Why economic policymakers need to think like physicists

How can America's policymakers accelerate long-term U.S. economic growth? It might help to think like scientists.

Instead, Trumpworld is offering a possible trade war with China, maybe extending some of the recent temporary tax cuts, and likely zippo on infrastructure. It's like they're not even trying.

Democrats and progressive activists, meanwhile, seem to want to try anything and everything. But it's not immediately obvious why undercooked ideas such as a federal jobs guarantee or heavily regulating America's large technology firms would actually create sustained 3 percent growth.

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Maybe a fresh perspective would help open the minds of U.S. policymakers. Maybe instead of just listening to the economists and policy wonks, they should also check out what the physicists have to say.

To that end, I would urge a close reading of the 2015 book Why Information Grows: The Evolution of Order, from Atoms to Economies by MIT's Cesar Hidalgo, a statistical physicist. In Hidalgo's model, the key players are atoms, energy, and information. By "information," Hidalgo means the physical order of atoms, how they are arranged. Imagine you buy a fancy car and then crash it. What has changed? Certainly, the car's value has. But not the number of atoms in the car, only their order. That order is information, as Hidalgo defines it.

Now apply this way of thinking to economic growth. Generating or processing information, using energy to change physical order in a way that gives it meaning or value, is what economies do. In a sense, economies are collective computers. And the greater the creative and computational capacity of those economic computers — meaning the greater capability an economy has to make information grow — then the greater the possible complexity of economic activities and overall economic growth potential. To demonstrate this, Hidalgo notes that his native Chile has a trade surplus with South Korea. But while Chile exports low-information copper, Korea exports high-information cars and car parts. As such, Korea, the wealthier nation, demonstrates its higher computational capacity.

What determines a nation's computational capacity is the size and depth of its social networks, which are really a sort of distributed human computer. One person can only know so much. Complex products require larger networks of people. (These networks are sometimes called companies.) And the complexity of those networks is partially dependent on the level of trust in a society and the ease of making connections. Societies that are more connected and trusting have more growth potential because they can form larger networks that perform more computation. Indeed, Korea is a higher-trust society than Chile with, for example, 30 percent of Koreans agreeing with the statement "most people can be trusted" compared to 13 percent of Chileans, according to the World Values Survey.

In other words, pro-growth economic policies are really pro-network, pro-connection policies that enable more educated humans to more easily acquire and communicate knowledge over large networks.

If Hidalgo is right, then you begin to see America's economic advantages a bit differently. Those large networks we call Amazon, Apple, Google, and Facebook are huge assets, and we should be careful when regulating them, much less dismantling them as some activists propose. In general, high-income countries have a higher share of jobs in big firms.

America's openness to trade and the global supply chains that allow the formation of very large networks for humans to come together and generate information are also strengths. Immigration is too.

A handy rule of thumb: Bridges are good, barriers are bad. The more humans connect, the more information grows, and the more economic growth we get.

We should thus make it easier for workers to live in high-productivity cities and regions by loosening land-use regulation and overly burdensome occupational licensing rules. Likewise, policymakers should see the future value of autonomous vehicles as more than just boosting traffic safety: Self-driving cars and trucks should eventually reduce traffic congestion and make more cities day-trip accessible without building a pricey high-speed rail system.

America also must remain a high-trust society where politicians and institutions are held accountable, and where citizens don't view each other as political and culture war combatants. Tribalism is bad for making information and economies grow. Take it from the physicists.