The Source of Progress
Some Forgotten Knowledge
Since I’m not a scholar, let alone a scholar’s scholar, I usually don’t read non-fiction books if I can find a short article or essay that conveys the author’s main ideas. Having saved some time, when I wrote my book I felt I knew at least a little bit about most ideas that might have any bearing on it.
The other day, however, I came across a category new to me, called “Progress Studies.” The field appears to the brainchild of a former professor, Dr. Michael Magoon, who has written a couple books on the topic, recommends other books, and has a Substack devoted to it.
The category concerns how and why it was that, after thousands of years of civilizations whose economies never improved except temporarily from war booty, there has been a spectacular enrichment of even the poorest people almost everywhere in the last 500 years, especially the last 200.
From what I’ve read so far, I like his ideas a lot and recommend that you check out his Substack. His explanations are mostly consistent with my views, but I have some slight differences of emphasis that I think could enhance his case.
Dr. Magoon is big on the precursors to economic growth that showed up first in Northern Italy during the Renaissance and then various other places, especially England where the Industrial Revolution began. He describes the various effects that acted as reinforcement to keep the momentum of living standards moving higher, continuing to this day.
Economic progress is also one of the main topics of my book. Unlike some ideas that I think are fairly original, my view of progress is more about lost knowledge, something still true that used to be taught and widely known, but somehow fell out of favor and is now mostly forgotten.
That simple truth is that consumption consumes. It’s fun, but if you eat the cake you don’t have it anymore. As progress makes a society richer, it can spend everything and maximize current living standards, but if it wants better things in the future, it can’t consume all its income. It has to sacrifice at least some current consumption to use that money for the kind of business investment that increases productivity: buying new and better equipment, designing better processes, paying scientists and engineers to invent new products, training employees in more skills, and so forth. Investment like that raises workers’ pay because they add more value and puts downward pressure on prices, which raises living standards by giving people more for their money.
You would think this is common sense, that everyone should know this, but my sense is that very few politicians and economists do, judging from the policies they advocate.
For example, nearly every proposal for governments to spend more is coupled with the idea that we should just tax the rich more to pay for it. Many states have been raising tax rates on the highest earners, and next year the federal tax cuts of 2017 will expire and bounce up to their previous higher levels.
Nobody wants to cut spending, because there are always beneficiaries for every spending program that love the status quo. What they are unknowingly demanding, however, is not just a continuation of some program that puts money in their own pockets, but also reduction in the growth rate of the entire country. That is because most saving is done by higher income people, and if savings are taken for taxes there is little left to invest.
Also, rich people are by far the biggest angel investors, who finance innovative start-ups at their earliest stage. Those are very high risk, but what is the point if when one beats the odds and backs a winner, the government grabs much of the gains?
Another example is the strong pressure to divert business investment from things that will improve productivity and raise living standards to things that will give us lower output at a higher unit cost, but do so with fewer CO2 emissions. I appreciate the merit of trying to reduce future expenses to ameliorate negative effects from a warmer climate. But the idea of cutting future spending by a small amount and paying for it by cutting future incomes by a much bigger amount, as seems likely, leaves us worse off.
Once countries achieved all the precursors to progress 400+ years ago that Dr. Magoon identified, it was savings and investment to enhance productivity that created nearly all the progress since then. Progress will end if we don’t understand that.