Caleb Watney - America's Innovation Engine

**Dwarkesh Patel** (0:05)
Okay, today I have the pleasure of speaking with Caleb Watney, who is the Director of Innovation Policy at the Progressive Policy Institute.
And he's recently written a piece of The Atlantic, arguing that America's innovation engine is slowing. So before we get into the weeds, Caleb, do you want to describe the main reasons why you think America's innovation engine is slowing?

**Caleb Watney** (0:21)
Sure.
Yeah, America's innovation engine is, of course, a very broad and multivariate thing. But I was trying to focus on three particular trends that I thought were troubling, make a major impacts on America's ability to innovate. And just briefly, those are basically high skill immigration international talent flows. Number two, our cutting edge university system that's really the best of the world. And three, the industrial clusters, the agglomerations that we have that are sort of the geographical regions where a lot of this innovation comes from. And each of those, we're sort of seeing maybe negative trends before the pandemic, but the pandemic might serve as kind of a breaking point in each of them.

**Dwarkesh Patel** (1:03)
Okay, so let's start off with remote work first, or at least the agglomeration effects first.
Now, what is so important about the physical agglomeration effects of being in these high productivity cities? Why can't remote work make up for that?

**Caleb Watney** (1:14)
Sure.
Yes, I mean, economists have, you know, for hundreds of years, basically, been studying the effect of these close geographically connected networks of entrepreneurs, innovators, scientists, academics, you know, supply chain managers. When you have all of those people in a geographical region where they're, you know, running into each other spontaneously and they're sharing ideas and they're having long conversations, you know, in the hallway or in their offices, that they wouldn't otherwise be able to replicate, you know, simply online, that ends up leading to a more creativity, more ideas, more patents. And, you know, we have a lot of evidence for that in the real world. And as you mentioned, some people are starting to counter and say, oh, well, you know, in the last 20 years, we've seen this huge array of online communication platforms kind of pop up and can't those replicate a lot of the agglomeration effects that we're getting in physical environment. And I think that's certainly true to some extent, but I guess the right comparison here isn't even necessarily physical agglomeration versus digital agglomeration.
But right now, if you're in one of these geographic clusters, you're getting the best of both worlds. You're getting the best that physical agglomeration effects have to offer. Plus, you know, I have tons of great conversations on Twitter. And so it's really digital and physical agglomeration effects versus just digital. And I think the difference there is still pretty large, and it would be a shame to lose a lot of the high productivity clusters that we currently have.

**Dwarkesh Patel** (2:39)
Let me make the case that remote workers are actually going to increase some sort of agglomeration benefit. And you convinced me that it's wrong. Okay. So first of all, it's just going to connect the entire world into this high, hyperproductive city that we can't have in the real world, not just because of the limitations of how big cities can be and who can move in there, but just because of the inevitable zoning laws that cities like San Francisco passed that artificially limit how many people can join into the innovation circus there.
And now we're going to have developing countries and the talent there joining into these agglomeration benefits, as well as people in rural areas in America. Why won't this massively outweigh the loss of physical agglomeration?

**Caleb Watney** (3:16)
Yeah. I think digital agglomeration, these digital networks can have huge benefits. And you're exactly right that there are a lot of ways you can arbitrage both bad regulations, like zoning laws, but also just physical distances. But again, I think the relevant alternative here is not where you're just getting physical agglomeration or just digital. Right now, living in Washington, DC or Silicon Valley or New York, you can have those conversations with people from all over the world. You can even hire remotely, but you do also get, there's a certain kind of cultural context that you only get by being in person and sharing conversations. I mean, I certainly experienced this in my own life. I get a lot of ideas from having conversations on Twitter, but it's still very different to have an extended two-hour long conversation with a friend in their office, like making eye contact, having this spontaneous ideas that it's hard to replicate even over Zoom. Personally, because I think Zoom meetings tend to be a little bit more scheduled, it's hard to have flexible time. Frequently, the best conversations that happen in the real world are ones that aren't intended to start off as conversations. They just spontaneously arise. You start off just sharing one thing and then it extends into a whole conversation. But there's also a Zoom fatigue that you see. People, especially right now in this era of remote work, are having so many Zoom calls there, they don't want to stay on longer just to maybe have a conversation with somebody extra.