James Moody and the Wave of the Future

Karl Popper

"What's past is prologue......"
    
                        William Shakespeare, The Tempest


Last Monday I attended a talk at my work given by James Moody on what he called the "Sixth Wave of Innovation". It gave me cause to think about the  hazards of predicting the future.
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Karl Popper spent his war years in New Zealand - well away from the terrible devastation of the European battlefields. Milton wrote "they also serve who stand and wait" and so it was with Popper,  who  though he didn't have a gun in his hands still did the best work a philosopher can do in that dire situation by thinking hard about, and writing as clearly as he could on what he thought it was that had brought humanity to such a parlous predicament.
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The book he wrote - "The Open Society and its Enemies" which he regarded as his "war work",  is a classic of its kind and while Popper  may not have been the greatest stylist in the history of the English language, the theses he advances in it and the arguments he uses to support these theses are still of the greatest importance today.

His principal point, which he reinforces in his latter work "The Poverty of Historicism" , is that historicism - the belief that we can divine in the course of historical events, patterns and general laws of predictive value - is both demonstrably false and has lead in the past to the adoption of totalitarian world views that at once deny the possibility of individual human agency while at the same time attempting to crush any dissent from the world-views so proposed. 

Popper outlines his argument against historicism in the preface to this second work:

1. The course of human history is strongly influenced by the growth of human knowledge ....
2. We cannot predict, by rational or scientific methods, the future growth of our scientific knowledge.  
3. We cannot therefore, predict the future course of human history.
4. This means that we must reject the possibility of a theoretical history; that is to say, of a historical social science that would correspond to theoretical physics. There can be no scientific theory of historical development serving as a basis for historical prediction.
5. The fundamental aim of historicist methods is therefore misconceived; and historicism collapses.

This argument stands or falls depending on the truth or otherwise of its two premises. None of us, I think would deny that human history has been strongly influenced by the growth of human knowledge.  A brief  comparison our world with that of the middle-ages will demonstrate that.  However, it is more difficult to establish the veracity of the second premise.

Prima facie the assertion appears to be true: Examining the first point contact transistor would anybody have predicted the internet and its social and economic consequences? Could Faraday have foreseen continent spanning electric power-grids? Did van Leeuwenhoek peering through his hand-glass and considering his animalcules imagine a world in which smallpox was no longer a scourge?  But at the same time, to deny that human beings can make any valid predictions at all about the future shape of their societies, or to deny that they can orient themselves in a successful fashion towards it, is also flying in the face of the evidence and itself denies human agency - something that Popper was at pains to preserve a role for.

What's important here I believe are two factors: the time-scale and the human-scale of the predictions.  Predictions of small-scale changes of the space of a decade or so might be possible - beyond that we need to get out our crystal-balls. Similarly, when speaking of whole populations of people: countries, regions, civilizations and the changes that grip them over time -  well they are so diverse  and the forces that do shape them so various and so tightly coupled that the prospect of successful prediction must be slight.

The wave of the future

James Moody

James Moody asserts that there are super-cycles, waves of economic activity that spread throughout the developed world over periods of decades and that these waves of activity are somehow tied to technological innovation.  Furthermore he claims that we are at the ending of the fifth such cycle and that the sixth is about to commence and that the "force" which will drive this wave is resource scarcity.


In doing so, he draws on the work of the Russian economist Kondratieff and his theory of long duration business cycles. Kondratieff writing at the beginning of the twentieth century made the observation that economic activity in the West appeared to rise and fall with a period of around 50 to 60 years.   Latter theorists claimed that there have been five such waves to date:

1. The Industrial Revolution (beginning in the 1770's)
2. The Railway Age (1830's onwards)
3. The Age of Steel and Chemicals 
4. The Age of Oil, Cars and Plastics (1935 - 1980)
5. The Information Age (1975 and onward)

To which I would argue we should add a precursor - the Agrarian revolution - which for the first time produced a sustained surplus of food over that needed for subsistence.


Kondratieff did not make the claim that  these waves in activity were driven by technological innovation but what he did identify were a number of stages in their development. Latter theorists, Schumpter and the Austrian school asserted that there were four stages in the development of a Kondratieff wave: improvement, a plateau of prosperity, recession and depression.

Kondratieff waves (from http://www.ldusa.com/roger/kond_overview.htm)

Kinematics & Dynamics
One of the problems that arises in discussing Kondratieff waves is deciding what one is going to measure. While Global GDP is perhaps the best  measure of economic activity all things considered, it's not a quantity for which we can plot as a reliable time series for the period pre-second world war. So in its place we must use some indicative proxy quantity (or basket of quantities) for which we can construct a time series over the period of interest (roughly the last 250 years). So what quantities should we use as our measure of economic activity?: Corn prices (tied to the price of bread)?, The price of coking goal?, The quantity of electrical energy produced per annum?, Or the gold price?  Furthermore, how do you adjust the price of say a ton of coal in London denominated in sterling in 1830 to be able to justly compare it to a ton of coal priced on the global market in 2010 denominated in US dollars?


The timing of the beginning and ending of each of these supposed waves will critically depend on which of these quantities you choose to measure. The there's the question of what do we mean by a wave. Call me old fashioned, but what I would need  to see to be convinced that there really is a wave being observed, is a spectral plot generated from the Fourier transform of the time series of the quantity being measured with obvious peaks at a small number of frequencies.


Granted that such waves do exist (which many economists doubt) then our interest should turn to what causes them. The necessary minimum requirements for there to be a wave are: an objectively measurable quantity or index, a pulsating or at least intermittent  driving force "pushing" it away from an equilibrium value and a restoring force which acts in the "direction" opposite the driving force and of course a causal mechanism that explains how the driving force causes the property being measured to change.


The obvious problem here is multiple causation - if, say, we could accurately measure global GDP over the past 250 years, then as global GDP is an aggregate measure of all the economic activity throughout the whole globe overall that period how could we determine out of all the myriad factors that contribute to economic activity which were the dominant driving ones?


Correlation is not causality
Another objection to the utility of the Kondratieff wave idea is that while such waves my well exist  they  do not provide us with any extra predictive power about the future. The problem is familiar to any "chartist" who tries to make money from the stock-market. 


Consider a chart of the price of a particular stock over the past two or three years.  Its price will go up and it will go down and possibly there will appear to be some  sort of vague periodicity to the stock's price. However, the problem that confronts the day trader is to pick exactly when the stock's price will either turn decidedly up or down. To know  approximately when  it will turn is  not sufficient and to extrapolate from previous data, while possible is fraught with danger because as David Hume pointed out correlation is not causality: Because the sun has risen every day since you can remember is of itself no guarantee that it will rise again tomorrow. Correlations between observations by themselves  do not provide us with causal explanations.


What we  need then, to take the Kondriatieff wave idea seriously, is a causal explanation of why they occur plus a model that follows on from this we can use to make testable predictions concerning future economic activity. 


The revolution may be delayed ....
It has been proposed  that the  driving forces behind the upswings in economic activity over the past 250 years have all been due to technical and scientific innovation largely arising in Western Europe and North America.  And, I would argue, that if you accept this thesis, then it follows that these waves of innovations are the result of the gradual working out of the practical consequences of paradigmatic changes in world-view in the underlying sciences. 


Thus the Industrial revolution constitutes the practical consequence of the adoption of the Newton's mechanics and world-view that was implicit in it; the Railway age the outcome of engineers coming to grips with thermodynamics and classical mechanics. The work of Faraday, Ohm, Ampere leads to Maxwell's fusion of the theories of electricity and magnetism and  the practical consequences of this theoretical mastery of electro-magnetism span everything from the telegraph and telephone to radio broadcasting and (in part) the Internet.  The twentieth centuries revolutions in physics: relativity and the quantum theory  have lead to the transistor and the integrated chip from which have flowed everything from the mainframe computer which processes your firm's payroll to Wikileaks.


What Popper, I think, would claim  here  is that exactly where, where and what the next great revolution in ideas may be is inherently unpredictable and perhaps only clearly visible in retrospect. If that's the case, then we can't predict when the next "revolution" will begin and the next burst of economic activity will burst forth.


Finally, what appears to drive these revolutions in ideas doesn't appear to be directly the result of the need or desire to solve problems of a pressing economic kind. Scientific discovery has an internal logic of its own, (as distinct perhaps from the logic of the technical application of scientific insight) -  it is curiosity driven and its progress at an intellectual level faces obstacles of a different kind to the merely economic. 

Simply to say then that the world is facing a future of resource scarcity and that therefore future growth will necessarily be driven by innovation in this area doesn't follow.


So, yes, probably there will be future waves of economic expansion and that these will be probably be driven by new and revolutionary insights or revolutionary  ideas but it seems unlikely that we will be able to predict what these ideas will be and when exactly this new wave of the future will occur - for all we know the next revolution may be delayed or it may already under-way.


The future is not already written, (that's after all what makes it the future), and in a way what counts is not so much what it promises to bring us but our orientation to it. Hopefully, we can be open to it.