I was thinking this morning about all the large changes I’ve seen over the past 10 years or so. And there were three main differences I could discern.
- Technological: The rise of the internet.
- Legal: Government hyper-regulation (e.g. smoking bans)
- Economic: Zero interest rates.
Might these events be connected? If so, what connects them?
I’ll start with economics and zero interest rates. And I’ll use Idle Theory as the connecting idea.
Most people think of economies as making and distributing physical stuff: cars, houses, carpets, clothes, food, music, etc, with economic growth meaning Having More Stuff. But in Idle Theory an economy is seen primarily as something that reduces human work, and increases human idleness. All the technological innovations throughout history, starting with the flint axe and the wheel and the candle, and continuing with steam engines and aircraft and satellites and computers, have really only ever served to reduce human labour, and increase human idleness. Economic growth isn’t really growth in the amount of stuff we’ve got, but growth in idleness. Economic growth means life gets easier. But it also means that there’s a maximum degree of idleness that can be attained: 100% or perfect idleness, when nobody has to do anything in order to survive, and further growth is impossible.
In normal historical times (i.e. the past 10,000 years) economic growth has been painfully slow, but with the great burst of technological innovation that began with the industrial revolution of the last few centuries, economic growth has accelerated. And interest rates very roughly measure the economic growth rate, the rate of increase in idleness. If bank interest rates are high, depositors will keep their cash in banks. And if they’re low, they’ll invest their money in profitable, idleness-increasing enterprises – cars, computers, roads, etc – where they can get a better return. So interest rates reflect underlying growth rates.
But for the last 10 years we’ve had bank interest rates at 0%, which ought to have stimulated new enterprises, but seems not to have done so. Why’s that? And one possibility is that we’ve begun to approach 100% idleness, and it’s getting more and more difficult to increase idleness further. The real underlying economic growth rate is approaching zero. And that’s why we’ve got zero interest rates.
Now onto the internet.
Economic growth is driven by technological innovation – flint axes, wheels, steam engines, satellites, etc. And what has been the latest big human technological innovation? The internet.
The internet has brought about a communications revolution. 30 years ago, if I’d wanted to speak for an hour with somebody in Boston from my home in England, I could have done it, but it would have been very expensive. I can’t remember what international call rates were back then, but I’d guess that an hour long phone call to Boston would have cost several hundred pounds.
But now I can not only talk to Emily in Boston for hours, but I can also see her, and it costs me nothing at all. Or next to nothing at all. And I can also store videos of these conversations on YouTube for nothing at all as well. Furthermore I can buy stuff online on the internet. Just yesterday I bought a meerschaum pipe, which will arrive in a few days time. The internet is changing the way trade is conducted. Do we need shops and stores any more? It’s changing international relations (or at least Anglo-Bostonian international relations). And it’s changing the way news media operate, as more and more news is disseminated instantly all over the world, making local news organisations like the New York Times or the London Times redundant. Do we need newspapers any more? And it’s changing the way education is being done: I can now watch Richard Feynman lecturing on Quantum Mechanics. Do we need schools and universities any more?
We’ve now got free global instant communication. And so at least in respect of communication technology we’ve achieved near-perfect idleness, in ways we haven’t yet managed with transportation and most other industries. So the internet has brought (and is still bringing) a very large step increase in idleness. And no further increase is possible.
And now onto government hyper-regulation.
Why are governments everywhere getting bigger and bigger? One possible explanation is that as social idleness rises, and fewer and fewer people are engaged in productive work (making stuff), more and more people become engaged in unproductive work in government (which makes next to nothing). As the economic engine becomes more efficient at freeing people from work, it can be taxed more and more heavily by government, and these government taxes are used to grow the government, as new departments of this and departments of that and ministries of X and Y and Z are added. I’m not sure, but I suspect that the British MI5 and MI6 are named after rooms 5 and 6 in the the Ministry of Information. A hundred years ago, room 5 of the Ministry of Information was probably occupied by a man called Carruthers who spent his days filling out the Times crossword. But now it’s got its own headquarters and even its own flashy website (which almost certainly means it needs its own web designers as part of its IT department). I can well imagine that it has thousands of employees. And the same is true of every other government department, both at national and local government level.
And what does government spend its time doing? It spends its time governing. And governing means watching and controlling and regulating. And so as government expands, there is more and more surveillance, and more and more rules and regulations. Five hundred years ago there was probably fewer than 1 person in 100 who worked in government. Now we seem to be heading towards a circumstance where 99 people in every 100 are working in government, and all of them regulating the conduct of the one remaining person doing any useful, productive work.
And as government grows it always needs to find new things to regulate that nobody ever tried to regulate before. And so we have bans on smoking in pubs, and regulations on carbon dioxide in the atmosphere.
But all these multiplying rules and regulations don’t make life easier for people: they invariably make life harder for them. And as they make life harder for everyone, they stifle innovation. And as they stifle innovation, they slow and stall economic growth. In fact, they may even produce negative economic growth, and decreasing idleness. Just imagine what would happen if you had an idea for a new means of transportation that used a metal frame with a wheel at each end, and pedals to turn the back wheel via a chain. Do you think you’d get that one past Health and Safety regulations? Not a chance.
So here’s how it all ties together: The technological innovation of (among other things) the internet has resulted in a step increase in human idleness, and a corresponding step increase in the size of government and the scale of government regulation. The step increase in restrictive government legislation has actually exceeded the step increase in idleness (and freedom) brought by technological innovation. So that’s why we’re enjoying 0% interest rates, and will most likely soon be seeing negative interest rates.
What’s probably needed is technological innovation in government. At present the British people get one chance every 5 years or so to elect a new government (we’ve got one in two weeks time). So they effectively have no say in their government at all. But if, thanks to the internet, we no longer need shops, newspapers, schools or universities, why do we still need parliaments and congresses and senates? Why not have have e-parliaments and e-parties in which everyone can e-vote, and which is conducted as efficiently and minimally as online shopping? That way we might begin to reduce the size of government, and halt and reverse the tide of hyper-regulation, restore economic growth,and start to see positive interest rates again.