The New, New Economy of Accelerating Returns

If you had to put a date on it, the digital age began in 1948, when two discoveries came out of Bell Labs:  the transistor and information theory.  The world would be forever changed, but at the time, few noticed.

Having just come out of the most devastating war in history, the planet was a very uncertain place.  The Iron Curtain was descending upon Europe, war would come to Asia in just a few short years and few cared what the eggheads were doing.

It took decades for the impact to become clear, but eventually people noticed that something important was going on.  Computers were not only getting better, they were getting cheaper and in the ’90’s, the term “new economy” entered the lexicon.  Now, that similar trends are taking hold in energy and medicine the impact will be even greater.

The Digital Laws

In the 1960’s, Intel cofounder Gordon Moore noticed that the performance of computer chips was increasing at a dizzying pace, doubling roughly every 18 months.  The phenomenon came to be known as Moore’s Law and even today, a half century later it’s still very much in force.

As I explained in an earlier post about digital laws, there are similar trends in other areas of information technology.  Kryder’s law says that memory efficiency doubles every 12 months (a bit faster than Moore’s law) and Nielsen’s law observes that bandwidth doubles every 21 months (a bit slower, which is why we’re so constrained by connection speeds).

While very few people are aware of these laws in a formal sense, even the general public notices them in everyday life.  It’s been a long time since we’ve needed to delete e-mails in order to free up disk space and we’ve become used to ads reminding us that even the superfast speeds on our mobile phones will soon be “so 36 seconds ago…”

Yet, the power of information has become so pervasive it’s beginning to invade other aspects of everyday life although, much like a half century ago, most of it is still happening behind the scenes.  That’s about to change.

The New Age of Technology Based Energy

Information technology is a relatively young industry.  As late as 1943, Thomas Watson of IBM said that he thought that there was a market for only 5 computers in the world. Today, of course, the market is enormous, amounting to about $2.1 trillion according to Forrester including equipment and services.

By contrast, the global market for energy is already about $6 trillion and we can already see some of the same trends that drove the computer industry.

The chart above, prepared by MIT professor Ely Sachs, now at 1366 Technologies, looks eerily similar to the Moore’s law chart.  As solar power continues along this path and becomes cheaper than coal, the impact will be enormous.  Mr. Sach’s testified to Congress that by 2020 solar will be the largest manufacturing industry in history.

As I’ve noted before, the energy revolution is already underway and not just in solar power.  Similar advances are being seen in biofuels and battery technology as well.

Modern Day Methuselahs

According to the Bible, the longest living person in history was Methuselah, who reached the ripe old age of 969.  To my knowledge, no one has come close recently and while life expectancy is increasing (there are currently more than 70,000 people aged over 100 in the U.S.), we’re still a long way off.

However, that may change as genomics and other health care technologies start to exhibit the same behavior as computers and energy.  The prestigious journal Nature reports that a new machine coming out soon will cost $900 and sequence an entire genome in 15 minutes (vs. billions of dollars and a dozen years for the one completed in 2003).

While it is still a long road from genomics to dramatically improved longevity, the impact of the technology already becoming clear.  An article in The Economist explains how the ENCODE project seeks to translate genomes into actual cures for disease, by building a database of the proteins that specific sequences code for.

It doesn’t end with gene sequencing either.  Synthetic blood is already a reality and is saving lives.  Scientists are working to enhance it further with nanotechnology called respirocytes that can store hundreds of times more oxygen than natural hemoglobin does. Others are working on using our own cells to create 3D printed body parts.

We’re still a long way off from immortality, but half a century ago, when computers cost millions of dollars and took up entire rooms, an iPhone would have seemed pretty outrageous.  50 years from now, living hundreds of years could be the norm.  Ray Kurzweil believes it could happen even sooner.

The 4 Gigabyte Question

What’s important to understand about these trends is they are not linear (i.e. increasing at a constant rate) but exponential (i.e. accelerating at a constant rate).  So while computer storage is 1000 times more efficient than it was 10 years ago, in another decade it will be a million times better than a decade ago.

That shift from scarcity to abundance changes both economics and behavior.  When I got my first laptop, 1GB of memory was a big deal that and therefore worth a premium.  Now, there are so many companies offering me 4GB for free, I don’t take most of them up on it. Not only do I have more memory than I need, but I’ll soon have a thousand times more.

Today, energy is probably our scarcest economic commodity, but by 2030, solar will cost half of what coal does and will probably be a quarter of the price ten years after that. While medical costs are spiraling up now, as technology takes over there’s no reason they can’t come crashing down in the decades to come.

So that leaves us with an interesting question.  If I can get 4GB of online for free today, what’s to stop me from getting 40 years of life or enough electricity to power my house for a year for pennies in the future?  If economics is the study of how we allocate scarcity, what if we find ourselves awash in everything we now hold sacred?

Put another way, in a world of abundance, what will we pay for?

– Greg