Drone Valley Will Come…Eventually

Noah Smith, discussing Andreesen’s call for a “Drone Valley” tech-deregulation zone, suggests that a new emphasis on deregulation is bearish for the future of technologically-driven productivity:

In the 1990s and early 2000s, we had a massive technology boom — productivity accelerated, and our lives changed in big ways. That boom happened without the need for a lot of deregulation — computers were these cute little boxes we stuck in our house, and the Internet didn’t really alter the physical landscape. But that happy situation was a historical anomaly. In the past, big technological change required big changes in regulation and law and the shape of society. Those changes brought costs. Think of how cars required expensive roads and safety laws, and made our cities noisier, more polluted, and less walkable.

Tech’s focus on deregulation is a sign that the free lunch of the computer boom may be coming to an end. In fact, that unhappy hypothesis is borne out by the numbers. John Fernald, an expert on measuring productivity at the Federal Reserve Bank of San Francisco,recently found that productivity in the IT sector, and in sectors that use a lot of IT, has slowed down a lot since the early 2000s (well before the financial crisis).

If true, this suggests there is in fact a supply-side story to the US’s lackluster economic performance of the last fourteen years.  It’s not about incentives to invest or work – I think there is little economic benefit to further cutting taxes.  Instead, the supply-side constraint is all about regulation and innovation.  Drones are, today, an edge case of purely academic interest – but the case of AirBnb and Uber are much more obvious.  Incumbent interests are working regulatory bodies to prevent new sources of economic activity.  So too is the current housing crisis in many of America’s major cities, where rental pressure is escalating extremely rapidly while regulation totally clamps down on house-building.  In both cases, incumbents (homeowners, cab companies) reap benefits to their asset values (taxi medallions, houses) while generating large negative externalities.   That being said – one of the reasons this seems so plausible is that the stories of Uber and urban home prices are so well-known and understood, but it’s pretty hard to think of some other comparably important issues where anti-innovation regulation is putting severe supply-side restrictions on growth in place.  And only one of those is that important – taxis are highly visible to urban writers, but hardly an enormous part of the US economy.

It just doesn’t seem plausible that anti-tech regulation is a massive drag on the United States economy.  If we invent cornucopias, that may well change, but as of today these regulations mostly interfere with technologies that are not yet ready for large-scale commercialization.  There is a circular element to this logic, of course; perhaps more or these innovations would be ready for commercialization if not for regulatory hurdles tamping down investment.  However, the circularity argument isn’t that strong – first off, Silicon Valley VCs are pumping plenty of money into drone tech today, and secondly there are many municipalities that will be ready to offer some regulatory arbitrage once these technologies are truly ready.  Some deregulation may well lead to positive externalities, but I’m fairly confident that if this is truly a huge issue it will be resolved sooner or later.  When drone delivery tech is actually ready for use, somewhere will be ready for it.  It seems more plausible that a lot of the truly ground-breaking innovations that will transform the US economy just aren’t ready yet.

People are not known for inventing useful things and not using them.  I would look elsewhere to explain US stagnation – such as monetary policy, fiscal policy, and an enormous financial crisis some of you may remember.

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