Geeks and Hucksters: How we managed to kill innovation in the United States

Who Innovates?
Economist cover
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”.

Robert Morris thinks he has all the answers. He has written at some length on the Drug War and US foreign policy more of his work can be found here

posted by MoreFreedomFoundation
  • David Sachdev

    I think that part of it is that innovation in the last 20 years has come in forms that are a bit less tangible to most. Some of it is in the areas that you expect such as the pharmaceutical world where you or I may not see the innovation, but that person that just beat cancer….well they do. Another space that you have to look in is within the depths of one of the innovations you start out with – technology and the internet.

    The growth of innovation (for both good and bad there) is pretty staggering in the last 15 years – but it may not be as apparent to those who are not part of that world. But those innovations help bring things like the smartphones and tables to reality – where they have real-time, amalgamated data that helps our daily lives. Just think of those RFID tags sending data about where the bus that you took into the office is located….and the fact that you could look in real-time just how far away that bus was from the stop you were standing at.

    But I think that some of the inventions that have come out recently (and are still being refined) will help make the next leg of innovation a bit more tangible to most. And that invention is the 3-D printer. And the reason that I say that is that it will help to break down the barrier between having a conceptual idea and turning it into reality. Sure – there are fabrication companies that people can work with now, but one of the fears any innovator has is that every time they share their idea with yet another person – there is risk that their idea will be stolen….and the cost barriers to protect their innovation is sometimes an impediment that keeps them from taking that next step that brings their idea to reality. Furthermore, the refinement process is that much harder when you have to depend on others (and at a high cost) to refine between versions.

    So, in closing I think that the tangible innovation that you are craving will see a boost in the coming decade as 3D printers become commonplace. I’m not sure that 2013 is the year for it, but I think by 2015 they will be household items for many.

  • obarron

    David, I think the concept of 3D printers as a household item is a bit farfetched for the short or medium term, but I do think that they will precipitate a revolution in engineering and manufacturing. Today, 3D printers that are even remotely affordable for the home market are just printing out plastic sludge at agonizingly slow rates with visible defects, as far as I can tell. Whenever you hear about a new device having been “3D printed”, what they mean is that the plastic shell or casing was 3D printed and then someone put the actual electronics in later. But innovation in this sector is absolutely explosive, and we should expect to see very sophisticated products printed on the spot within a few years. This changes the whole game–suddenly every medium-size engineering and design firm has an onsite printer, dramatically compressing the development process of new products. Even small firms which can’t justify the purchase of a top-end computer will be able to email the design file to a printer in the area and get the prototype the next day. Now the CEOs of US firms are asking why they need to rely on China for their entire supply chain if they can do the initial steps much more quickly–and just as cheap–in the US. The Asian manufacturing complex, which currently benefits from cluster effects due to the colocation of all the key manufacturers in the supply chain, starts to crack. This is helped by the increasing capital-intensity of high-tech manufacturing–if labor costs are just a tiny fraction of overall costs, and all labour needs to be high-skilled anyway, is it that crucial to have Chinese technicians over ones from the US? I’m not saying that 3D printing will bring back US manufacturing as it once was, but I think there will be a rebalancing away from the constant offshoring of the past 30 years.

    Rob: While I agree with your arguments separately– Innovation in the US has slowed down, and the government and financial sectors were complicit in inflating the real estate bubble–I think the link between them is tenuous. Innovation does come in waves, but those waves take longer to fully propagate then you’ve indicated. Electrification and personal automobiles didn’t stop changing the world in 1950– the car led to suburbanization, home automation freed more women to go into the workforce, TV revolutionized entertainment, and of course these inventions have spread across to the rest of the world.

    We’re just at the start of the computing and communications revolution, and the most honest of us would admit that we have no idea where it’s taking us. The World Wide Web has been around for just over 20 years, and already it’s transformed modern retail (via Amazon), reshaped the publishing industry, utterly changed the telecoms sector, upended social relationships, and fundamentally altered the way all modern companies do business. Next up is automation, which is being ushered in by incremental advances in sensors, information storage and processing. Driverless cars will transform urban environments and the logistics industry. Biotech will harness exponential increases in computing power to develop increasingly accurate models of our genes and bodies, curing diseases, driving productivity in agriculture.

    Whether Americans will pioneer this remains to be seen, but the revolution will happen regardless of our participation. I think we have a strong chance to benefit–our higher education is still the best in the world, the top tech companies are all here, and we offer a pro-business economic environment (you may disagree, but I’m thinking in relative terms). I think the argument about diversion into real estate sector is mostly a red herring. Yes, there’s probably a small draw away from true entrepreneurship, but I see it as the tail end impact of the previous paradigm (electricity and cars). After WWII homeownership went from being a dream to an expectation, thanks in part to federal highways and the GI bill. This transformation took its final form with government support for expanding homeownership and the financial sector’s eagerness to facilitate these junk mortgages. At the same time, the third paradigm was gaining steam with Microsoft, Apple, Google, Amazon all contributing to the revolution. I think your definition of “huckster” is a bit general– you seem to apply it to all entrepreneurs, but there’s a big difference between someone who exploits the tail end of a proven paradigm and one who helps pioneer a new one. I’m no Jobs fan, but he was a pioneer, not a leech–and the same goes for Dell, Bloomberg, Bezos, etc. A would-be realtor would never have done what those guys did.

    I am sympathetic to those who worry that these technological changes will leave behind low-skilled workers. It’s true that we’ve managed huge labor upheavals before, specifically the movement from agriculture to industry, but in the past there were always low-skilled jobs available for the displaced workers, and that’s less and less the case. I don’t know if our traditional economic models can describe a situation in which 80% of the population are doing mostly pointless jobs in the service sector and entertainment industry to provide for the 20% who own the capital and manage the robots that are doing the actual work. Marx certainly would tell you what happens in a situation like that, and I’ve read a lot of capitalists suggesting that a light form of socialism might even be necessary here. I don’t buy it, but I don’t have any particularly bright ideas myself.

  • Robert Morris

    Great comments. Thanks for taking the time. There is little to disagree with in either. I have been following 3D printing eagerly since the rep-rap days, and it is definitely about to explode. Leaning more towards Dave’s outsized optimism than Owen’s cautioned optimism. If things go in waves, there is no denying that we are currently sitting in a trough of visible change. That will probably change soon. I think my obsession with real estate comes from the fundamental irrationality of it. We are nearing peak people, and all these properties are going to start declining in value. As you pointed out, the benefits of the past decades’ innovations have not been very widely distributed. This is despite the fact that the tools of web innovation are much easier to attain than the tools of the earlier waves of innovation. I think the continuing misdirection of surplus non elite capital to the still extant real estate bubble has a lot to do with that.

  • Stephen VanDyke

    I think the truth is closer to the fact that we are inventing stuff on such a regular basis that we’re getting used to it and the “novelty” wears off quicker.

    What we’re really inventing is faster ways to get things done and go places, and the only limitation to that would be the size of the universe itself and our ability to think of more efficient ways to organize to those resources (intelligence and raw).

  • Wesley Erdelack

    I think I agree with the first part of this diagnosis much more than the latter. (To be honest, I’m not even sure there is a problem to diagnose but let’s leave that aside!)

    I agree that the loss of smart people to a section of the economy that has very little social value or productive force is a huge problem.

    I’m less sure that a lack of entrepreneurism is a major problem in the US, nor that the culprit for a lack of entrepreneurism is the inflated mortgage market created by government subsidies.

    I say this for two reasons:

    1) Plenty of other countries have cerifiably insane real estate markets without anything resembling the us morgage tax credit. Real estate insanity is a universal fact of urban/suburban civilization.

    2) In my experience (and I have some) the entrepreneur is cut from a very different cloth than the real estate speculator. There are just many areas of business that are much more reliable than starting your own enterprise. They are not pure moneymakers. Maybe like everything else you lose a couple of the outliers on the side but I would be surprised if there is a significant loss of personnel of this front.