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How technological progress leads to economic growth, an interview with 2025 Nobel Prize winner Joel Mokyr

10.17.25

FULL INTERVIEW

Sonal: Hi, everyone, welcome to the a16z Podcast; I’m Sonal.

Today’s guest is Joel Mokyr, Professor of Economics and History at Northwestern. His new book, A Culture of Growth: The Origins of the Modern Economy, is about what really drove the industrial revolution. It was a period not unlike today, where we took “quantum leaps” forward (to quote the author), in tech — from taming electricity, to making cheaper steel, refining iron cheaply, improving the quality of food, automating fiber looms, pumping water out of coal mines, preventing smallpox, and even bleaching underwear.

In short, one of the most significant ages of tech and economic progress.

In this interview, we cover everything from the public, virtual “sphere of ideas” that drove this knowledge at the time, and internet analogies today.

We also touch briefly on how to focus on big problems like climate change, to how do we measure growth? But we began the conversation with the then-revolutionary idea of a steam engine…

on the steam engine

Joel: The first steam engine is introduced in England in 1712 by a man called Thomas Newcomen. And the principles on which that engine was built were not known a century earlier, because these are called “atmospheric engines”. And the idea that the earth is surrounded by an “atmosphere” (which sounds kind of commonplace to us) actually was not realized until the 17th century, by one of Galileo’s more famous students, a man called Torricelli. And once you have the concept of an atmosphere, then the notion of creating a vacuum and having the pressure of the atmosphere push a piston down in a cylinder in which you have created a vacuum, that idea can then follow.

But in order to do that, you also have to realize that a vacuum is possible.

And thereby hangs an important part of the story, Sonal, because Aristotle thought that there is no such thing as a vacuum. And Aristotle was the gospel for many centuries. And basically, if Aristotle said something, that was true, people thought.

And then, you know, in the 17th century, dammit, people start building vacuum pumps.

You have to have these principles to build this machine. And so it couldn’t be built in the Middle Ages; and it couldn’t be built by any other society — because the fundamental notions on which it was built just didn’t exist and just couldn’t be realized.

Now, what is true for steam engines is essentially true across the board: Knowledge builds technology and technology builds knowledge.

And that synergy between these two sort of different aspects of human knowledge is what drives, essentially, our modern economic growth, and it still does to the present day.

on ancient wisdom, skepticism, & contestability

Sonal: I think we can accept… that an important nuance in what you just described is that the people who were working on the steam engine were going against people they respected.

There was a certain movement that we now take for granted that was actually very difficult to do at the time. And so I’d love to drill down on that a little bit more as well.

Joel: Well, the key word to describe what’s happening is “contestability”. And by that, I mean that this is an age which sheds its deep respect and awe for ancient wisdom: An ancient, venerable belief that is almost religious in nature. And it gets just tossed out.

And essentially, every idea that came down from the ancients is contested. And it is put to the test, and people confront it with data, with evidence, with logic, with mathematics.

…How could you do it any other way? And the answer is, basically everybody does it the other way. People rely on the wisdom of earlier generations.

And if you’re looking for the answer to a question that you have, just go look in the books. The books could be The Bible, or it could be Confucius, or it could be The Talmud, or it could be The Quran. There are these sort of revelations of wisdom.

And this is an age at which Europe sheds that. Essentially, there are no more sacred cows. The slogan of the Royal Society (which is sort of one of the paradigmatic institutions of the age), the slogan is nullius in verba. It’s Latin for “on no one’s word”.

Skepticism and contestability become essentially the keywords of intellectual activity. And that’s still true today.

Sonal: Well, I have a question about that and how that applies today, because… What you’re describing to me is actually very analogous, even in the business world, you have incumbents and you have new sort of upstarts or startups going against established knowledge and the way of doing things.

on the role of trust, collaboration, credit

Part of the contestability and skepticism is about criticizing and not taking what’s given as a given.

But there is also an element — when you’re building a company or if you’re pushing forward an idea back then to now — where there’s also a collaborative element, where there’s trust that goes with that skepticism.

So what is the role of trust in pushing forward this engine of creativity?

Joel: That’s a really good question.

We should realize that much of the knowledge created at that time is created by single individuals. There’s not that much collaboration; you know, co-authorship, and these are multiple names on papers and books that we see today — that wasn’t very…that was quite uncommon in those days.

But what happens is that knowledge has to be circulated. It has to be distributed. And what is created in Europe is a virtual network. And that plays a very important role… which is known as the Republic of Letters, the Res Publica Literaria, as they call it in Latin.

And what it is, it’s sort of a virtual network. It’s not a formal organization. There is no bricks and mortar institutions involved.

But it’s based on a network of people who write letters to each other, who correspond. They publish books, and they read each other’s books.

And the reason that trust emerges is because that everybody knows that if you publish something, or some discovery, some mathematical theorem that you have proven, or some planet you’ve discovered, or some new species that you found — that others will look at it, because they know that this has been vetted by other experts.

And so if it survives, that means you must got it right. Trust is created by the fact that experts, and specialists, and learned people talk to each other, communicate with each other, and essentially spread their ideas around.

Sonal: I’m never one to yearn for a past that never really was, but I can’t help but wonder if that was a more civil time, because what you’re really describing is essentially a market of ideas.

And you describe this funny quote from one of those people, where:

“I very humbly beg of all those whose opinion I have attacked, perhaps at too much liberty not to take it in a bad way, since I have most often done this only to invite them to do the same to mine. This philosophical war will likely cost a bit of ink, but there will be no spilling of blood.”

I think it’s a very telling quote, because it’s in stark contrast to a lot of what’s happening and playing out today [online]. (I mean, just to sharpen the contrast of what you’re describing between then and now.)

Joel: I guess I see a certain similarity there as well. The notion that this was kind of a harmonious, sort of friendly organization, which all these scientists were sitting around the campfire and singing kumbaya — that clearly isn’t the case. There was jealousy, there was rivalry, there was a vindictiveness, just as there is today.

Sonal: I mean, even down to credit, right? It’s very similar to today, where we talk about who had the idea first; what really matters is who took it to market and executed on it well.

So, it is really interesting that when you think about authorship in the previous models of knowledge that were produced — that it’s not necessarily the person who received credit is the person who was the first to discover it, or say it, talk about it, or label it — but the one who really sold it effectively in this market for ideas.

Joel: And very much like today, there are priority fights. Just as there’s this big priority fight today about who’s the first to discover CRISPR-Cas9…

Sonal: Right. Oh, gosh…

Joel: I just heard a talk about that yesterday here at Northwestern.

But there’s a very famous “priority” [dispute] fight between two of the giants of the age, Isaac Newton and [Gottfried Wilhelm] Leibniz, about who invented calculus. Basically, each of them argued that the other one stole it from him. And it got to be quite ugly, just as it sometimes gets today.

on competitive markets for ideas, access

I actually think, much like today, what made progress possible in this market for ideas is that it was a competitive market. And one thing economists know, competitive markets, by and large, work better than uncompetitive markets. And what is critical in understanding about the European system is how competitive it was. There are literally scores of countries, and states, and cities that competed with one another.

Competition may not be much fun for the people engaged in it, but it produces the results.

Sonal: Right. But a key enabler behind that competitive market for ideas — or any competitive market for that matter — is a certain symmetry of information or transparency.

I mean, a lot of what matters here is role of reputation. There’s peer assessment. There’s a lot of ways of sort of assigning credibility in the marketplace of ideas. And this is even true on the internet today, when you think about the internet as like a massive enabler for this kind of openness and transparency.

Joel: But the key word, and you gotta hit the nail on the head there, is reputation. Because you need to build a reputation among your peers if you’re going to get patronage. I mean, that is still true today. I mean, if you look at the…

Sonal: That’s what the authorship model is, right? I mean, that’s what peer review is at the end of the day.

Joel: The way my university and any other university gives tenure is they look at your reputation. That’s how these things are being decided.

And so, “Joe Blow” has the incentive to publish as much as he can, because that’s how he gains a reputation. And so everything is put out there in the open. And if you’re writing open source software, it isn’t any different.

Sonal: That’s interesting, though, because it was still a very small proportion of the population. It wasn’t as egalitarian as one might think based on this beautiful idea of a marketplace of ideas.

I mean, yes, it’s a different type of egalitarianism, because the credibility is not bestowed based on family connections or how much money you have, but more about the meritocracy of your ideas and creativity. But it still was a very elite phenomenon. And even when we think about credentialed institutions today, there is a certain elitism associated with that.

on the internet vs. the printing press

Sonal, cont’d: I think what’s really interesting about the internet and the production of knowledge on the internet is that there are unknown names that are essentially building credibility, reputation now in a completely different way. It’s not necessarily leveled it equally, but it’s definitely created a far more equal, level playing field than ever before, for knowledge.

Joel: Well, yes and no. You’re right: The internet has changed the rules of the game in a dramatic way. All the same, it remains true that the number of people who are pushing the envelope, who are really making advances, is still probably quite small.

And I would guess that internet or no internet, a disproportionate number of them come from a dozen institutions such as Caltech, MIT, Stanford, Carnegie Mellon, and Northwestern, places like that. Now, that doesn’t mean that new people coming out of nowhere or college dropouts, people like Bill Gates, [Steve Jobs]…

Sonal: Mark Zuckerberg. Although even he comes from a long history of coding as a child, just not in the traditional system.

Joel: Exactly. And in some ways, the period I’m looking at, with similar transformation, is the printing press. So, all of a sudden, somebody can come out of nowhere and publish a book that everybody takes notice of.

Sonal: Right. But even still… the friction of creating knowledge. And I think this is a really important point you touch on.

At the end of the day, knowledge is a really unusual commodity. It’s a public good. It’s non-excludable, others can use it. The cost of sharing is very low (unless you think about things like intellectual property or patents, and secrecy). But at the end of the day, it’s zero marginal cost.

And it’s really fascinating, because what the internet has done — The printing press still required a certain amount of friction, some knowledge to use it, some technical access, availability. — You now have a situation where someone anywhere in the world… We did a podcast with entrepreneurs in Iran, and there were sanctions in place at the time, and they were creating businesses on the internet. It’s literally bleeding into borders and barriers in a way that’s unprecedented.

Joel: I think that’s absolutely true.

And I would certainly subscribe to the notion that our own age is, in many ways, totally unique. Which is why I am not really a great believer in the hypothesis that there’s an awful lot we can learn from history about our own age, because our own age is so different in so many way.

But in some ways, everything that you see in the time I’m looking at is true multiplied 1000 times over. Everything moves 1000 times faster, 1000 times cheaper. Yeah, it’s a difference of degree, but the degree is so huge that it becomes a difference in kind.

on the role of institutions, emergent organizations

Sonal: I totally buy that. So one question I have for you… So far, we’ve been talking a lot about knowledge and production at a more individual level in this marketplace of ideas. What’s the role of institutions in this, like, both then and now? And how do you see that evolution happening?

Joel: Well, so the way we think about institutions today, is that we don’t really think about them as the state or any sort of formal organization. Institutions are ways in which we set the rules of behavior that individuals observe when they’re active in the marketplace, but also when they’re playing basketball or something.

The institutions that I am interested in here are the institutions that govern the market for ideas. And you get two kinds of institutions: You get national institutions, and you get transnational institutions. And my way of thinking about is that the national institutions probably play a relatively secondary role. Quite frankly, if you put a gun to my head, I would say, what happened, happened despite the best efforts of these states, not thanks to them.

What is far more interesting, I think, is this spontaneous, emergent body of the Republic of Letters, which is an institution, even though it doesn’t have a headquarters and it doesn’t have a CEO, and nobody designed it, and nobody founded it. It’s a result. It’s one of those spontaneous virtual networks, a little bit, if you want, like our virtual communities today.

Sonal: Honestly, when I was reading about your ideas of the Republic of Letters — this sort of epistolary knowledge world — the first thought that jumped into my mind was actually the early days of internet, the blogosphere, where you had these bloggers in a smaller community, exchanging ideas back and forth, was literally the Republic of Letters.

And it was similarly elitist in the sense that a small proportion of the population was doing it, not everybody was doing it — but it was based on this meritocracy of ideas and creativity, than past connections and everything else.

Joel: Excellent analogy. And I totally agree with you.

And you will see that this [past] blogosphere was not set up by any individual. It wasn’t designed. Nobody would have dreamed it at the time. Out of that came our modern world. Out of that came every technological advance that made a big difference in electricity, in textiles, in steel, in transportation, in medicine, you name it. It came all out of those interactions.

And that’s basically the central message of my book.

Sonal: It’s a weirdly unexplained driver of the Industrial Revolution. People usually fixate on the more obvious things, like the printing press, etc.

And the equivalent today — the online communities, these makers, these early indies that help push and share ideas in the spontaneous virtual world — arguably, are also the drivers of a lot of our tech advances today. I think we could even make that same kind of inferential leap.

on combining knowledge from fields as 1 of 2 ways to drive progress

So my question for you was, what are the biggest enablers of that, both then and now? Because besides the things that we’ve talked about so far, one of the things that really stuck out to me (and it’s a favorite concept of mine), I know it’s credited originally to [Mark] Granovetter, but I remember it from Ron Burt’s work:

This idea of “structural holes”, and the importance of weak ties versus strong ties, and being able to exploit these ideas. What role does that play?

Joel: Well, I use my former colleague Mark Granovetter’s work in this, and I think you’re absolutely right that what you get in the Republic of Letters is a bunch of people spread all over continent.

Remember, transportation at the time was slow and difficult. So if you live in Warsaw and somebody else lives in London, they could well be living on the moon. You’d never meet these people. They don’t have any obvious reason to trust each other very deeply.

But what is happening is that, because of these weak ties (as Granovetter points out), you actually learn more from each other.

Sonal: At Xerox PARC, one of the things that we used to talk about a lot is that the most interesting innovations — and they produced innovations over and over and over again, it wasn’t just one time — happened at the interstitials between disciplines, and weak ties in networks.

And you make this statement of this idea that “progress occurs at the margins”. I want you to explain what you meant by that, because that was a very fascinating concept to me.

Joel: Well, I think what happens in many fields is that they tend very quickly to reach a situation in which progress becomes rather incremental. And that people basically take the sense that, well, what we know is basically all there is to know. And so we can sort of make little small steps in it — but not really step outside and make a huge quantum leap into the unknown.

And in order to do that, you need either one of the two things: [1] Either you need to recombine two different fields. You need to acknowledge from one field and transplant it into another so that it becomes a completely different way of thinking.

I mean, that’s the kind of thing that happens within Newtonian revolution, or later on with Einstein.

Sonal: Actually, today [November 2016], an example I would think of is with [one-shot] deep learning and computer science. This opportunity of training data on much smaller data sets and borrowing from the worlds of developmental psychology in order to see how a computer could truly learn like a child.

Joel: That’s a brilliant example. I think that’s exactly the kind of thing that I’m thinking.

So you look at my own field of economics, and the last I think 20-25 years, almost all of the major breakthroughs have occurred by people coming in with ideas from psychology or from mathematics, and basically introducing these into economics.

So the major changes in economics (just to give you this one example), have happened through game theory. And game theory was originally devised by mathematicians to solve very, very simple situations unrelated to economics. And now, economists… <Sonal: Or Kahneman and Tversky, with the ideas of prospect theory versus utility…> That’s exactly right. So these people are coming from psychology. Both Kahneman and Tversky are trained psychologists. And they’re sort of coming to economics from the outside.

And John Nash, who won the Nobel Prize in economics, first contribution to game theory, comes to it from mathematics. So did people like, say, John von Neumann and so on and so forth. And I think this has been happening across the board. And even in the humanities, that’s what’s happening. You look at major transformations in, say, history (which is my other area), and a lot of it comes from people in philosophy.

So, that’s how major steps forward happen. And I think if you leave a field to its own devices, and without interacting with other fields, eventually it will start to stagnate. But of course, that doesn’t happen in a competitive market for ideas, because there are always sort of wise guys who say, hey you know what, I’m going to study chemistry then apply my knowledge in chemistry to, I don’t know what, biology.

Sonal: Today’s “wise guys” might be computer scientists who…and I sometimes make fun of this, who think that they can take on any industry and any problem. And frankly, it’s true, you can do things like bring that mindset to biology, to healthcare, everything related to new areas.

on focusing intellectual activity as 2 of 2 ways to drive tech progress

Joel: But I want to make one more point, since you asked me… — What’s enabling this? And I just talked about competition.

There’s one more thing, because this is something that happens throughout history: [2] Success in making breakthroughs in science and technology often depends on focus.

That’s to say, people have to agree that a particular issue, a particular question, is something that we need to solve, or a particular technological bottleneck is something that’s really bothering us.

And so, for instance at this time, one of the big issues — since this is a seafaring time, and everybody has a problem with measuring longitude; Columbus sailed across the oceans, not never knowing where he was, longitude-wise, you could only measure latitude — So, this is a big issue, and everybody knows it. And ships get wrecked, and so on. And so, slowly but certainly, society puts its minds together to solve the issue of longitude. And it’s not an easy problem, it takes centuries, but they crack it.

And the same is true for something entirely different, but also a big issue, smallpox. So smallpox is a real scourge of this age, and people feared it greatly, not only because it killed people, but also because it disfigured them. So the age puts its mind in fighting smallpox. And lo and behold, they crack it. Again, takes a long time. There are lots of false starts, and half… But in the end, smallpox get conquered.

And this is something that happens throughout history, all the way down to Project Manhattan, and on, and on, and on. So it’s something that we think we can do, and it needs to be done urgently that becomes a focus of intellectual activity. And I think our own age is going to go through a similar thing as climate change becomes the central issue that the human race is coping with.

Sonal: And I actually think it doesn’t only apply to problems to be solved, but even areas of opportunity — like the focus now on Mars. That isn’t necessarily being driven by government, but private sector; which I think is really fascinating.

Joel: And that is where an enormous amount of human ingenuity is focused on. And this kind of pattern I see repeated again and again and again.

Sonal: And by “this kind of pattern”, you mean the focus on intellectual activity?

Joel: The focus of intellectual activity, the best minds in the world.

I mean, look what happens with polio or with AIDS. Same thing, you know, a disease pops up, and everybody goes, “Oh, my god.” This disease becomes a threat to us, and so we put our best minds to it. We took our best tools. [Editor’s note: This episode was recorded pre-pandemic, you can see my coverage of vaccine development at a16z.com.]

Not always within people’s capabilities. So when the black death occurs in Europe in the 14th century, they had no clue what it was that hit them. They had no tools. They had no idea what was causing this. And so instead of preventing the problem, they killed the Jews, because they thought the Jews were poisoning the wells. So we should hope that that does not happen, finding a scapegoat instead of a solution.

Sonal: That’s a really important reminder to think about.

Joel: Here’s another thing that people really focus their attention — defeating gravity. So, flying.

They couldn’t build airplanes, because for an airplane, there’s certain things that they didn’t have. But what they did invent, albeit late in the 18th century, is hot air balloons. Ballooning is the first real triumph by which the human race defeats gravity.

But they’ve been thinking about this since days immemorial. I mean, think about the Greek mythology of Daedalus. I can tell you stories about medieval monks building themselves wings and jumping off church towers, breaking their legs. I mean, people have been dreaming about flying… <Sonal: Even beyond the western knowledge sphere, there’s so many wonderful examples coming out of Asia, in China, India as well, where there’s a lot of ancient work in that area.>

Everybody tries it, and then all of a sudden, a bunch of Frenchmen basically say, hey, what if we heat air; the air expands; it becomes lighter than the air around it; it will go up.

Sonal: It seems obvious on the surface, but this idea that you can actually truly solve anything by putting focus on it, we again take that for granted. And I think that’s really important.

on fear of tech progress

You have this newest book talking about “the drivers that drove” the cultural progress of this unprecedented Industrial Revolution. And we’re talking about today as being a different time — again, maybe a difference of degree that becomes so much a difference of kind because of the sheer degree —

How would you think about the role of technology today, and what’s playing out? …Because there’s a lot of fear, I think, from a lot of people. Like, should they not consider the cost of technology advances, of what you’ve learned from the past, how can we sort of apply it to now?

Joel: This is a big question, and I’ve thought about it at great length.

I must say, before I engage in this, that by and large, the lessons we learn from history are fairly limited to the period that we’re talking about. Extrapolating the lessons from one period to another period is extraordinarily dangerous.

But what I would say is that one of the obvious things that screams at you when you’re looking at the history of technology: Is that almost every technology that’s ever been introduced has had unexpected, unintended, unforeseen consequences.

This is a pattern that goes out through history. People notice, they may say, “Well, maybe we should just stop innovating, because always something bad is going to happen.” And I think that is an extremely dangerous conclusion to draw.

The alternative to not innovating is stagnation. And I don’t think we can afford that. We cannot afford that because the world has major problems that can only be resolved by new technology. …Climate change cannot be solved by any means except technology, because a political solution is clearly not going to happen.

Not doing it is worse. And that, I think, is the great lesson that history teaches us: If any nation is going to decide to not innovate because they like stability, they will end up like 19th century China. 19th century China wanted stability. The West wanted progress.

Sonal: I was just thinking, and look at them [China] today. I mean, talk about a culture of growth. It’s an origin of the modern economy happening right now, in a weird way. Even though it’s a very ancient society.

Joel: It’s a very ancient society. But it all happened the last 30 years, because between 1850 and 1950, China was not growing, it wasn’t developing, and it wasn’t catching up.

And then, of course, you get communism for another 25 years, that’s even worse.

But at some point, the Chinese get themselves together and they start growing. They still have a long way to go. But clearly, stagnation is not something that’s in the cards for them. And I think if the West is going to decide to stop innovating, which, of course, will never happen…

Sonal: Sometimes you think about the political climate, and frankly, there are certain rules of law and conditions that need to be in place to support innovation. And it is a little frightening to think that that could be, if not stopped, slowed down, in comparison to a place like China, where it’s like the industrial revolution is playing out like right now.

Joel: I am just as frightened as you are. And many of these things worry me, and in some ways, defy my understanding — one of the things that defies my understanding is the inexplicable resistance of many nations to genetically modified organisms. Which, you know, the evidence does not support it as any danger. This whole notion about “frankenfoods” is completely made up, but people just keep going, resisting this.

Sonal: I actually don’t think it’s wrong for, as we’ve talked about, for people to consider the consequences and think about some of the second and third order effects.

But the reality, as we’ve discussed, is you never actually know how those things play out. And you can think about them. But that doesn’t mean you should actually preemptively stop them, which is, I think what happens a ton with Europe.

And frankly, if you look at Europe in the era of the Industrial Revolution and today, it’s quite a stark contrast.

Joel: It is indeed. They say, “Why should we grow? We’re happy as we are. I don’t need more income per capita.”

on measuring progress when technology is dematerialized

Sonal: You talk a lot about this tension between growth and stagnation.

And we talk a lot about how the previous drivers of this was basically material prosperity in terms of measuring progress.

But a lot of our progress today is sort of dematerialized.

And so it begs, of course, the question of, how do we actually measure that progress? And there’s a lot of debates around the notion of measuring GDP. And I’d love to hear your thoughts on that.

Joel: Well, there’s a growing literature on missing growth — and as I see it, the main reason is that the relative importance of product innovation compared to process innovation is rising.

We have new things appearing on the horizon — or vastly improved things — which is the main form technological change takes today. We’re not nearly as good at making the same things we used to make before, only cheaper. Which is what standard productivity measurement usually does.

And so we are mismeasuring growth, or to put it slightly differently, we’re over measuring inflation, because those two things boil down to the same thing.

We’ve known this for a long time. But it turns out, the process is getting worse and worse, simply because so many new products appear on the market that cost nothing. And that’s good for us, but it’s bad for national income accounting — because if they cost nothing, then… what’s the value that we put on them in the international income account? So if you look at something that we all use…

Sonal: Wikipedia is a great example.

Joel: What’s the contribution of Wikipedia to GDP?

Nothing, because every time you click on it, you’re not charged. And that’s the best thing about Wikipedia, right?

But that means it’s of great value to us — but it doesn’t enter the national income account. And what’s true for Wikipedia is true for scores of websites and services that we get.

The other thing that (and this is sort of something that I’m not 100% ripe on), but there are things in life that are subject to technological change that never show up in the national income account. And I think of these as sort of “transactions cost in consumption” —

So let me give you an example:

What is the full cost of going to the store and buying a gallon of milk?
The transaction that’s recorded is $3.19 or whatever for one gallon of milk. That’s what’s entering the national income account.
But of course, that’s not the full cost that you pay, because you have to spend your time driving to the store.
You’re using up gasoline, and you’re wearing and tearing your car.
And then it’s not just the time getting there, there’s the time of standing in line in front of the…and so on and so forth.
So the cost is actually higher than the $3.19 that you pay for the milk, but they don’t get measured. And as long as they don’t change, that’s okay, because then it’s just a constant that’s dropping out.
But suppose that shopping became easier and easier because you no longer have to run your bottle of milk through a cashier who actually has to look at the price and then punch it in.
But you run it through a barcode reader, you just run it through an automatic cash register.
Or even better, you order it online, and it just arrives at your doorstep.
Well, then the cost for you have come down. So you’re better off.
[But that] doesn’t get registered anywhere in the national income accounts.

This is true for thousands of things that we do every day. Everything gets in some sense easier.

The one thing I always detested has been shoe shopping! I hate it because I have 11 ½ shoe size, and most stores only have 11 and 12. And then the only 11 ½s are these kind of pluggy, ugly brown shoes that I don’t want. I have to drive to a different store, and so on.

Now, I go online, and I basically click 11 ½ . And, you know, two days later, it’s sitting in front of my door.

That is a major improvement in what I call “consumption transactions cost”. Because the transactions cost, for me to go from store to store, get frustrated, stand in line, not find the stuff, and on and on — it doesn’t happen anymore.

Sonal: Do you think that mindset… frankly, even Netflix binge watching is an amazingly incredible thing, but that’s not being recorded in any way.

Joel: It’s not being recorded. And that’s precisely… So, here’s another example; take something like Spotify:

What Spotify gives me is not only something that is extremely inexpensive, or virtually free, but it also gives me a variety.

And again, variety is something that national income accounting cannot deal with…

Sonal: Variety gets so overlooked when we talk about this topic. Measurement –GDP in the past — the efficiency would have been more important than something like recording the variety.

Joel: Yeah, exactly. The whole GDP accounting system that we have today was designed for an economy that produced wheat and steel.

And so, progress occurs because you can produce a bushel of wheat or a ton of steel with less capital and less labor than last year. And so that’s how we measure total factor productivity. It’s sort of the difference between the growth of output and the difference between the growth of input.

But the output nature is changing — either in fact that it is much better than it used to be, or because it is very different, or it has even more variety — something that wasn’t there in the first place:

You look at the way cellular phones were 20 years ago, and what a cellular phone does today. Looking at the decline in price will tell you nothing. My cellular phone today does things that nothing could do 20 years ago.

Here’s one more point I’d like to make, because it’s often overlooked — and that is what’s happening to leisure:

Look at the amount of spectator sports available. I’m saying this in a city [Chicago] where the baseball team finally made the World Series.

It’s because of technology. It’s because people have access. People can watch this on the telephones, on their televisions… It’s all over the place.

And that is, in my judgment, a major improvement in people’s lives. I mean, this is something that they enjoy. They find interesting. It fills them with a sense of satisfaction.

We didn’t have anything like that before. So how does this show up in our national income accounting?

So these are the issues I think that we need to struggle with if we’re going to assess what technology does to our lives. There’s a very large number of nations in the world who are still struggling with poverty. But more seriously, eventually, we need to keep science and technology advancing because new problems are cropping up on the horizon…

Sonal: And these are the problems of our time. We just should all read your book. And while I understand we have to be careful about how we extrapolate from history, we can certainly learn a lot from it. And it really sheds light even on our modern world in new ways. And I want to thank you for joining!

Joel: It’s been an absolute delight.

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