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The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better
America is in disarray and our economy is failing us. We have been through the biggest financial crisis since the Great Depression, unemployment remains stubbornly high, and talk of a double-dip recession persists. Americans are not pulling the world economy out of its sluggish state -- if anything we are looking to Asia to drive a recovery. Median wages have risen only slowly since the 1970s, and this multi-decade stagnation is not yet over. By contrast, the living standards of earlier generations would double every few decades. The Democratic Party seeks to expand government spending even when the middle class feels squeezed, the public sector doesn't always perform well, and we have no good plan for paying for forthcoming entitlement spending. To the extent Republicans have a consistent platform, it consists of unrealistic claims about how tax cuts will raise revenue and stimulate economic growth. The Republicans, when they hold power, are often a bigger fiscal disaster than the Democrats. How did we get into this mess? Imagine a tropical island where the citrus and bananas hang from the trees. Low-hanging literal fruit -- you don't even have to cook the stuff. In a figurative sense, the American economy has enjoyed lots of low-hanging fruit since at least the seventeenth century: free land; immigrant labor; and powerful new technologies. Yet during the last forty years, that low-hanging fruit started disappearing and we started pretending it was still there. We have failed to recognize that we are at a technological plateau and the trees are barer than we would like to think. That's it. That is what has gone wrong. The problem won't be solved overnight, but there are reasons to be optimistic. We simply have to recognize the underlying causes of our past prosperity-low hanging fruit-and how we will come upon more of it.
64 pages, ebook
First published January 14, 2011
About the author
Tyler Cowen
93 books755 followersTyler Cowen (born January 21, 1962) occupies the Holbert C. Harris Chair of economics as a professor at George Mason University and is co-author, with Alex Tabarrok, of the popular economics blog Marginal Revolution. He currently writes the "Economic Scene" column for the New York Times and writes for such magazines as The New Republic and The Wilson Quarterly.
Cowen's primary research interest is the economics of culture. He has written books on fame (What Price Fame?), art (In Praise of Commercial Culture), and cultural trade (Creative Destruction: How Globalization is Changing the World's Cultures). In Markets and Cultural Voices, he relays how globalization is changing the world of three Mexican amate painters. Cowen argues that free markets change culture for the better, allowing them to evolve into something more people want. Other books include Public Goods and Market Failures, The Theory of Market Failure, Explorations in the New Monetary Economics, Risk and Business Cycles, Economic Welfare, and New Theories of Market Failure.
Cowen's primary research interest is the economics of culture. He has written books on fame (What Price Fame?), art (In Praise of Commercial Culture), and cultural trade (Creative Destruction: How Globalization is Changing the World's Cultures). In Markets and Cultural Voices, he relays how globalization is changing the world of three Mexican amate painters. Cowen argues that free markets change culture for the better, allowing them to evolve into something more people want. Other books include Public Goods and Market Failures, The Theory of Market Failure, Explorations in the New Monetary Economics, Risk and Business Cycles, Economic Welfare, and New Theories of Market Failure.
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October 9, 2011
Stagnation as Misinformation
Alerted by Matthew Yglesias to a "bravura performance by one of the most interesting thinkers out there" on the cause of the current economic mess, I rushed, metaphorically speaking, to the Kindle store and spent 4 dollars on Tyler Cowen’s The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History,Got Sick, and Will (Eventually) Feel Better. This is fairly awful book. Cowen's tone is condescending; his use of history is superficial, his notion of the cause odd, and his notions of how to get better depressing.
On causation: Cowen blames overconfidence. "[R]ealtors" are not to blame because "[t]he financial crisis was not fundamentaly about the bursting the real estate bubble" (706-17). Okay, but then, one thinks, those who used chicanery to spin bad loans into huge profit for no socially beneficial purpose bear the bulk of the blame. Nope: "The financial crisis is not even fundamentally about mistakes in the banking sector, although such mistakes were made" (717-28). Note the passive voice. Well then who might be responsible oh most interesting of thinkers out there? "We were all, more or less, overconfident.” It gets increasingly harder," he argues, "to escape the conclusion that many millions of people were complicit, whether intentionally or not." He then illuminates this, apparently inescapable, conclusion by recourse to a museum director planing building expansion (718-30 to 730-40). Innovative thinking indeed.
On condescension: The title is one example. His invocation of the "fun" of the Internet working to limit a sober understanding of economies' general crappiness is another (746-57 to 757-67). This bit, from his conclusion, [t]hese days, you can read the latest scientific papers, whether or not you are based at Harvard or Princeton" (797-808) ignores the fact that disseminating the latest findings in all manner of disciplines predates Jstor. Darnton's work on the Encyclopedia is one example; Francis Bacon's Novum Organon published by Society For The Diffusion Of Useful Knowledge, which is itself yet another example of making cutting edge thought available to the masses, another. It is also an example that leads to a discussion of his use or, more precisely, abuse of history.
On roads and their history: He makes much of the notion of "core" versus "optional" state functions. Using the example of investments on infrastructure, he argues that [w]e're valuing dollars spent on highway extensions as if they were worth as much as the dollars we spent on building the core roads that link major cities" (267-78 to 278-88). This characterization of the roads in American history is misleading in two ways. In the first instance, he ignores the origins of the Good Road Movement, which arose from a combination of commercial and leisure interests. Cyclists intent on increasing the pleasures of live had long advocated for improved roads while agricultural and extractive commercial interests wanted to ease the movement from productive to markets. Railroads already connected "major" cities, the Interstate system came rather later and its designers had rather more in mind than linking major cities. Does this really matter, you might ask. Well, yes. The push for good roads was as much about pleasure as commerce and trying to reading the former out of the equation transforms state infrastructure investment into an activity solely dedicated to matters economic, which conveniently ignores the fact that there is more to life than making money.
The Central Theme or Metaphor: Cowen makes much of his notion of the fact that
the American economy has enjoyed lots of low-hanging fruit since at least the seventeenth century, whether it be free land, lots of immigrant labor, or powerful new technologies. Yet during the last forty years, that low-hanging fruit started disappearing, and we started pretending it was still there. We have failed to recognize that we are at a technological plateau and the trees are more bare than we would like to think. That's it. That is what has gone wrong.(60-71)
He accepts that some of this stuff was "not completely new"; however, he insists they "expanded rapidly" in the period under consideration effectively "tying together the world economy." Although there was a "somewhat longer time frame, agriculture" underwent a similar process. What was, he suggests, "fundamentally new to human history" was the "gains . . . from playing out the idea of advanced machines combined with powerful fossil fuels" (81-81).
And to be clear, when he discusses low-hanging fruit he doesn't mean the fruits you ate first:
Have you ever walked into a cherry orchard? There are plenty of cherries right there for the picking. Imagine a tropical island where the citrus and bananas hang from trees. Low-hanging literal fruit-- you don't even have to cook the stuff (60-71).
It's helpful to ask if we didn't have to cook the stuff that, literally and metaphorically, hung so low. Take, as one example, access to America's wide-open lands. If you ignore the long history of the "Age of Exploration" or, if you want to consider things from the opposite perspective, the "Age of Conquest" leading up to the seizure of lands from the pre-existing inhabitants, then yes easy peasy. Did you know that over 50% of the conquistadors perished either during the trip over or on first landing? Or that the technological changes, financial support, and religious justification of the Portuguese expansion and colonization came from the state? It's true.The longer time frame for the agricultural sector? Depending on how you want to think about it, agricultural revolution's time frame is rather longer; however, the introduction of “scientific” agriculture in the 18th century was a long hard slog requiring a great deal of interference in traditional farming methods by the state and, in some cases, the forcible introduction of new crops, Frederic the Great and the potato for example.
You can do the same thing for each and every low-hanging fruit Cowen mentions. They didn't just appear all of sudden when needed for the economic exploitation of this or that resource but rather they came about through the intersection of state and society seeking to improve the condition of men even on this earth and individuals more concerned with lining their own pockets then anything else. The American Transcontinental railroad is a nearly perfect example of the inter-mixture of state, society, cupidity, and charity, in is ancient meaning. What I think Cowen actually means is if you ignore the actual history of the picking of the fruit, it hung very low indeed.
On the state of technological breakthroughs he argues that "[t]he period from 1880 to 1945 brought numerous major technological advances into our lives"; he then lists the usual suspects and argues that "life [now] in broad material terms isn't so different from what it was in 1953" (81-91). His pessimism on the future of innovation relies, in part, on the work of Charles I. Jones, who "has 'disassembled' American economic growth into component parts" and "[l]ooking at 1950-1993. . . found that 80 percent of the growth . . . came from he application of previously discovered ideas . . . with heavy additional investment in education and research, in a manner that cannot be easily repeated for the future" (177-88). Cowen also reproduces the work of Jonathan Huebner which shows that current rates of "innovation" are nearly medieval (188-93); Huebner elsewhere suggests that we will out do the medievals in our lack of inventiveness by 2024.
It would be nice to know why we can't repeat investments in education and research. It would also be nice to know why figuring out how to use the technology we have right now to improve the conditions of humanity without regard to ever expanding profits is, apparently, off the table.
This brings me to Cowen's cure for what ails us. He argues that one "favorable trend" is his expectation that "[o]ver time, we can expect" China and India "to assume a greater role as innovators" and that "their manufacturing and services efforts" will "free up a lot of our time and energy for innovation." He is, of course, unclear as to why the Chinese and Indians will be able to that which he has ruled out for America; although, to be fair, Cowen waves his hands toward markets.(787-96 to 797-808) Secondly, the "internet may do more for revenue generation in the future." (ibid.) See, the way out of the current bubble induced crises is a new bubble. He likes the various market-based solutions to the "crisis" in America's educational system, despite the evidence that they do not work. (808-19). And, he hopes to improve the "status" of science by adopting "one point that Ayn Rand . . . got right, namely that we should all revere creators and scientific innovators (830-42 to 841-52). Want a better economy? All Hail John Galt lest Galt go.
Taken in the round, this is a remarkable passive response to the current malaise for such an interesting thinker; given that the take-away seems to be that we can't do much except wait for the system that failed so spectacularly to fix itself except train ourselves to revere our Galtian overlords.
Alerted by Matthew Yglesias to a "bravura performance by one of the most interesting thinkers out there" on the cause of the current economic mess, I rushed, metaphorically speaking, to the Kindle store and spent 4 dollars on Tyler Cowen’s The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History,Got Sick, and Will (Eventually) Feel Better. This is fairly awful book. Cowen's tone is condescending; his use of history is superficial, his notion of the cause odd, and his notions of how to get better depressing.
On causation: Cowen blames overconfidence. "[R]ealtors" are not to blame because "[t]he financial crisis was not fundamentaly about the bursting the real estate bubble" (706-17). Okay, but then, one thinks, those who used chicanery to spin bad loans into huge profit for no socially beneficial purpose bear the bulk of the blame. Nope: "The financial crisis is not even fundamentally about mistakes in the banking sector, although such mistakes were made" (717-28). Note the passive voice. Well then who might be responsible oh most interesting of thinkers out there? "We were all, more or less, overconfident.” It gets increasingly harder," he argues, "to escape the conclusion that many millions of people were complicit, whether intentionally or not." He then illuminates this, apparently inescapable, conclusion by recourse to a museum director planing building expansion (718-30 to 730-40). Innovative thinking indeed.
On condescension: The title is one example. His invocation of the "fun" of the Internet working to limit a sober understanding of economies' general crappiness is another (746-57 to 757-67). This bit, from his conclusion, [t]hese days, you can read the latest scientific papers, whether or not you are based at Harvard or Princeton" (797-808) ignores the fact that disseminating the latest findings in all manner of disciplines predates Jstor. Darnton's work on the Encyclopedia is one example; Francis Bacon's Novum Organon published by Society For The Diffusion Of Useful Knowledge, which is itself yet another example of making cutting edge thought available to the masses, another. It is also an example that leads to a discussion of his use or, more precisely, abuse of history.
On roads and their history: He makes much of the notion of "core" versus "optional" state functions. Using the example of investments on infrastructure, he argues that [w]e're valuing dollars spent on highway extensions as if they were worth as much as the dollars we spent on building the core roads that link major cities" (267-78 to 278-88). This characterization of the roads in American history is misleading in two ways. In the first instance, he ignores the origins of the Good Road Movement, which arose from a combination of commercial and leisure interests. Cyclists intent on increasing the pleasures of live had long advocated for improved roads while agricultural and extractive commercial interests wanted to ease the movement from productive to markets. Railroads already connected "major" cities, the Interstate system came rather later and its designers had rather more in mind than linking major cities. Does this really matter, you might ask. Well, yes. The push for good roads was as much about pleasure as commerce and trying to reading the former out of the equation transforms state infrastructure investment into an activity solely dedicated to matters economic, which conveniently ignores the fact that there is more to life than making money.
The Central Theme or Metaphor: Cowen makes much of his notion of the fact that
the American economy has enjoyed lots of low-hanging fruit since at least the seventeenth century, whether it be free land, lots of immigrant labor, or powerful new technologies. Yet during the last forty years, that low-hanging fruit started disappearing, and we started pretending it was still there. We have failed to recognize that we are at a technological plateau and the trees are more bare than we would like to think. That's it. That is what has gone wrong.(60-71)
He accepts that some of this stuff was "not completely new"; however, he insists they "expanded rapidly" in the period under consideration effectively "tying together the world economy." Although there was a "somewhat longer time frame, agriculture" underwent a similar process. What was, he suggests, "fundamentally new to human history" was the "gains . . . from playing out the idea of advanced machines combined with powerful fossil fuels" (81-81).
And to be clear, when he discusses low-hanging fruit he doesn't mean the fruits you ate first:
Have you ever walked into a cherry orchard? There are plenty of cherries right there for the picking. Imagine a tropical island where the citrus and bananas hang from trees. Low-hanging literal fruit-- you don't even have to cook the stuff (60-71).
It's helpful to ask if we didn't have to cook the stuff that, literally and metaphorically, hung so low. Take, as one example, access to America's wide-open lands. If you ignore the long history of the "Age of Exploration" or, if you want to consider things from the opposite perspective, the "Age of Conquest" leading up to the seizure of lands from the pre-existing inhabitants, then yes easy peasy. Did you know that over 50% of the conquistadors perished either during the trip over or on first landing? Or that the technological changes, financial support, and religious justification of the Portuguese expansion and colonization came from the state? It's true.The longer time frame for the agricultural sector? Depending on how you want to think about it, agricultural revolution's time frame is rather longer; however, the introduction of “scientific” agriculture in the 18th century was a long hard slog requiring a great deal of interference in traditional farming methods by the state and, in some cases, the forcible introduction of new crops, Frederic the Great and the potato for example.
You can do the same thing for each and every low-hanging fruit Cowen mentions. They didn't just appear all of sudden when needed for the economic exploitation of this or that resource but rather they came about through the intersection of state and society seeking to improve the condition of men even on this earth and individuals more concerned with lining their own pockets then anything else. The American Transcontinental railroad is a nearly perfect example of the inter-mixture of state, society, cupidity, and charity, in is ancient meaning. What I think Cowen actually means is if you ignore the actual history of the picking of the fruit, it hung very low indeed.
On the state of technological breakthroughs he argues that "[t]he period from 1880 to 1945 brought numerous major technological advances into our lives"; he then lists the usual suspects and argues that "life [now] in broad material terms isn't so different from what it was in 1953" (81-91). His pessimism on the future of innovation relies, in part, on the work of Charles I. Jones, who "has 'disassembled' American economic growth into component parts" and "[l]ooking at 1950-1993. . . found that 80 percent of the growth . . . came from he application of previously discovered ideas . . . with heavy additional investment in education and research, in a manner that cannot be easily repeated for the future" (177-88). Cowen also reproduces the work of Jonathan Huebner which shows that current rates of "innovation" are nearly medieval (188-93); Huebner elsewhere suggests that we will out do the medievals in our lack of inventiveness by 2024.
It would be nice to know why we can't repeat investments in education and research. It would also be nice to know why figuring out how to use the technology we have right now to improve the conditions of humanity without regard to ever expanding profits is, apparently, off the table.
This brings me to Cowen's cure for what ails us. He argues that one "favorable trend" is his expectation that "[o]ver time, we can expect" China and India "to assume a greater role as innovators" and that "their manufacturing and services efforts" will "free up a lot of our time and energy for innovation." He is, of course, unclear as to why the Chinese and Indians will be able to that which he has ruled out for America; although, to be fair, Cowen waves his hands toward markets.(787-96 to 797-808) Secondly, the "internet may do more for revenue generation in the future." (ibid.) See, the way out of the current bubble induced crises is a new bubble. He likes the various market-based solutions to the "crisis" in America's educational system, despite the evidence that they do not work. (808-19). And, he hopes to improve the "status" of science by adopting "one point that Ayn Rand . . . got right, namely that we should all revere creators and scientific innovators (830-42 to 841-52). Want a better economy? All Hail John Galt lest Galt go.
Taken in the round, this is a remarkable passive response to the current malaise for such an interesting thinker; given that the take-away seems to be that we can't do much except wait for the system that failed so spectacularly to fix itself except train ourselves to revere our Galtian overlords.
November 6, 2018
Tyler Cowen wrote what looks like a couple of blog posts, and published them in book form.
The problem: US economic growth slowed in the early 1970s, and hasn't recovered much. Median family income would be 50% higher if the growth of 1945-1970 had continued.
I criticized this book when I reviewed the more carefully researched Where Is My Flying Car? by J. Storrs Hall (aka Josh). So I felt obligated to read The Great Stagnation and evaluate it more carefully.
Josh presents decent evidence that innovation in energy-intensive industries was strangled by hostile regulation, litigation, and similar political and social problems.
Now I'll look more closely at how Cowen's explanations for the Great Stagnation compare to Josh's:
Free land
The smallpox holocaust left lots of empty or almost empty land, as a nearly free resource. That's a clear example of low-hanging fruit that's gone.
Josh and Cowen sort of agree here, but Josh focuses heavily on the cultural effects of a frontier mentality.
Cowen implies that the direct benefits of cheap land are important, but that effect seems to imply an earlier slowdown in growth than what we see.
Cowen also mentions the benefits of cheap land at attracting good workers from Europe. This seems more consistent with the timing of the Great Stagnation, but I'd expect the effect to fade too gradually to be measured. I'd also expect that effect to be swamped by the effect of the Nazis driving good workers to the US.
Doesn't the brain drain from Europe hypothesis imply that whenever the effect sped up US growth, it slowed European growth? Yet I don't see signs of the US outperforming Europe after WWII. It looks like the countries least affected by WWII experienced a slowdown within a few years of each other, and those most affected experienced similar slowdowns with a 5-year lag:
This seems to be clear evidence against any US-centric explanation. I conclude that any effects of free land became small by 1970.
Labor quality
According to Cowen, we had a steady stream of smart people leaving farms to get a university education and become more productive. 1970 is about when we ran low enough on farmers for that effect to become unimportant. Cowen isn't very convincing on this point, but Josh has a nice graph showing that the exodus from farming ended right about 1970 - and also that an exodus from manufacturing jobs became significant around the same time - how does that differ from the effects of farming? Not to mention all those women entering the labor force.
Neither author mentions all those people from India and China who could move here and run our tech companies.
So the simplest version of Cowen's argument seems wrong. But he hints at something special about farming: it's an isolated environment. I suppose it's possible that women and manufacturing workers who had lots of potential mostly got recruited to important jobs well before 1970, whereas farmers with lots of potential went unnoticed until they left the farm and went to universities. I don't know how to evaluate that.
It was easy for me to find another demographic explanation that Cowen seems to have overlooked, based on the baby boom:
And this paper mentions conflicting results about how important the labor pool changes were.
In sum, the more I look at labor quality issues, the more complex and confusing it looks. Cowen seems not to have noticed the confusion, possibly because he stopped researching after plucking one obvious piece of low-hanging fruit.
We stopped inventing major new technologies
This seems like the most important issue.
We stopped implementing important new inventions, except in software-related fields, due to either using up the available ideas (Cowen's view), or because we forgot that inventions do things we like, or something.
Cowen's main evidence for his hypothesis seems to be Huebner (2005), which uses a list of important innovations created by Bunch and Hellemans (big pdf here), to argue that peak innovation happened in 1873.
I'm somewhat suspicious of their ability to evaluate which recent innovations are important: Huebner points to "37 separate events involving space shuttle missions" as evidence that recent innovation was overstated. I'll counter that Bunch and Hellemans' omission of backprop points in the other direction - I believe that was many orders of magnitude more important than the median innovation they listed for the 20th century. It seems to have been invented around 1970, yet there have been large changes in the past decade in how people evaluate its importance[1]. These examples suggest that it will take more time before we reach a consensus about the rate of important innovations in the 1970s, and even then I'll be uncertain how much of the consensus is due to groupthink.
Techno-optimist John Smart points to large disagreements about whether innovation has increased or decreased. I haven't checked his references to figure out whether anyone has a compelling argument here, and I doubt that Cowen has checked more carefully.
Huebner also points to evidence of per-capita patents issued in the US. I'm unsure whether per-capita patents issued should be a good measure, but the mild downward trend that Huebner shows for the 20th century was decisively reversed right around the time that Huebner published. That undercuts Huebner's thesis rather strongly, but might support parts of Cowen's thesis: if I assume a 25 year delay between patent rates and the resulting economic growth, I can see hints that patents predict growth. If so, that suggests that Cowen timed his book to coincide with the end of the stagnation.
Josh points to a wide range of ideas that sort of look like low-hanging fruit. I'd say it's pretty hard to respond by saying that we ran out of fruit, but fairly easy to raise questions about how low-hanging that fruit is. Often my impression is that a billion dollar investment could profitably pick a particular piece of fruit. So maybe some of the problem is that software-related fields, where million dollar investments are enough to get the low-hanging fruit, have been siphoning away the talent that ought to be focused on the bigger projects.
In contrast, Cowen's notion of low-hanging fruit consists of a well-tended cherry orchard where the fruit is obvious. That seems like something from creationist mythology. I'd say he should look more toward Ayn Rand heroes - he says good things about Rand, but seems uninterested in her notion that innovation requires thinking more clearly than usual.
That might be harmless if he stopped there, but he goes on to talk repeatedly about "when the next era of low-hanging fruit arrives". That's the voice of someone who picks up crumbs from a more productive person's feast. Innovators such as Elon Musk or Sergei Korolev don't wait for fruit to arrive. They assemble the right tools to enable them to reach that previously inaccessible fruit.
Cowen's attitude here reminds me of a quip (from Thomas Sowell?) about how lucky Babe Ruth was to step up to bat just when home runs were about to be hit.
Measurement error?
Both authors say the stagnation is real. But others have suggested it's mostly due to various kinds of measurement errors, including inadequate adjustment for improved product quality, and declining interest in material wealth. Cowen points out that a sizable fraction of reported growth comes from medical care and schooling, where most of the growth looks like cost disease, not something that improves our lives. I agree that's important, and often underestimated.
Cowen also complains about growth of useless financial activity. He gets the details rather wrong (focusing on unusually successful people, when most of the waste involves salesmen making ordinary incomes by selling the equivalent of placebos), but he seems roughly correct about the level of waste.
He mostly convinced me that the stagnation from roughly 1970 to 1995 was worse than standard measures indicate. But for 1995-2010, the situation is more complex. The standard measures report spurts of good growth, interspersed with bubbles and monetary mistakes, that don't look much like signs of extended stagnation.
We've gotten large areas where value creation totally avoids economists' attempt at measurement. Wikipedia is an obvious large example. Videophones are another: I recall my father saying in the 1980s that he'd pay something like $1000 per video call, in order to remotely diagnose mechanical trouble, sometimes saving him from needing to travel halfway across the country. Now video calls are too cheap to meter.
A less obvious category, that has larger effects on our lives, is how we meet new people.
For example, an internet support group triggered a large change in understanding of faceblindness:
The handful of people before the 1990s who knew they were born faceblind didn't have a reasonable way to broadcast their desire to meet similar people, so nobody noticed signs that faceblindness was more than a freak accident.
I suspect this illustrates a large class of improvements in how people find like-minded people to interact with, for ordinary social purposes, for starting new businesses, and for solving obscure problems. This value might be large compared to the effects of cost disease, so it's hard to say whether recent growth in our wellbeing has been over or underestimated.
Cowen has a good description of how the 2008 financial problems were caused by widespread complacency about real estate prices and banking risks. That's evidence that the economy was doing worse than we expected. But those are typical features of a bubble, and only required complacency about a few industries (e.g. maybe people were too optimistic that immigration would fuel housing demand). Cowen's attempt to tie that to the Great Stagnation is not at all convincing.
Advice
Given his diagnosis, I'm unsurprised that his advice is unambitious. Here's the part I found most interesting: "Raise the social status of scientists."
That seems puzzling - my impression is that the social status of scientists remains fairly high. I see few signs that science productivity has declined. I'd say a bigger problem has been the decline in status of engineers - at least those who operate far from computer-related fields.
But when he gives an example, it's Norman Borlaug, who straddles the divide between scientist and engineer. I certainly agree that Borlaug deserves higher status, but I disagree about how to generalize that. (Borlaug grew up on an isolated farm, and appears to have just barely managed to get to a university; that seems to be a bit of evidence in favor of Cowen's story).
Conclusion
Cowen's explanations for the stagnation are mostly unconvincing guesses that are somewhat less than half right. He seems to have entered the field, gathered the first few semi-ripe fruits he saw, and moved on without spotting the juicier fruit that was partly obscured by some leaves.
Read Where Is My Flying Car? instead.
[1] - I decided in the early 1990s that backprop was pretty important. But I also decided then that genetic programming was almost as important; in hindsight, that looks foolish, so I'm not sure how much of my early recognition of backprop's importance was due to luck versus skill. A key consideration is how well the algorithms scale up to large datasets; very few people were able to predict in the 1990s that backprop would scale well but genetic programming wouldn't.
The problem: US economic growth slowed in the early 1970s, and hasn't recovered much. Median family income would be 50% higher if the growth of 1945-1970 had continued.
I criticized this book when I reviewed the more carefully researched Where Is My Flying Car? by J. Storrs Hall (aka Josh). So I felt obligated to read The Great Stagnation and evaluate it more carefully.
Josh presents decent evidence that innovation in energy-intensive industries was strangled by hostile regulation, litigation, and similar political and social problems.
Now I'll look more closely at how Cowen's explanations for the Great Stagnation compare to Josh's:
Free land
The smallpox holocaust left lots of empty or almost empty land, as a nearly free resource. That's a clear example of low-hanging fruit that's gone.
Josh and Cowen sort of agree here, but Josh focuses heavily on the cultural effects of a frontier mentality.
Cowen implies that the direct benefits of cheap land are important, but that effect seems to imply an earlier slowdown in growth than what we see.
Cowen also mentions the benefits of cheap land at attracting good workers from Europe. This seems more consistent with the timing of the Great Stagnation, but I'd expect the effect to fade too gradually to be measured. I'd also expect that effect to be swamped by the effect of the Nazis driving good workers to the US.
Doesn't the brain drain from Europe hypothesis imply that whenever the effect sped up US growth, it slowed European growth? Yet I don't see signs of the US outperforming Europe after WWII. It looks like the countries least affected by WWII experienced a slowdown within a few years of each other, and those most affected experienced similar slowdowns with a 5-year lag:
This seems to be clear evidence against any US-centric explanation. I conclude that any effects of free land became small by 1970.
Labor quality
According to Cowen, we had a steady stream of smart people leaving farms to get a university education and become more productive. 1970 is about when we ran low enough on farmers for that effect to become unimportant. Cowen isn't very convincing on this point, but Josh has a nice graph showing that the exodus from farming ended right about 1970 - and also that an exodus from manufacturing jobs became significant around the same time - how does that differ from the effects of farming? Not to mention all those women entering the labor force.
Neither author mentions all those people from India and China who could move here and run our tech companies.
So the simplest version of Cowen's argument seems wrong. But he hints at something special about farming: it's an isolated environment. I suppose it's possible that women and manufacturing workers who had lots of potential mostly got recruited to important jobs well before 1970, whereas farmers with lots of potential went unnoticed until they left the farm and went to universities. I don't know how to evaluate that.
It was easy for me to find another demographic explanation that Cowen seems to have overlooked, based on the baby boom:
What is critical is the theory that young workers have relatively low human capital and that, as they become older, they accumulate human capital. ... The U.S. birth rate peaked circa 1960, implying a large share of people in their 20s circa 1980. ... It is important to realize that, should the theory proposed here be correct, there exists a sense in which the productivity slowdowns (especially in the 1970s) are statistical artifacts, that is, it may be that the productivity of individual workers did not change at all during the 1970s, but that the change in the composition of the labor force caused the slowdown in labor productivity.
And this paper mentions conflicting results about how important the labor pool changes were.
In sum, the more I look at labor quality issues, the more complex and confusing it looks. Cowen seems not to have noticed the confusion, possibly because he stopped researching after plucking one obvious piece of low-hanging fruit.
We stopped inventing major new technologies
This seems like the most important issue.
We stopped implementing important new inventions, except in software-related fields, due to either using up the available ideas (Cowen's view), or because we forgot that inventions do things we like, or something.
Cowen's main evidence for his hypothesis seems to be Huebner (2005), which uses a list of important innovations created by Bunch and Hellemans (big pdf here), to argue that peak innovation happened in 1873.
I'm somewhat suspicious of their ability to evaluate which recent innovations are important: Huebner points to "37 separate events involving space shuttle missions" as evidence that recent innovation was overstated. I'll counter that Bunch and Hellemans' omission of backprop points in the other direction - I believe that was many orders of magnitude more important than the median innovation they listed for the 20th century. It seems to have been invented around 1970, yet there have been large changes in the past decade in how people evaluate its importance[1]. These examples suggest that it will take more time before we reach a consensus about the rate of important innovations in the 1970s, and even then I'll be uncertain how much of the consensus is due to groupthink.
Techno-optimist John Smart points to large disagreements about whether innovation has increased or decreased. I haven't checked his references to figure out whether anyone has a compelling argument here, and I doubt that Cowen has checked more carefully.
Huebner also points to evidence of per-capita patents issued in the US. I'm unsure whether per-capita patents issued should be a good measure, but the mild downward trend that Huebner shows for the 20th century was decisively reversed right around the time that Huebner published. That undercuts Huebner's thesis rather strongly, but might support parts of Cowen's thesis: if I assume a 25 year delay between patent rates and the resulting economic growth, I can see hints that patents predict growth. If so, that suggests that Cowen timed his book to coincide with the end of the stagnation.
Josh points to a wide range of ideas that sort of look like low-hanging fruit. I'd say it's pretty hard to respond by saying that we ran out of fruit, but fairly easy to raise questions about how low-hanging that fruit is. Often my impression is that a billion dollar investment could profitably pick a particular piece of fruit. So maybe some of the problem is that software-related fields, where million dollar investments are enough to get the low-hanging fruit, have been siphoning away the talent that ought to be focused on the bigger projects.
In contrast, Cowen's notion of low-hanging fruit consists of a well-tended cherry orchard where the fruit is obvious. That seems like something from creationist mythology. I'd say he should look more toward Ayn Rand heroes - he says good things about Rand, but seems uninterested in her notion that innovation requires thinking more clearly than usual.
That might be harmless if he stopped there, but he goes on to talk repeatedly about "when the next era of low-hanging fruit arrives". That's the voice of someone who picks up crumbs from a more productive person's feast. Innovators such as Elon Musk or Sergei Korolev don't wait for fruit to arrive. They assemble the right tools to enable them to reach that previously inaccessible fruit.
Cowen's attitude here reminds me of a quip (from Thomas Sowell?) about how lucky Babe Ruth was to step up to bat just when home runs were about to be hit.
Measurement error?
Both authors say the stagnation is real. But others have suggested it's mostly due to various kinds of measurement errors, including inadequate adjustment for improved product quality, and declining interest in material wealth. Cowen points out that a sizable fraction of reported growth comes from medical care and schooling, where most of the growth looks like cost disease, not something that improves our lives. I agree that's important, and often underestimated.
Cowen also complains about growth of useless financial activity. He gets the details rather wrong (focusing on unusually successful people, when most of the waste involves salesmen making ordinary incomes by selling the equivalent of placebos), but he seems roughly correct about the level of waste.
He mostly convinced me that the stagnation from roughly 1970 to 1995 was worse than standard measures indicate. But for 1995-2010, the situation is more complex. The standard measures report spurts of good growth, interspersed with bubbles and monetary mistakes, that don't look much like signs of extended stagnation.
We've gotten large areas where value creation totally avoids economists' attempt at measurement. Wikipedia is an obvious large example. Videophones are another: I recall my father saying in the 1980s that he'd pay something like $1000 per video call, in order to remotely diagnose mechanical trouble, sometimes saving him from needing to travel halfway across the country. Now video calls are too cheap to meter.
A less obvious category, that has larger effects on our lives, is how we meet new people.
For example, an internet support group triggered a large change in understanding of faceblindness:
As late as the mid-1990s, medical literature reported less than two hundred cases, and only three of those were people born with it - so few some researchers expressed an opinion that one could not be born with it. ... Well, in the spring of 2006, two tests made upon random samples from general populations were finally given, and they revealed a very surprising number: About two percent of the population is face blind!
The handful of people before the 1990s who knew they were born faceblind didn't have a reasonable way to broadcast their desire to meet similar people, so nobody noticed signs that faceblindness was more than a freak accident.
I suspect this illustrates a large class of improvements in how people find like-minded people to interact with, for ordinary social purposes, for starting new businesses, and for solving obscure problems. This value might be large compared to the effects of cost disease, so it's hard to say whether recent growth in our wellbeing has been over or underestimated.
Cowen has a good description of how the 2008 financial problems were caused by widespread complacency about real estate prices and banking risks. That's evidence that the economy was doing worse than we expected. But those are typical features of a bubble, and only required complacency about a few industries (e.g. maybe people were too optimistic that immigration would fuel housing demand). Cowen's attempt to tie that to the Great Stagnation is not at all convincing.
Advice
Given his diagnosis, I'm unsurprised that his advice is unambitious. Here's the part I found most interesting: "Raise the social status of scientists."
That seems puzzling - my impression is that the social status of scientists remains fairly high. I see few signs that science productivity has declined. I'd say a bigger problem has been the decline in status of engineers - at least those who operate far from computer-related fields.
But when he gives an example, it's Norman Borlaug, who straddles the divide between scientist and engineer. I certainly agree that Borlaug deserves higher status, but I disagree about how to generalize that. (Borlaug grew up on an isolated farm, and appears to have just barely managed to get to a university; that seems to be a bit of evidence in favor of Cowen's story).
Conclusion
Cowen's explanations for the stagnation are mostly unconvincing guesses that are somewhat less than half right. He seems to have entered the field, gathered the first few semi-ripe fruits he saw, and moved on without spotting the juicier fruit that was partly obscured by some leaves.
Read Where Is My Flying Car? instead.
[1] - I decided in the early 1990s that backprop was pretty important. But I also decided then that genetic programming was almost as important; in hindsight, that looks foolish, so I'm not sure how much of my early recognition of backprop's importance was due to luck versus skill. A key consideration is how well the algorithms scale up to large datasets; very few people were able to predict in the 1990s that backprop would scale well but genetic programming wouldn't.
June 13, 2011
This is a wonderful mini-book reflecting on the slowing pace of technological process, how US economic growth has changed as a result, and what that means for the next 30 years. Cowen's thesis--that much of the growth from 1940-'75 came from "low-hanging fruit" and will not easily be duplicated--makes a lot of sense to me, as does his assertion that further improving educational attainment will be worthwhile but very hard. As usual, Cowen is at his best not at developing revolutionary ideas but in putting ideas together in a new, interesting, thought-provoking, and meaningful ways, that make you think about old issues differently.
He raises interesting points about the productivity growth of the last 30 years: that, really, neither labor nor capital has gotten much richer, so maybe productivity didn't improve that much after all?; and that much of the productivity gains in recent years have come from producing the same amount (or close to it) with fewer people, rather than doing more with the same workforce.
And his thesis about economic growth being perhaps overstated...due to fast growth in sectors--education, health care, government--where expenditures are valued at cost rather than reflecting a market price...rings very true to me. He points out that schools today have MUCH better facilities than they did 40 years ago, and all of that shows up in published GDP numbers--but what is the true benefit of such? Or of highways, unnecessary doctor visits, etc.
His writing about the Internet, and its effect on GDP, also is insightful and important. That is, quality of life has improved in meaningful ways that are destructive to GDP: using wikipedia instead of buying a dictionary, posting on Internet bulletin boards rather than paying to go to the dance hall, etc. Certainly I would spend more than $20/month on movie theaters/rentals if Netflix weren't available. But it is, so I almost never go to the theater, and spend less on rentals than I would have 10 years ago. The immense value--if unmeasured--of the Internet means that GDP/income may be less relevant to quality of life than they used to be. However, our fiscal obligations can't be funded with improved quality of life, so reconciling a slower pace of economic growth with liabilities will be very difficult--especially given that, at present, we don't even really acknowledge the underlying problem. Cowen raises an interesting contrast with Europe, which--perhaps due to WWII--doesn't have the same experience with all their wants being fulfilled.
He raises interesting points about the productivity growth of the last 30 years: that, really, neither labor nor capital has gotten much richer, so maybe productivity didn't improve that much after all?; and that much of the productivity gains in recent years have come from producing the same amount (or close to it) with fewer people, rather than doing more with the same workforce.
And his thesis about economic growth being perhaps overstated...due to fast growth in sectors--education, health care, government--where expenditures are valued at cost rather than reflecting a market price...rings very true to me. He points out that schools today have MUCH better facilities than they did 40 years ago, and all of that shows up in published GDP numbers--but what is the true benefit of such? Or of highways, unnecessary doctor visits, etc.
His writing about the Internet, and its effect on GDP, also is insightful and important. That is, quality of life has improved in meaningful ways that are destructive to GDP: using wikipedia instead of buying a dictionary, posting on Internet bulletin boards rather than paying to go to the dance hall, etc. Certainly I would spend more than $20/month on movie theaters/rentals if Netflix weren't available. But it is, so I almost never go to the theater, and spend less on rentals than I would have 10 years ago. The immense value--if unmeasured--of the Internet means that GDP/income may be less relevant to quality of life than they used to be. However, our fiscal obligations can't be funded with improved quality of life, so reconciling a slower pace of economic growth with liabilities will be very difficult--especially given that, at present, we don't even really acknowledge the underlying problem. Cowen raises an interesting contrast with Europe, which--perhaps due to WWII--doesn't have the same experience with all their wants being fulfilled.
March 13, 2021
Sloppy. It doesn't consider a myriad of possible causes for The Great Stagnation. Like Mancur Olson's argument that democratic stability multiplies rent-seekers, which means more entry barriers. You can't just go around inoculating random kids with cowpox blisters anymore, like Edward Jenner did in 1796 when he invented the modern vaccine. You have to dance around with the FDA for years and spend a ton of money. That practically ensures that only the Pfizers and J&Js of the world can create new medicines. Same with transportation, energy, just about any industry. There is also Jeremy Grantham's hypothesis that we've been living in an "oil boom" - that the prosperity of the 20th century was due to cheap energy. Maybe neither of these theories is right, who knows, but Cowen doesn't even bother to engage them.
Things get extra sloppy towards the end. So the 2008 financial crisis was due to... overconfidence? What sort of explanation is that? I don't expect a 70-page book intended for the general public to get heavy on the causality discussion but dammit, it can't be a NYT opinion article either. The man is brilliant, I've learned so much from his blog over the years, and then I finally read his book and he says that we should "raise the social status of scientists" and that "We simply need to will it, and change our collective attitudes, for it to happen." What the heck?
I did enjoy the discussion about what GDP doesn't capture, and some bits of trivia he throws around here and there (the RAND experiment that showed people use more medical care when it's free; that the top 5% income bracket pays for more than 43% of the US government). But overall this book was a big disappointment.
Things get extra sloppy towards the end. So the 2008 financial crisis was due to... overconfidence? What sort of explanation is that? I don't expect a 70-page book intended for the general public to get heavy on the causality discussion but dammit, it can't be a NYT opinion article either. The man is brilliant, I've learned so much from his blog over the years, and then I finally read his book and he says that we should "raise the social status of scientists" and that "We simply need to will it, and change our collective attitudes, for it to happen." What the heck?
I did enjoy the discussion about what GDP doesn't capture, and some bits of trivia he throws around here and there (the RAND experiment that showed people use more medical care when it's free; that the top 5% income bracket pays for more than 43% of the US government). But overall this book was a big disappointment.
March 17, 2012
Cowen takes a stab at the problem of America losing its economic mojo since the 1970's. His theory: the unparalleled prosperity of the US from the 1800's through 1950 was the result of easy pickins in the areas of:
1. free (stolen) land
2. productivity increases resulting from public education
3. technology breakthroughs (steam engine, radio/electrical devices, plastics and so on)
While the internet is the main breakthrough we can point to since the 1970's it does not represent a huge improvement in the quality of life compared to previous inventions in the last 200 years. Some argue that the invention of the washing machine changed society more than the rise of the internet.
Without new innovations from American companies, the US economy is doomed to be eclipsed by China and India who have yet to fully tap the potential of "low hanging fruit." On the plus side (Cowen calls himself an optimist), the US stands to benefit from an improving Chinese economy as a trade partner. Also, innovation and invention anywhere ends up benefiting the people of the world.
I'm not convinced by Cowen's theory. The free land part is overstated. Countries without vast real estate do just fine in the post industrial age (think Japan and Israel).
I dont see Cowen addressing the problem of inequality in the US and abroad as the source of economic woes. Cowen realizes the value of science and science education in improving our lives but cannot offer a solution that will change the US valuation of science education.
1. free (stolen) land
2. productivity increases resulting from public education
3. technology breakthroughs (steam engine, radio/electrical devices, plastics and so on)
While the internet is the main breakthrough we can point to since the 1970's it does not represent a huge improvement in the quality of life compared to previous inventions in the last 200 years. Some argue that the invention of the washing machine changed society more than the rise of the internet.
Without new innovations from American companies, the US economy is doomed to be eclipsed by China and India who have yet to fully tap the potential of "low hanging fruit." On the plus side (Cowen calls himself an optimist), the US stands to benefit from an improving Chinese economy as a trade partner. Also, innovation and invention anywhere ends up benefiting the people of the world.
I'm not convinced by Cowen's theory. The free land part is overstated. Countries without vast real estate do just fine in the post industrial age (think Japan and Israel).
I dont see Cowen addressing the problem of inequality in the US and abroad as the source of economic woes. Cowen realizes the value of science and science education in improving our lives but cannot offer a solution that will change the US valuation of science education.
November 22, 2021
I’m surprised the book was the most-discussed economics book a decade ago. A couple of scattershot ideas were interesting but apart from that, the general thesis of the book does not hold so well today.
We have multiple sectors of growth today. Of course we will keep consuming more and more low-hanging fruits and will have to jump higher to pluck new ones. But there’s a reason these are higher. While many of them, like he correctly mentions, have a lower RoI than the low-hanging ones, others like biotechnology and space travel can radically alter the course of human history. Increasing levels of automation has lead us thinking about the post-work society.
Every generation has their pessimists and crystal ball watchers, and their warnings rarely hold up a decade later. You can shelf this book under examples of that.
We have multiple sectors of growth today. Of course we will keep consuming more and more low-hanging fruits and will have to jump higher to pluck new ones. But there’s a reason these are higher. While many of them, like he correctly mentions, have a lower RoI than the low-hanging ones, others like biotechnology and space travel can radically alter the course of human history. Increasing levels of automation has lead us thinking about the post-work society.
Every generation has their pessimists and crystal ball watchers, and their warnings rarely hold up a decade later. You can shelf this book under examples of that.
March 20, 2017
In this quick, conversational read, Tyler Cowen makes several astute points that I find myself easily agreeing with. His central argument is how our level of technological innovation is not nearly what it was during the so-called era of "low-hanging fruit" (1870-1970), which has in turn impacted our productivity and wages; and the three sectors of our greatest growth in the last 40 years (government, healthcare, and education) suffer from a "massive government distortion of incentives." He views the Internet as doubtlessly a major innovation, but of a different sort, which he discusses in a separate chapter. His arguments are, thankfully, apolitical, finding fault with both the left and the right. Overall a very interesting and thought-provoking read. Unfortunately the final chapter, which attempts to offer up solutions, falls a bit flat. I particularly found his emphasis on the importance of scientists above others to be disheartening.
August 4, 2019
A re-read as research for an academic article. Still holds up as an insightful long essay/novella that captured a number of broad social themes in a pithy and telling series of analogies (low hanging fruit, stagnation).
In particular, I think there is a much in the suggestion of a technological plateau. For all that we have fun/different tech, most of it is very minor evolutions. Life in 1970 and 2019 are largely the same (save having interactive TVs). Where as life in 1870 and 1920, purely in technology terms were radically different (railroads and cars fundamentally changed distance, telegrams and telephones fundamentally changed communication, spread of electric lights changed our relationship with the night etc).
In particular, I think there is a much in the suggestion of a technological plateau. For all that we have fun/different tech, most of it is very minor evolutions. Life in 1970 and 2019 are largely the same (save having interactive TVs). Where as life in 1870 and 1920, purely in technology terms were radically different (railroads and cars fundamentally changed distance, telegrams and telephones fundamentally changed communication, spread of electric lights changed our relationship with the night etc).
January 30, 2019
I’ve been fascinated by the slowdown in US productivity growth over the last 10-15 years in spite of the explosion of technology as we have seen. We seem to be going through a transition as a result of automation and a realignment of preferences in consumption. I like Tyler Cowan even though I often disagree with him. He does a great job outlining his hypothesis (mostly convincing) about the causes. The productivity slowdown doesn’t just impact us financially, but impacts our politics. My belief is that we will eventually transition and return to a higher productivity growth path. But there will be some tense moments over the next 10-20 years.
March 1, 2020
This is a quake-book for me. Main idea: we're having economic problems because the low hanging fruit from big, high-impact scientific discoveries is down. This is called "The Great Stagnation".
This rings true to me. When I did my PhD, the system was deranged. Everyone was under so much pressure, and there was so much competition, that most of the research focused on marginal gains to established problems (myself included!).
The entire system is predicated on growth: Professor's train students to become professors, they train the next generation of professors, and on and on. But if the overall pie (new problems, new professor jobs) doesn't grow, then the system works like a Ponzi scheme. The saving grace for PhDs in Science + Engineering is that we're still employable in industry. Otherwise, we'd all be screwed!
This rings true to me. When I did my PhD, the system was deranged. Everyone was under so much pressure, and there was so much competition, that most of the research focused on marginal gains to established problems (myself included!).
The entire system is predicated on growth: Professor's train students to become professors, they train the next generation of professors, and on and on. But if the overall pie (new problems, new professor jobs) doesn't grow, then the system works like a Ponzi scheme. The saving grace for PhDs in Science + Engineering is that we're still employable in industry. Otherwise, we'd all be screwed!
Want to read
December 18, 2020As heard on The Indicator from Planet Money:
https://www.npr.org/2020/12/16/947291...
https://www.npr.org/2020/12/16/947291...
April 26, 2011
This is a long essay about what Tyler Cowen considers to be the real roots of our current economic and political frustrations: a stagnation in technological advances that started around 1970. This sounds counter-intuitive, but Cowen makes a good case for his approach.
Up until that point, America always had a great deal of what Cowen refers to as "low-hanging fruit": first, and for a very long time, land so abundant it was practically free. Europeans could come to America, stake their claim, work hard, and be substantially better off than they'd been in Europe. Next, the enormous technological advances of the 19th and first half of the 20th century--steam engines, trains, the telegraph, electricity, the telephone, the car, the airplane. Thirdly, large numbers of smart, uneducated people who could be educated and add tremendously to productivity. Technological advances and the expansion of education continued to make huge differences in the lives of nearly everyone, raising the standard of living and the available wealth dramatically in each generation.
But by the late sixties, there were fewer opportunities to continue making those dramatic advances. Most Americans are now being educated, and the gains to be made are incremental gains amongst the most challenged learners--students with language barriers, or learning disabilities, or who are from families that are economically disadvantaged, or broken or disrupted in ways that make the parents less available or less able to give the students a stable basis. Overcoming those obstacles and educating these students is important and will benefit the economy as a whole as well as the individuals affected--but not nearly as dramatically as previous, more general advances in education. Technology also has had mostly incremental gains--better cars or better planes, medical gains now concentrated in care for the elderly and other marginal-gain areas. We'll all be glad for those advances when we are old, and they're important, but, again, not making dramatic changes in most people's everyday lives. There's no room for the dramatic advances in medicine and hygiene that took place through the first half of the 20th century.
Moreover, the largest parts of our economy now are government expenditures, medicine, and education, and two of the three should be very dynamic parts of our modern economy. They are, unfortunately, areas where real value, quality, and productivity are hard to measure effectively, and the market forces that control food prices or electronics prices simply aren't effective because of this.
As a result of all these trends, we have slow or stagnant growth, and a political system hampered by the frustrations of a population that is barely keeping even rather than experiencing the steadily rising standard of living of their parents and grandparents.
The one exception to this general picture of technological stagnation is the internet. Cowen discusses with great enthusiasm the advances connected to the internet, the ways in which they have dramatically changed and enhanced the lives of much of the population. By way of the internet, for the cost of a connection and the minor cost of electricity, we have access to information, education, entertainment, and contacts and friendships all over the world. It gives us access to opportunities to be happier, smarter, more fulfilled, without expenses we can't afford in the midst of our Great Stagnation.
And that in turn means that, while easing the pain of the economic slowdown, the internet also paradoxically makes it worse, because we're not spending the money to generate the more externally productive economic activity that's a vital part of reviving the economy.
All this sounds pretty grim, but in fact Cowen sees real prospects for a path out of our stagnation, for the creation of new "low-hanging fruit" that will make possible a return to dynamic growth, development, and human progress. If you have political opinions at all, whatever they are, you will disagree with some of what he says, but this is an essay grounded in fact and reality. Even if you don't in the end agree with Cowen's approach to a solution, you'll find yourself challenged to think by his discussion and analysis.
Recommended.
I received a free electronic galley from the publisher via NetGalley.
Up until that point, America always had a great deal of what Cowen refers to as "low-hanging fruit": first, and for a very long time, land so abundant it was practically free. Europeans could come to America, stake their claim, work hard, and be substantially better off than they'd been in Europe. Next, the enormous technological advances of the 19th and first half of the 20th century--steam engines, trains, the telegraph, electricity, the telephone, the car, the airplane. Thirdly, large numbers of smart, uneducated people who could be educated and add tremendously to productivity. Technological advances and the expansion of education continued to make huge differences in the lives of nearly everyone, raising the standard of living and the available wealth dramatically in each generation.
But by the late sixties, there were fewer opportunities to continue making those dramatic advances. Most Americans are now being educated, and the gains to be made are incremental gains amongst the most challenged learners--students with language barriers, or learning disabilities, or who are from families that are economically disadvantaged, or broken or disrupted in ways that make the parents less available or less able to give the students a stable basis. Overcoming those obstacles and educating these students is important and will benefit the economy as a whole as well as the individuals affected--but not nearly as dramatically as previous, more general advances in education. Technology also has had mostly incremental gains--better cars or better planes, medical gains now concentrated in care for the elderly and other marginal-gain areas. We'll all be glad for those advances when we are old, and they're important, but, again, not making dramatic changes in most people's everyday lives. There's no room for the dramatic advances in medicine and hygiene that took place through the first half of the 20th century.
Moreover, the largest parts of our economy now are government expenditures, medicine, and education, and two of the three should be very dynamic parts of our modern economy. They are, unfortunately, areas where real value, quality, and productivity are hard to measure effectively, and the market forces that control food prices or electronics prices simply aren't effective because of this.
As a result of all these trends, we have slow or stagnant growth, and a political system hampered by the frustrations of a population that is barely keeping even rather than experiencing the steadily rising standard of living of their parents and grandparents.
The one exception to this general picture of technological stagnation is the internet. Cowen discusses with great enthusiasm the advances connected to the internet, the ways in which they have dramatically changed and enhanced the lives of much of the population. By way of the internet, for the cost of a connection and the minor cost of electricity, we have access to information, education, entertainment, and contacts and friendships all over the world. It gives us access to opportunities to be happier, smarter, more fulfilled, without expenses we can't afford in the midst of our Great Stagnation.
And that in turn means that, while easing the pain of the economic slowdown, the internet also paradoxically makes it worse, because we're not spending the money to generate the more externally productive economic activity that's a vital part of reviving the economy.
All this sounds pretty grim, but in fact Cowen sees real prospects for a path out of our stagnation, for the creation of new "low-hanging fruit" that will make possible a return to dynamic growth, development, and human progress. If you have political opinions at all, whatever they are, you will disagree with some of what he says, but this is an essay grounded in fact and reality. Even if you don't in the end agree with Cowen's approach to a solution, you'll find yourself challenged to think by his discussion and analysis.
Recommended.
I received a free electronic galley from the publisher via NetGalley.
August 15, 2016
Very rarely do I read an essay where I agree so strongly with the overall premise, yet disagree so strongly with so many of the supporting arguments. Cowen is a fairly libertarian economist best-known for his blog, but even though I'm much more liberal than he is I still keep up with him just because he's one of the more intellectually ecumenical economists out there, and one of the few who seems truly comfortable with the rapidly changing technological landscape we live in (indeed, this extended essay is being published Kindle-only - try to imagine John Nash or Joe Stiglitz doing that!) There's a lot packed in this short work, and I feel bad oversimplifying, but the basic premise is that America has reached a point where the steady year-after-year increase in living standards that we've become accustomed to is obsolete - in other words, the second derivative of GDP might be getting close to zero or even negative from here on out. Looking at the past decade you'll find a great deal to support his thesis: skyrocketing tuition costs and medical expenses, literally no net gain in jobs since the end of the Clinton administration, the worst decade ever for the Dow, soaring inequality, important societal institutions increasingly devoted to bubble-chasing... it's tough to argue with that stuff.
Last year I read a really interesting book by Joseph Tainter called the Collapse of Complex Societies whose basic argument was that societies are problem-solving systems, and eventually a society will get too complex (read: use too many resources) to be sustainable, and eventually collapse. The marginal benefit of adding more problem-solvers decreases over time and eventually turns negative, and society has no choice but to keep growing ever-faster or simply disintegrate a la the Romans or the Mayans. While very abstract, and seemingly refuted by most of American history, I think the overall argument fits neatly with the very recent story Cowen presents here, of a country which has run out of low-hanging fruit to pluck (not only has the rate of innovation slowed, new innovations are simply harder to get to) and must now work harder just to stay full, let alone collect a surplus. I do disagree with many of the specific examples he picks, though: the Affordable Care Act was not that large relative to total health spending, and even if it was a big marginal cost for the health care system, which it wasn't, surely it was a large marginal gain for the people affected?
Additionally, during his discussion of how the Internet creates a lot of consumer surplus without necessarily creating wealth, when I read that Facebook or Twitter is worth billions without actually employing many people or directly adding much value to the economy, I don't think "wow, the economy has certainly changed", I think "man, this reminds me of the dotcom bubble". It's perfectly possible for new businesses to replace old ones without employing many people (in fact, performing the same service for a lower cost is almost the definition of progress), but something about social media companies in particular makes it seem unlikely that they're the foundation of a new, more prosperous future. I also think his dismissal of Paul Krugman's calls for a revival of New Deal institutions (see Krugman's excellent The Conscience of a Liberal) are taking Mancur Olson's warnings about special interests a bit too far and relying too much on Brink Lindsey's flawed defenses of skill-biased technological change as the main driver of inequality. His jabs at the Recovery Act are too flip and not supported by data, marring an otherwise great section on the financial crisis and its aftermath. However, the final chapter on how to approach potential solutions to this slowdown challenge is great, if somewhat devoid of specifics, and ultimately, like I said, many of my disagreements could be worked into the book without altering his overall point. Rarely do you see a work so small with so many big ideas in it.
Last year I read a really interesting book by Joseph Tainter called the Collapse of Complex Societies whose basic argument was that societies are problem-solving systems, and eventually a society will get too complex (read: use too many resources) to be sustainable, and eventually collapse. The marginal benefit of adding more problem-solvers decreases over time and eventually turns negative, and society has no choice but to keep growing ever-faster or simply disintegrate a la the Romans or the Mayans. While very abstract, and seemingly refuted by most of American history, I think the overall argument fits neatly with the very recent story Cowen presents here, of a country which has run out of low-hanging fruit to pluck (not only has the rate of innovation slowed, new innovations are simply harder to get to) and must now work harder just to stay full, let alone collect a surplus. I do disagree with many of the specific examples he picks, though: the Affordable Care Act was not that large relative to total health spending, and even if it was a big marginal cost for the health care system, which it wasn't, surely it was a large marginal gain for the people affected?
Additionally, during his discussion of how the Internet creates a lot of consumer surplus without necessarily creating wealth, when I read that Facebook or Twitter is worth billions without actually employing many people or directly adding much value to the economy, I don't think "wow, the economy has certainly changed", I think "man, this reminds me of the dotcom bubble". It's perfectly possible for new businesses to replace old ones without employing many people (in fact, performing the same service for a lower cost is almost the definition of progress), but something about social media companies in particular makes it seem unlikely that they're the foundation of a new, more prosperous future. I also think his dismissal of Paul Krugman's calls for a revival of New Deal institutions (see Krugman's excellent The Conscience of a Liberal) are taking Mancur Olson's warnings about special interests a bit too far and relying too much on Brink Lindsey's flawed defenses of skill-biased technological change as the main driver of inequality. His jabs at the Recovery Act are too flip and not supported by data, marring an otherwise great section on the financial crisis and its aftermath. However, the final chapter on how to approach potential solutions to this slowdown challenge is great, if somewhat devoid of specifics, and ultimately, like I said, many of my disagreements could be worked into the book without altering his overall point. Rarely do you see a work so small with so many big ideas in it.
March 6, 2013
The Great Stagnation, a 15,000 word e-book by economist Tyler Cowen, has become the most discussed non-fiction book of the year.
The main thesis of the book is that advanced economies, particularly the American economy, have been facing low rates of growth because they have not experienced any scientific or technological paradigm shifts (to use Thomas Kuhn’s term), for a long time.
Refreshingly, the book has no ideological leanings. In fact, Cowen has criticised the approach of both Republicans and Democrats in the US on political and economic issues.
He even questions the remedies being suggested for financial revival by economists like Paul Krugman on the proposition that higher government spending is not going to produce the insane growth rates characteristic of the twentieth century.
He cites China and India as exceptions who are reaping the advantages of ‘low hanging fruit’ just like Europe and America did in the last couple of centuries by educating more people and effectively utilising the physical resources of the country.
Cowen has presented his thesis without any theoretical framework or ideological affiliations. However, the idea he is propounding is quite similar to the Marxist theory describing the relationship between ‘means of production’ and ‘relations of production’.
It essentially posits that the political system of any era is largely dependent on the economic system. Cowen extends this hypothesis by suggesting that economic systems are also dependent upon the technologies prevalent in that era.
While Cowen recognises internet as the latest revolutionary technology, he completely ignores the opportunities the internet provides for small to medium level entrepreneurs.
He also overlooks the millions of jobs created by the computer industry overall. Also, the internet has been around only for two decades. We can safely assume that its true potential is yet to be seen. One thing is certain though — the internet is decentralising everything quite rapidly.
The way forward, according to Cowen, is not through some ‘structural adjustments’ – mantra of contemporary socio-economic pundits. Cowen suggests raising the social status of scientists so that more and more young people can be attracted to scientific pursuits to build the future of the world.
This suggestion has invited much criticism, with people saying that better pays will not be enough to boost scientific growth. However, in my opinion, Cowen is trying to recommend that we dissociate money from status. Teach children how to think rationally and create a quest in them for knowledge in them, not just lust for more and more material benefits. This is quite in line with the suggestions of celebrity scientists like Stephen Hawking, Michio Kaku, and Richard Dawkins.
In short, this book definitely has an impact on the reader. It is going to change the way we approach and analyse our economic problems.
Published in The Express Tribune, Sunday Magazine, July 10th, 2011.
http://tribune.com.pk/story/203818/bo...
The main thesis of the book is that advanced economies, particularly the American economy, have been facing low rates of growth because they have not experienced any scientific or technological paradigm shifts (to use Thomas Kuhn’s term), for a long time.
Refreshingly, the book has no ideological leanings. In fact, Cowen has criticised the approach of both Republicans and Democrats in the US on political and economic issues.
He even questions the remedies being suggested for financial revival by economists like Paul Krugman on the proposition that higher government spending is not going to produce the insane growth rates characteristic of the twentieth century.
He cites China and India as exceptions who are reaping the advantages of ‘low hanging fruit’ just like Europe and America did in the last couple of centuries by educating more people and effectively utilising the physical resources of the country.
Cowen has presented his thesis without any theoretical framework or ideological affiliations. However, the idea he is propounding is quite similar to the Marxist theory describing the relationship between ‘means of production’ and ‘relations of production’.
It essentially posits that the political system of any era is largely dependent on the economic system. Cowen extends this hypothesis by suggesting that economic systems are also dependent upon the technologies prevalent in that era.
While Cowen recognises internet as the latest revolutionary technology, he completely ignores the opportunities the internet provides for small to medium level entrepreneurs.
He also overlooks the millions of jobs created by the computer industry overall. Also, the internet has been around only for two decades. We can safely assume that its true potential is yet to be seen. One thing is certain though — the internet is decentralising everything quite rapidly.
The way forward, according to Cowen, is not through some ‘structural adjustments’ – mantra of contemporary socio-economic pundits. Cowen suggests raising the social status of scientists so that more and more young people can be attracted to scientific pursuits to build the future of the world.
This suggestion has invited much criticism, with people saying that better pays will not be enough to boost scientific growth. However, in my opinion, Cowen is trying to recommend that we dissociate money from status. Teach children how to think rationally and create a quest in them for knowledge in them, not just lust for more and more material benefits. This is quite in line with the suggestions of celebrity scientists like Stephen Hawking, Michio Kaku, and Richard Dawkins.
In short, this book definitely has an impact on the reader. It is going to change the way we approach and analyse our economic problems.
Published in The Express Tribune, Sunday Magazine, July 10th, 2011.
http://tribune.com.pk/story/203818/bo...
October 18, 2014
Cowen's discussion of the technological plateau and move away from innovation in the productive economy is insightful at first. He is right that the 30 year cycle we saw with major innovations in most fields seemed to stop in the 1960s, and these cycles have shifted. He does mention as a off-hand aside that this was partly because of stolen land, and he does seem to talk about educational plateaus. He mentions India and China, and then things start to slide. For example, he seems to think marketizing schools would make them more proficient. I realize this is gospel in most George Mason economics circles, but there is actually no evidence for and plenty of evidence against it. See the competition in the for-profit (not merely private) sector of higher ed in the states--it is basically consists of things that are barely above diploma mills. Cowen might reply that this is due to the distorting factor of loans: then he should actually study China, Korea, and Latin America. There is a glut of for-profit private education there as well, and it exists without the government loan system in the US, so the market failures cannot be explained by rent-seeking behavior alone.
His answers are standard center-right economist answers even if he is much better at spotting the problems. He does not deny the centralization of wealth, nor is dishonest about tax breaks. It is sad that conservatism in the United States has come to those two talking points alone because otherwise it would be clear where Cowen's ideological presumptions lie. For example, he briefly says that the Reagan (or Volker) revolution set the US right, but he has already proved economic stagnation continued unabated since the 1960s forward. Both statements can't be truth. He is right about Keynesian retribution schemes being very limited in time frame (something that even Keynes's himself pointed out), and generally are only affective after massive destruction of capital (after World War 2), but doesn't seem to have an answer for why the austerity in Europe has not cleared out the "rot" and let to renewal in GDP in the EU outside of Germany and Nordic countries (who he makes a swipe at).
He is right that America is beyond the lowing hanging fruit, but does not seem to see that India and China's rapid industrialization is also in a similar pattern of development. It is easy to grow massively when you are establishing yourself and opening up new markets: declines in the rates of profits per unit don't kind in as quickly in those states and the need for extreme intellectual property to try to artificially force prices up through removal of competition isn't a problem at that stage either. This, however, is rooted in historical economics which is something the synchronic thinkers in the neo-classical school of economic do not admit. Cowen is not different here.
So while Cowen's diagnosis is in some ways dead-on: his prescription is more cliche from the Tom Friedman-style center-right school, and his optimism at the end may be a false note.
His answers are standard center-right economist answers even if he is much better at spotting the problems. He does not deny the centralization of wealth, nor is dishonest about tax breaks. It is sad that conservatism in the United States has come to those two talking points alone because otherwise it would be clear where Cowen's ideological presumptions lie. For example, he briefly says that the Reagan (or Volker) revolution set the US right, but he has already proved economic stagnation continued unabated since the 1960s forward. Both statements can't be truth. He is right about Keynesian retribution schemes being very limited in time frame (something that even Keynes's himself pointed out), and generally are only affective after massive destruction of capital (after World War 2), but doesn't seem to have an answer for why the austerity in Europe has not cleared out the "rot" and let to renewal in GDP in the EU outside of Germany and Nordic countries (who he makes a swipe at).
He is right that America is beyond the lowing hanging fruit, but does not seem to see that India and China's rapid industrialization is also in a similar pattern of development. It is easy to grow massively when you are establishing yourself and opening up new markets: declines in the rates of profits per unit don't kind in as quickly in those states and the need for extreme intellectual property to try to artificially force prices up through removal of competition isn't a problem at that stage either. This, however, is rooted in historical economics which is something the synchronic thinkers in the neo-classical school of economic do not admit. Cowen is not different here.
So while Cowen's diagnosis is in some ways dead-on: his prescription is more cliche from the Tom Friedman-style center-right school, and his optimism at the end may be a false note.
June 2, 2011
This is a must read for those who care about current economic trends. So often, the media parrots the same old tired cliches regarding the economy which seem to have become outdated in a rapidly changing world.
I've thought a lot about many of the ideas Cowen describes in this book, but they've all kind of been a patchwork in my mind, and this book helped me to start to bring together these ideas into a more cohesive line of thought. A few of these ideas include:
1) The fundamental reason for our financial crisis: rather than being about criminal lending practices or deregulation, the easiest way to think of the reasons for the crisis is that we thought we were wealthier than we really were.
2) Recent innovations have made our life better, but may actually be contributing to our financial woes. Consider the internet, which makes possible a lot of good things for free, while at the same time providing a superior substitute for things that used to give society more jobs and money (think Napster upending the record industry and forcing Tower Records to shut down).
3) We don't have as much "low hanging" fruit, economically speaking: there's no more free land, we've educated all of our smart farm boys, and we've already integrated all of the "low hanging" tech breakthroughs.
The book is short -- like a 100 pages or so -- which is nice, because you don't feel like the author is wasting your time with redundant examples in order to reach the 250-350 page mark. It's also really refreshing to have an author not get caught up in political ideology or distracted by their emotional feelings towards certain groups of people. He just states things matter of fact.
The one part I wish he had elaborated on more is #2 above. It's something I've thought about a lot. The internet and better communications technology carries with it some consequences which I believe can not be avoided: deflationary pressures and fewer jobs. It's not just that the internet in particular gives us a lot of free goods and services, it's that by it's very nature, improved communications technology and globalization allow subsequent breakthroughs to consume fewer resources and require fewer jobs to realize their potential for society. And that's a good thing for the world at large, but as Cowen points out, this is not a hopeful sign for politicians hoping that we'll create 10s of millions of new jobs and generate enough taxes to close the deficit.
I've thought a lot about many of the ideas Cowen describes in this book, but they've all kind of been a patchwork in my mind, and this book helped me to start to bring together these ideas into a more cohesive line of thought. A few of these ideas include:
1) The fundamental reason for our financial crisis: rather than being about criminal lending practices or deregulation, the easiest way to think of the reasons for the crisis is that we thought we were wealthier than we really were.
2) Recent innovations have made our life better, but may actually be contributing to our financial woes. Consider the internet, which makes possible a lot of good things for free, while at the same time providing a superior substitute for things that used to give society more jobs and money (think Napster upending the record industry and forcing Tower Records to shut down).
3) We don't have as much "low hanging" fruit, economically speaking: there's no more free land, we've educated all of our smart farm boys, and we've already integrated all of the "low hanging" tech breakthroughs.
The book is short -- like a 100 pages or so -- which is nice, because you don't feel like the author is wasting your time with redundant examples in order to reach the 250-350 page mark. It's also really refreshing to have an author not get caught up in political ideology or distracted by their emotional feelings towards certain groups of people. He just states things matter of fact.
The one part I wish he had elaborated on more is #2 above. It's something I've thought about a lot. The internet and better communications technology carries with it some consequences which I believe can not be avoided: deflationary pressures and fewer jobs. It's not just that the internet in particular gives us a lot of free goods and services, it's that by it's very nature, improved communications technology and globalization allow subsequent breakthroughs to consume fewer resources and require fewer jobs to realize their potential for society. And that's a good thing for the world at large, but as Cowen points out, this is not a hopeful sign for politicians hoping that we'll create 10s of millions of new jobs and generate enough taxes to close the deficit.
March 20, 2011
This is really more of a long article than a book, but worth reading for anyone with an interest in applied, nonmathematical economic thinking. I certainly do not agree with all of Cowen's arguments, but I think he makes some important points.
He argues that American prosperity and growth up to the mid twentieth century was due to capturing three forms of "low-hanging fruit": free land, broadening education to a much wider group of people, and technological innovation. The first two are pretty indisputable, but it seems very odd to me to call technological innovation "low-hanging fruit"--after all, anything can look obvious, and Cowen does not make at all clear why innovation then was different from potential innovation now. Perhaps "use of non-renewable fuels" is a close correlate that I would accept.
I do appreciate Cowen's focus on median income as the best measure of broadly shared prosperity (especially as compared to per-capita GDP). He also makes a persuasive argument that the increased dominance of health care, education, and government in our economy--none of which are consumed through a classically market-based mechanism--makes it increasingly difficult to measure economic outcomes.
In a sense this article frustrated me because it seemed to come extremely close to discussing very deep issues, but veered away at the last moment. For instance, Cowen talks about how the internet generates a fairly large amount of happiness/utility for people, but not a great deal of measurable economic output (for instance, goodreads.com). He links this to the greater question of what the societal impact of a greater move away from materialism would look like, but doesn't go very far with the idea. He also notes how access to this "cheap utility" is unequally distributed, but doesn't go any further with that either. I guess I am just complaining that Cowen is not as radical as the thinkers I like to read best.
He argues that American prosperity and growth up to the mid twentieth century was due to capturing three forms of "low-hanging fruit": free land, broadening education to a much wider group of people, and technological innovation. The first two are pretty indisputable, but it seems very odd to me to call technological innovation "low-hanging fruit"--after all, anything can look obvious, and Cowen does not make at all clear why innovation then was different from potential innovation now. Perhaps "use of non-renewable fuels" is a close correlate that I would accept.
I do appreciate Cowen's focus on median income as the best measure of broadly shared prosperity (especially as compared to per-capita GDP). He also makes a persuasive argument that the increased dominance of health care, education, and government in our economy--none of which are consumed through a classically market-based mechanism--makes it increasingly difficult to measure economic outcomes.
In a sense this article frustrated me because it seemed to come extremely close to discussing very deep issues, but veered away at the last moment. For instance, Cowen talks about how the internet generates a fairly large amount of happiness/utility for people, but not a great deal of measurable economic output (for instance, goodreads.com). He links this to the greater question of what the societal impact of a greater move away from materialism would look like, but doesn't go very far with the idea. He also notes how access to this "cheap utility" is unequally distributed, but doesn't go any further with that either. I guess I am just complaining that Cowen is not as radical as the thinkers I like to read best.
April 28, 2013
This is an interesting little book. It is tightly written and well argued, which serve to make it a very easy read. In fact, I managed the whole book on one return train ride to London.
There are a number of ideas that are worth exploring within the book, but the core message is that technology has driven economic growth since the late Eighteenth Century, and that the pace of innovation has fallen to the point where the pace of growth is slowing as well. What does that mean? well, first and foremost, it means that the singularity is not near. This is a position that I have agreed with for a few years now.
In part, the author ascribes this to knowledge passing from being a public good to becoming a private good. This is fortunate for the few lucky owners who possess that knowledge - they do well in the 'winner takes all' economy that it creates. However, for the rest of us - for whom we call the 99% nowadays - it is not so fortunate. Our ability to consume at the levels to which we are accustomed has been maintained not by growth, but by debt in recent decades. However, the lack of productivity growth has undermined our ability to repay the debt we have taken out.
This is an important message for governments. Debt reduction and austerity plans presume that we shall be able to return to previously attained growth levels. What happens if we can't? I guess that means we are due for a very long period of stagnation. And this is the important message coming from the book. We are heading towards a new normal, and a return to business as usual is no longer an option. This is what policy makers are not yet getting.
I would strongly recommend this book. It is an antidote to the blind optimism we find in technology nowadays. It explains why a policy of austerity will only make things worse. And it serves as a warning that we are unable to continue as if the financial crisis did not happen. We have reached the point where the bills have to be paid.
There are a number of ideas that are worth exploring within the book, but the core message is that technology has driven economic growth since the late Eighteenth Century, and that the pace of innovation has fallen to the point where the pace of growth is slowing as well. What does that mean? well, first and foremost, it means that the singularity is not near. This is a position that I have agreed with for a few years now.
In part, the author ascribes this to knowledge passing from being a public good to becoming a private good. This is fortunate for the few lucky owners who possess that knowledge - they do well in the 'winner takes all' economy that it creates. However, for the rest of us - for whom we call the 99% nowadays - it is not so fortunate. Our ability to consume at the levels to which we are accustomed has been maintained not by growth, but by debt in recent decades. However, the lack of productivity growth has undermined our ability to repay the debt we have taken out.
This is an important message for governments. Debt reduction and austerity plans presume that we shall be able to return to previously attained growth levels. What happens if we can't? I guess that means we are due for a very long period of stagnation. And this is the important message coming from the book. We are heading towards a new normal, and a return to business as usual is no longer an option. This is what policy makers are not yet getting.
I would strongly recommend this book. It is an antidote to the blind optimism we find in technology nowadays. It explains why a policy of austerity will only make things worse. And it serves as a warning that we are unable to continue as if the financial crisis did not happen. We have reached the point where the bills have to be paid.
February 17, 2011
Cowen presents an economic history that is much more believable than most. There are no good guys or bad guys, and we all make some good decisions and some bad ones (still some people are more helpful than others). Notably we all do a number of things just because they are easy and "make sense at the time", which is a powerful force in decision-making that economics as a field is just starting to integrate.
One example of his central thesis, is that while The Railroad/Highways/Air freight (as inventions) will level out the price of things throughout an area and create a lot of jobs, Craigslist/Ebay/Amazon (as inventions) have the same effect, but don't create many jobs. Cowen does a good job of exploring and explaining how this distinction lies behind the slow median income growth in the last 30 years, and the persisting unemployment of our current downturn.
He phrases this difference as one in amount of innovation, where I'd simply say the difference is in type of innovation.
Another disagreement with his analysis lies in my being much more of an optimist. I (and apparently David Brooks) think that recent times have seen a great increase in prosperity without a great increase in wealth.
For example, I receive better news coverage now (internet + 1 magazine) than I did in my parent's house in the 90's with 2 newspapers and 3 news magazines. The cost of the internet (or the portion i use for getting news) is somewhat lower than their subscriptions were, while the benefit I receive has gone up significantly.
To sum up, Cowen's arguments are compelling and different enough (and his book is short and cheap enough) that I would recommend it to anyone interested in recent economic history and how to measure and define productivity.
One example of his central thesis, is that while The Railroad/Highways/Air freight (as inventions) will level out the price of things throughout an area and create a lot of jobs, Craigslist/Ebay/Amazon (as inventions) have the same effect, but don't create many jobs. Cowen does a good job of exploring and explaining how this distinction lies behind the slow median income growth in the last 30 years, and the persisting unemployment of our current downturn.
He phrases this difference as one in amount of innovation, where I'd simply say the difference is in type of innovation.
Another disagreement with his analysis lies in my being much more of an optimist. I (and apparently David Brooks) think that recent times have seen a great increase in prosperity without a great increase in wealth.
For example, I receive better news coverage now (internet + 1 magazine) than I did in my parent's house in the 90's with 2 newspapers and 3 news magazines. The cost of the internet (or the portion i use for getting news) is somewhat lower than their subscriptions were, while the benefit I receive has gone up significantly.
To sum up, Cowen's arguments are compelling and different enough (and his book is short and cheap enough) that I would recommend it to anyone interested in recent economic history and how to measure and define productivity.
June 12, 2011
In this essay the economist Tyler Cowen advances an enlightening conjecture on the reasons for the ongoing troubles of the US economy. He argues that there are two sources for widespread economic growth. To him one source is the development of new technologies and the attempt to solve hard social and scientific problems. As a second source he identifies economic growth based on the widespread adoption of new technologies and solutions of formerly hard problems. For Cowen the US, and probably in extensio the West, has spent the last century caching in the dividends of technological and social revolutions of the late 19th century. He calls this process “eating the low-hanging fruit”. Nothing wrong with that except that this source of economic growth over time yields increasingly low results and the ongoing allocation of ressources to these low-hanging fruits keeps a society from working on the hard problems. To Cowen this is the reason for the current economic stagnation in the US. The solution: "Raise the social status of scientists." Which sounds about right to me, since who wants to live in a world run by glorified accountants and process optimizers?
To me, the most interesting argument was the chapter in which Cowen focuses on innovations brought on by the internet. He argues that the internet, while bringing its innovations to an ever increasing number of users, has not created significant revenue for society as a whole since most of its services are brought to the users for free. Also he points out that the most successful internet companies employ comparably few people. For Cowen this is one of the reasons for the “jobless recovery”.
This book advances a very interesting argument and offers an original perspective on how to think about innovation and economic growth.
To me, the most interesting argument was the chapter in which Cowen focuses on innovations brought on by the internet. He argues that the internet, while bringing its innovations to an ever increasing number of users, has not created significant revenue for society as a whole since most of its services are brought to the users for free. Also he points out that the most successful internet companies employ comparably few people. For Cowen this is one of the reasons for the “jobless recovery”.
This book advances a very interesting argument and offers an original perspective on how to think about innovation and economic growth.
September 9, 2011
You may not agree with much of what Cowen has to say, or even with his (depressing) main theme, but I found this book stimulating and often refreshing.
Cowen is an economist at George Mason University, and the main message in this e-book is that the progress of America and the rest of the developed world in the past century or so has been driven largely by "low hanging fruit" that has now disappeared -- cheap and abundant land, new technologies that revolutionized our economies and increased income and wealth, and tons of skilled, ambitious immigrants who increased their educational progress in leaps and bounds.
Sadly, he predicts, it may be decades before we see that kind of growth again (thus the title), and, in his largely libertarian perspective, government is not the answer, nor is untrammeled capitalism and its tilt toward high finance. What he does believe in is the need to truly boost the stature and social prominence of scientists, because only through that lies the possibility of a new dawn and breakthrough technologies that will provide the next economic renaissance. It's an intriguing theory, and I especially enjoyed his pungent views on the Internet, which he loves, but which he acknowledges has not done much to generate wealth or economic activity that is meaningful for most citizens.
Well worth the read.
April 13, 2020
Cowen argues that the "low-hanging fruits" of innovation have largely been picked already – railroads, electricity, and modern plumbing were greater and wider-ranging improvements to human life than any technological development since then, including the Internet. He offers some economic literature to support this, including a study that suggests that rates of innovation peaked in the late 1800s. (A related paper that Cowen does not cite, but which is equally relevant, is Robert Gordon's "Is US Economic Growth Over?")
Perhaps betraying some libertarian leanings, he argues that market distortions in government, education, and healthcare have inflated GDP (and consequently, productivity) figures, suggesting a greater sense of prosperity than in reality. Cowen notes that neither the political left (which call for redistributive policies) nor the political right (which champion tax cuts) of today are willing to acknowledge the fundamental problems of slowed growth, faltering innovation, and institutional decay.
Perhaps betraying some libertarian leanings, he argues that market distortions in government, education, and healthcare have inflated GDP (and consequently, productivity) figures, suggesting a greater sense of prosperity than in reality. Cowen notes that neither the political left (which call for redistributive policies) nor the political right (which champion tax cuts) of today are willing to acknowledge the fundamental problems of slowed growth, faltering innovation, and institutional decay.
July 4, 2022
Cowen provides a pretty convincing argument about the causes of economic slowdown and the possibility of a pick up again in the future. Economic growth happens because of the generation and application of ideas, and how well these ideas diffuse throughout society. If I think up a brilliant, more efficient method for planting crops or building cars but keep it a secret or no one else adopts it then the economic impact it will have is negligible. But once a technological innovation has spread out in a society and brought with it increased productivity, the gains to growth will eventually diminish.
The way to bring growth back is to introduce new really new technologies and have them diffuse throughout society again. What is called capitalism (or what Deirdre McCloskey likes to call "innovism") is particularly good at this, when it has the right societal factors in place. Some of these societal factors are economic/political institutions like the respect of private property rights. Others are cultural, how the people in a society's attitudes and beliefs inform their behaviors and choices. Cowen points out the ways in which these have benefitted us in the past and how they are failing us now. He also points out where/why we are falling short in his view. Many of the innovations we have seen have been in financial assets or on the internet. Financial money moving and lending doesn't necessarily translate to increased real wealth, like housing market growth that occurs through lending money to people who can't really afford the loans. The internet also isn't a place to look to for truly life changing changes, at least not yet. It has been great for "infovores" but it hasn't really brought about a great increase in "real wealth."
In a lot of ways we aren't as rich as we think. Cowen points to how government spending has increased as a percentage of GDP and how that contributes to the calculation of GDP, but that completely ignores how much good the spending actually does. If the government constructs revolutionary new high speed transportation between manufacturing and economic centers in the country then it could greatly increase real world productivity by allowing these two locations to interact with fewer costs in transportation. Doing so would cost them some amount of money. If they were to instead spend the same amount of money connecting Martinsburg, West Virginia and Mobile, Alabama, the actual gains it would produce would be much, much lower in regards to real wealth. But, Cowen laments, the spending gets marked towards GDP all the same. For a much worse use of the money we still trick ourselves into thinking we're are richer than we really are. The same goes for the amount of money being lent to play in the housing market, and the advertisements placed on the internet (to some extent). That being said the internet does create some amount of joy in people that GDP doesn't capture.
Cowen points out something very obvious in hindsight that really puts a dent in a standard leftist argument (one I used to believe) that the 50s had high marginal tax rates and high growth so there has to be some connection. Really what was happening was productivity was growing thanks to massive advancements and diffusion from technology and this led to economic growth. This growth enabled the spread of government spending and high taxation, the government spending had little to do with it. The idea in many people's minds that the government has done/can do things like this leads Cowen to believe part of our problem is the fact that people expect too much from their government (which I don't necessarily agree with, many Americans are perennially suspicious of all government no matter what), and that this is part of the problem. Americans have been doing so well historically because of low-hanging fruit that is all used up. "Easy" innovations/discoveries, free and open land, population growth, all added to growth and really didn't take much effort, at least compared to now.
Tyler tries to identify good and bad trends and gives suggestions for how to push us further along the good trend track. He points to the growth of China and India as innovators and consumers as a good sign for us and for growth. He also says we should elevate the social status of scientists, not just with awards from the White House but society as a whole. He says that this is a point that Ayn Rand (ew) got right, that we should praise creatives and people who innovate in society (true, but still, ew). I think this is certainly true and definitely desirable (of course this is in no way affected by the fact that I hope to be a scientist in society :) ).
Overall, I mostly agree with what is said here. It is reasonable and well argued. I think Tyler is off the mark in how he assigns blame for the Great Recession (he is much too willing to point assign partial blame to people who wanted to buys houses when it was out of their means, which granted, isn't something we should enable. If people really don't have the money to support a financial loan then they definitely shouldn't get the loan. But at the end of the day it's the banks that gave that loan and they certainly should have done more to verify incomes. Simply because a market/demand existed to get access to houses doesn't mean people with the means should just willy-nilly hand money out to people knowing that can't repay the loans). That being said innovation is what let us grow and it is innovation that will let us do so again. Tyler thinks that we will see the return of high growth rates at some point, and he points to sectors like biotechnology as providing the drive for it. I don't have a strong belief one way or the other yet about what will cause the productivity/economic growth to pick back up, or even on whether or not it will, but I certainly agree with Tyler that it is technology that has been the historical drive for growth and that it is something we should strive for again.
The way to bring growth back is to introduce new really new technologies and have them diffuse throughout society again. What is called capitalism (or what Deirdre McCloskey likes to call "innovism") is particularly good at this, when it has the right societal factors in place. Some of these societal factors are economic/political institutions like the respect of private property rights. Others are cultural, how the people in a society's attitudes and beliefs inform their behaviors and choices. Cowen points out the ways in which these have benefitted us in the past and how they are failing us now. He also points out where/why we are falling short in his view. Many of the innovations we have seen have been in financial assets or on the internet. Financial money moving and lending doesn't necessarily translate to increased real wealth, like housing market growth that occurs through lending money to people who can't really afford the loans. The internet also isn't a place to look to for truly life changing changes, at least not yet. It has been great for "infovores" but it hasn't really brought about a great increase in "real wealth."
In a lot of ways we aren't as rich as we think. Cowen points to how government spending has increased as a percentage of GDP and how that contributes to the calculation of GDP, but that completely ignores how much good the spending actually does. If the government constructs revolutionary new high speed transportation between manufacturing and economic centers in the country then it could greatly increase real world productivity by allowing these two locations to interact with fewer costs in transportation. Doing so would cost them some amount of money. If they were to instead spend the same amount of money connecting Martinsburg, West Virginia and Mobile, Alabama, the actual gains it would produce would be much, much lower in regards to real wealth. But, Cowen laments, the spending gets marked towards GDP all the same. For a much worse use of the money we still trick ourselves into thinking we're are richer than we really are. The same goes for the amount of money being lent to play in the housing market, and the advertisements placed on the internet (to some extent). That being said the internet does create some amount of joy in people that GDP doesn't capture.
Cowen points out something very obvious in hindsight that really puts a dent in a standard leftist argument (one I used to believe) that the 50s had high marginal tax rates and high growth so there has to be some connection. Really what was happening was productivity was growing thanks to massive advancements and diffusion from technology and this led to economic growth. This growth enabled the spread of government spending and high taxation, the government spending had little to do with it. The idea in many people's minds that the government has done/can do things like this leads Cowen to believe part of our problem is the fact that people expect too much from their government (which I don't necessarily agree with, many Americans are perennially suspicious of all government no matter what), and that this is part of the problem. Americans have been doing so well historically because of low-hanging fruit that is all used up. "Easy" innovations/discoveries, free and open land, population growth, all added to growth and really didn't take much effort, at least compared to now.
Tyler tries to identify good and bad trends and gives suggestions for how to push us further along the good trend track. He points to the growth of China and India as innovators and consumers as a good sign for us and for growth. He also says we should elevate the social status of scientists, not just with awards from the White House but society as a whole. He says that this is a point that Ayn Rand (ew) got right, that we should praise creatives and people who innovate in society (true, but still, ew). I think this is certainly true and definitely desirable (of course this is in no way affected by the fact that I hope to be a scientist in society :) ).
Overall, I mostly agree with what is said here. It is reasonable and well argued. I think Tyler is off the mark in how he assigns blame for the Great Recession (he is much too willing to point assign partial blame to people who wanted to buys houses when it was out of their means, which granted, isn't something we should enable. If people really don't have the money to support a financial loan then they definitely shouldn't get the loan. But at the end of the day it's the banks that gave that loan and they certainly should have done more to verify incomes. Simply because a market/demand existed to get access to houses doesn't mean people with the means should just willy-nilly hand money out to people knowing that can't repay the loans). That being said innovation is what let us grow and it is innovation that will let us do so again. Tyler thinks that we will see the return of high growth rates at some point, and he points to sectors like biotechnology as providing the drive for it. I don't have a strong belief one way or the other yet about what will cause the productivity/economic growth to pick back up, or even on whether or not it will, but I certainly agree with Tyler that it is technology that has been the historical drive for growth and that it is something we should strive for again.
May 16, 2015
An interesting counterpoint to some of the things I believe. Cowen basically claims that we've reached a technological plateau. I don't really buy his argument because he bases his entire train of thought on the premise that "Our grandparents saw the invention of airplanes and refrigerators! We just have the internet and smartphones..." Um. Ok. If Cowen doesn't think that the internet and smartphones have revolutionized our society, then I'm at a loss. He does admit that they've made entertainment a lot cheaper, but he fails to recognize the entrepreneurial possibilities they enable. A good read that made me think and kept me on my toes, but I think that his argument is fundamentally flawed. I'd recommend reading "Lights in the Tunnel" by Martin Ford for an alternative view of the future
December 17, 2011
Considering how often we hear about the immense innovation happening on the Internet, it is jarring to read a book which argues that this innovation is largely useless from an economic perspective. But this short book (which is damn cheap for Kindles!) makes a strong argument that the American economy isn't going back to where it was before 2008 without some fundamental changes that aren't going to come around as a result of fiscal or monetary policy. The strong economic era of the recent past, argues Cowen, was us burning through borrowed time. And the flavor of innovation that brought us Facebook and Foursquare isn't going to cut it.
September 22, 2011
Very quick read, which offers several reasons why high economic growth in the U.S. has limits, and an economic cooling off period is to be expected. I liked the fact that, unlike many Republicans who will say a decline in U.S. GNP is the fault of the Democrats / Obama, or unlike many Democrats who will say the same about the Republican / Bush policies, Cowen takes the politics out of it, and just offers reasons which are for the most part, attributable to a number of causes outside the spectrum of politics.
February 25, 2016
Fascinating quick read about the causes of the recent recession and the apparent (or not) stagnation.
Cowen's main thesis - that we "ate" all the low hanging fruit - is probably right and a bit depressing. What lies ahead of us is a general slowdown, but we probably shouldn't despair - it's just a phase, even if it may take a while to end (and you can thank the "free-ness" of the internet for that).
Cowen's main thesis - that we "ate" all the low hanging fruit - is probably right and a bit depressing. What lies ahead of us is a general slowdown, but we probably shouldn't despair - it's just a phase, even if it may take a while to end (and you can thank the "free-ness" of the internet for that).
December 31, 2019
Technically speaking, Tyler argues for expanding the potential output of the US economy as the only effective solution to enjoy higher growth rates as all the low-hanging fruits for growth have been consumed. However, he fails to offer any systematic or constructive antidotes to this malaise of slow economic growth in the US.
January 27, 2012
This is a breezy book about the recent economic decline in the West. It is long on analogies and short on data and models.
February 10, 2021
Interesting premise, but fails to organize it in a cohesive and solid manner. An article on the New York Times would have sufficed.
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