This is a crucial question that more people should be asking. Clever people like Neal Stephenson, Peter Thiel, Tyler Cowen, and the editorial board of the Economist think that innovation is dying. Some of this is motivated by the “We were promised jetpacks!” resentments of baby boomers reaching a certain age, but they do have a point. Between 1900 and 1950 life was transformed. Airplanes, automobiles, electrification, washing machines and other technologies revolutionized home, work, and play. Other than the internet and telecoms, it is hard to point to any comparable changes since 1950. A number of theories have been floated to explain this, from the ridiculous one that there is nothing more to discover, to the more likely one that further discoveries may be harder. The worst suggestion is that the government somehow needs to do more. If only they would start funding more infrastructure, or come up with some grand plan like the moon shot, then we would start innovating again. None of these explanations are particularly satisfactory.
If you ask the question above, however, the problem becomes much simpler. Innovation requires two sorts of people. Politely, scientists and entrepreneurs, more informally geeks and hucksters. It is rare for these traits to be combined in a single person. When they are, that person tends to end up a household name like Edison or Jobs. Geekdom gets the respect it deserves. Scientific inquiry, pure and applied, is what gives us the technology that builds the future. Hucksters are less appreciated, which is a shame. It takes a visionary salesman to bring an innovation to the masses. Henry Ford would be the classic example. Automobiles were invented over a decade before he democratized them. As importantly, there were individual salespeople country-wide who brought this innovation forward. Another example would be VCRs. The technology was important, but the entrepreneurs throughout the country who were willing to set up video rental stores were vital. For innovation to occur you need a novelty, but you also need legions who are willing to take the risk of popularizing these novelties. You need geeks and hucksters.
These two classes of people are just as greedy as anyone else. A select few are really out to change the world, but most are willing to take a smaller degree of success if it is easier to come by. This makes sense, as the effort to truly create something new often ends in failure. Unfortunately, the United States has slowly built a system that increases the possibility of non-innovative success for both Geeks and Hucksters.
We have provided a sure thing to geeks in the state owned enterprise that is our financial industry. The financial and legal sectors have been sucking up our cognitive elites at an ever increasing pace for the past 20 years. A distressing amount of scientists and engineers end up in patent law. Our most promising mathematicians and computer scientists end up getting rich as spread-sheet jockeys in the hedge fund industry. The folks who should be dreaming up the future are making their millions and billions in pursuits with zero social value and a government guarantee.
Far worse, and far more extensive, is the system we have set up for hucksters. From the time of the New Deal forward the federal government slowly constructed a system that made the real estate market more and more secure. The mortgage interest income tax deduction has inflated the price of property, and given everyone an incentive to purchase that inflated asset. Quasi-governmental organizations like Fannie Mae and an alphabet soup of agencies like the FHA have insured, purchased, and guaranteed house loans, further driving up the price of these assets. This system has not guaranteed success, of course, but it has created millions of better bets than, say, funding some bicycle repairmen in their latest attempt at a flying machine. These policies laid out a shortcut to the American dream.
This shortcut has come with costs. There was the 2007-2008 financial crisis we are all still recovering from. There is the truly fantastical notion that 10 grand of drywall should be worth a million dollars. There is the creation of an underclass that cannot afford the inflated costs of housing.
But what if the highest cost is one we can’t see? What if the Henry Ford of the 1980s never appeared because he was too busy building subdivisions? What if all the salespeople who would have been willing to take a risk on the new got realtor’s licenses instead? How many people who could have been angel investors are instead paying mortgages on second homes? What if the woman who should have invented the flying car made all the money she wanted with equity derivatives?
As Robert Heinlein said: “There Ain’t No Such Thing As A Free Lunch”.