowdown for over a decade, nobody put 2 and 2 together. People worried about their future, but nothing changed. And that’s where we are now. I can’t afford any of the houses I grew up in — and it’s not like my dad is a millionaire or anything; he’s a professor just like me. Identical social standing. The difference: I am poorer than he was. My children will be poorer than me.
This is what it means to fall off a growth curve.
We all see the net effects all around us, perhaps without realizing why: when you have more than enough money, people can afford to be generous, both monetarily and (more importantly) in spirit. When there’s not enough to go around, people can be less than charitable towards each other.
Anyway, that’s not what I want to talk about. I want to get us back on that three-point growth curve. The first thing is to understand what changed. Figuring out why will come some other day.
The ‘what’ part of the equation is innovation. America used to be a country defined by innovation. It was ‘the American spirit’ that people around the world talked about in the late 1800s and early 1900s.
Why do I finger innovation? Because innovation defies all laws of conservation: with innovation, you create wealth out of nothing. One day, you have nothing in your hand. The next day you have created, out of pure unadulterated thought, something that people want bad enough to give you money for it. You have created a thing of value. You have created wealth.
Out of nothing.
Innovation drives large-percent growth curves. Cost-cutting drives insignificant-percent growth curves, and cost-cutting is what underlies most of the American economy today. We figure out how to be more efficient, how to outsource, how to reduce costs, how to cut corners, and we have done so for the past few decades. That’s not really growth — for instance, it is bound by laws of conservation. It cannot scale forever. It’s basically a floating stasis.
In the 1970s we were starting the move from a manufacturing economy to a service-based economy … the first steps were the exporting of much of our manufacturing elsewhere. The problem is that if you don’t build anything you cannot possibly innovate — you cannot innovate if most of your economy is service … or anything other than manufacturing. What does it mean to innovate within a service economy? Make better sandwiches? Take more efficient delivery routes? Optimize the payroll? And if you’re not innovating, you’re not really growing your wealth.
Think of all the examples of American innovation since the 1970s. How many examples are not in the tech sector?
We don’t build anything here anymore, outside of tech. Kitchen appliances, power systems, washers/dryers, airplanes, raw materials, electronics, trucks, ships, even satellites these days — nothing is built here. We are no longer the only player in any of these markets; for nearly all we’re not even the predominant one; for most we don’t even play. We stopped manufacturing, and with that we stopped innovating. In industries where we still do manufacturing, we innovate like mad, but the number of industries is shrinking, and I fear that the economic footprint of those industries as a percentage of the global economy is also shrinking. The bottom line: even though we are an innovative people, our innovations are a drop in the global bucket. Meaning that our country’s growth will largely be static, and mostly in the downward slope compared to elsewhere.
Why did we export stuff elsewhere? I don’t think cost-cutting comes first — I don’t think people choose to outsource as a first resort; I think that comes later. So I don’t buy the argument of “the fat cats of corporate America decided to move operations elsewhere so that they could make more money” as the reason things went downhill. These guys were already making money hand over fist; why change course? They had a good thing going, and there was no external motivation to give it up (remember that there are non-trivial start-up costs to outsource something … nothing comes for free).
I think cost-cutting happens when you move to a lower-percentage growth curve; cost-cutting is a last resort that you pull out of your bag of tricks to try to get back onto the higher growth-rate curve of yesterday.
Another possibility: we got lazy. In the 60s and 70s, in both the automotive and electric guitar industries America was so far out ahead of the rest of the pack, we got lazy and stopped innovating by choice. We decided to make and sell crap. Why? Because we could get away with it. The quote re: autos — “Detroit decided that they would rather make money than cars.” It is quite possible that the same thing happened in many industries across the country.
I’m not fond of that explanation because it is fatalistic … basically it says that with success comes an inevitable downfall. I don’t want that to be true, because I want us to get back up on our feet. Anyway, I hope that it isn’t true, and so I keep looking for alternative explanations.
What else could explain the slow-down in manufacturing? Here’s another theory. Throughout the 1950s, in the post-war era, there was a common refrain of “son, get an education; I don’t want you to have the same hard life that I had.” The message from parent to child was “I want you to have a better life than I had, so go to college.” Basically, to put it in a nutshell, an entire generation credited college education for our country’s economic growth curve.
Let’s say that again, since I think it is important. Nearly every generation in the history of our country (well, at least beginning when the Europeans conquered the original owners of the place) has had a better future than their parents. Every parent lived to see their children do better than them. For some reason, in the mid-1900s, people started to think that the growth in American wealth was due to a college education. And so, starting in the mid-1900s to late 1900s, just about every American high-school graduate went to college.
One of the things they teach you in American college is that industry is to be looked down upon.
I have no idea where this came from, but it is there, it is palpable, and you cannot deny its presence. When in college, you are [indirectly] educated to believe that all of industry is equivalent to hard manual labor.
Now, don’t get me wrong — I have worked in industry, and I loved the immensely satisfying and challenging intellectual atmosphere that industry provides. It throws you into lapel-grabbing, brain-pounding problems that are nowhere to be found in academia. Industry demands from you a level of sophistication and attention to detail that is not approached in academia. It is a different mentality, a different focus, a different culture altogether. The two are apples and oranges.
But nonetheless, each looks at the other and sneers.
And so an entire generation of high-school graduates went to college and learned to loathe industry. They learned that working in the factories, in the design houses, in the drawing rooms — they learned that type of work was beneath them.
And so innovation died, and perhaps nine tenths of the brilliant minds that would have otherwise gone into industry and innovated the hell out of their field, that nine tenths went into the legal profession or the medical field or investment banking.
By the way, it’s still happening, and I was blown away by this. Bill Gates, bless his heart, told Congress that today America faces a critical shortage of engineering talent (basically the people who would have gone into industry a few decades ago), and that the problem is due to lack of education. However, other reports have shown that our education system produces more than enough STEM students (high-school and college students studying and graduating with degrees in Science, Technology, Engineering, and Math). What other reports have shown is that the top percentages of these students go not into STEM careers but rather into fields like law, medicine, and investment banking.
Why? One can only guess, but here’s some insight. None of the engineers that I know make more than about $200K, and even that is unusually high. None of the doctors I know make less than about $300K. None of the lawyers I know in private practice make less than about $400-500K (lawyers in the government, however, that’s a different story …). And let’s not get started on investment bankers.
The really smart students? Yeah, those guys know where to go to make a living, and I’ll give you a hint: they aren’t going into STEM careers. Mr. Gates, however, insists that solving the problem is “not an issue of raising wages. These jobs are very, very, very high-paying jobs.”
Yeah, okay, who invited that guy with the huge albatross-shaped conflict of interests hanging around his neck?
Anyway, back to the point. I finger education as the culprit for killing innovation. And, yeah, I’m part of the problem, not part of the solution. I know, I get it. But I only came to this conclusion recently, and for what it’s worth, I’ve tried to act as an evangelist to help fix the problem. See also here and here.
My agenda: let’s get innovation back on track in this country. For my part, I’m trying to teach good design principles, because a lot of what we call innovation is often just really good design. As for bringing industry back to the US, I have no idea. I suspect it’s a once-they’re-out-of-the-chicken-coop-they’re-gone sort of thing, so we’ll have to invent some new industries, or make the tech sector even bigger (quite possible with the iPad and the revolution it portends). Green energy is also a potential, but a ton of countries see the same potential and are vying for pole position. But either way, it is clear to me that we won’t get back to the good ol’ days unless we innovate as a country, as opposed to a bunch of scattered individuals.
I try to beat the same message into the head of every student who crosses my path: learn good design, obsess over correctness and elegance, and try to start up a company while in school or immediately after. The tools are there, the potential is there. The future is up to you guys.
