by skippyboxedhero | 2025-11-28 15:39:20+00:00
Every technological change has been accompanied by an investment boom that resulted in some degree of wasted investment: cars, electricity, mass production of bicycles, it goes on and on.

One point about this is that humans appear unable to understand that this is an efficient outcome because investment booms are a product of uncertainty around the nature of the technological change. You are building something is literally completely new, no-one had any idea what cars consumers would buy so lots of companies started to try and work out that out and that consolidated into competition on cost/scale once that became clear. There is no way to go to the end of that process, there are many people outside the sphere of business who are heavily incentivized to say that we (meaning bureaucrats and regulators) actually know what kind of cars consumers wanted and that all the investment was just a waste.

Another point is that technological change is very politically disruptive. This was a point that wasn't well appreciated...but is hopefully clear with social media. There are a large number of similar situations in history though: printing press, newspapers, etc. Technological change is extremely dangerous if you are a politician or regulator because it results in your power decreasing and, potentially, your job being lost. Again, the incentives are huge.

The other bizarre irony of this is that people will look at an investment boom with no technological change, that was a response to government intervention in financial markets and a malfunctioning supply-side economy...and the response was: all forms of technical innovation are destabilizing, investment booms are very dangerous, etc. When what they mean is corporations with good political connections might lose money.

This is also linked inherently to the view around inflation. The 1870s are regarded as one of the most economically catastrophic periods in economic history by modern interpretations of politics. Let me repeat this in another way: productivity growth was increasing by 8-10%/year, you saw mind-boggling gains from automation (one example is cigarettes, iirc it took one skilled person 10-20 minutes to create a cigarette, a machine was able to produce hundreds in a minute), and conventional macroeconomics views this as bad because...if you can believe it...they argue that price declines lead to declines in investment. Now compare to today: prices continue to rise, investment is (largely) non-existent, shortages in every sector. Would you build a factory in 1870 knowing you could cut prices for output by 95% and produce more? The way we view investment is inextricably linked in economic policy to this point of view, and is why the central banks have spent trillions buying bonds with, in most cases, zero impact on real investment (depending on what you mean, as I say above, private equity and other politically connected incumbents have made out like bandits...through the cycle, the welfare gain from this is likely negative).

You see the result of this all over the Western world: shortages of everything, prices sky-high, and when technological change happens the hysteria around investment being wasteful and disruptive. It would be funny if we didn't already see the issues with this path all around us.

It is not wasted, we need more of this, this ex-post, academic-style reasoning of everything in hindsight gets us nowhere. There is no collateral damage, even in the completely fake Fed-engineered housing bubble, the apparently catastrophic cost was: more houses, and some wealthy people lost their net worth (before some central bankers found out their decisions in 03-04 caused wealthy people to lose money, and quickly set about recapitalising their brokerage accounts with taxpayers money).