Bryan Caplan  

Lindsey on the Great Slight Stagnation

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I haven't read Tyler's much-discussed e-book, but he defended the main theses over a few lunches.  My prediction: When I get around to reading the book, my reaction to the numbers will mimic Brink Lindsey's:

Tyler correctly points out that median family income rose smartly after World War II only to fall off sharply in the '70s... Between 1950 and 1973, the average annual growth rate of real GDP per capita was 2.5%; for the period between 1973 and 2007, the corresponding figure was only 1.9%

But look what happens when you put these figures in larger historical context (note: I'm using calculations by Angus Maddison for earlier periods and Census figures for post-WWII periods):

1820 - 1870            1.3%

1870 - 1913            1.8%

1913 - 1950            1.6%

1950 - 1973            2.5%

1973 2007              1.9%

From this broader perspective, what Tyler calls the Great Stagnation looks like a return to normalcy after the "Great Boom" of the post-WWII decades. Indeed, recent growth rates are better than those of all other earlier periods. So yes, growth has cooled down since the postwar "Golden Age," and that fact poses real economic and political challenges. But the Golden Age was the outlier, not our present era; it just doesn't make sense to talk about the present period as stagnant after centuries of easy growth.

On a deeper level, I'm baffled why Tyler would focus on slight declines in American growth when the world just had the best decade ever.  Finding dark linings in silver clouds is work for lesser men.

HT: Tyler himself


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COMMENTS (6 to date)
volatility bounded writes:

kaplan "On a deeper level, I'm baffled why Tyler would focus on slight declines in American growth when the world just had the best decade ever. Finding dark linings in silver clouds is work for lesser men."

Because the US cares about maximizing its own growth in absolute terms and also relative to the rest of the world. In fact, the US may care more about maximizing in relative terms, even if it reduces US growth in relative terms.

Tyler Cowen writes:

At the *median* -- the typical family (and also the median voter, arguably) -- the slowdown in income growth is striking, not slight. See the book.

volatility bounded writes:

It is common knowledge that median worker income has stagnated since 1980, and at even higher income levels since 2000.

And it is worse than Tyler says. The numbers are far worse if you look at median worker, and not median household. Since 1970, household income was helped by sending wives to work. It isn't an apples to apples comparison if you compare a single earner household to a two earner household.

And now that granny's a greeter at wallmart and the kids are working part-time after school, and the joe six pack can't borrow against his house, no more low hanging fruit.

John V writes:

"Today, about 75 percent of women 25 to 54 years old are either working or actively seeking a job, up from around 40 percent in the late 1950's. That expansion helped fuel economic growth for decades.

But the previous trend flattened in the early 1990's. And since 2000, the participation rate for women has declined somewhat; it remains far below the 90 percent rate for men in the same age range."

From:

http://www.nytimes.com/2006/03/02/business/02work.html

You'll see elsewhere that the percentage of women in the workforce started growing well before 1973. And keep in mind that over the same period, the percentage of men working aged 55-64 has declined.

I don't deny that women generally work more now than in 1973...let alone 1950. However, this idea is normally exaggerated somewhat when discussion of the "Two-Income-Household of Today vs. The-One-Income-Household of 1970s" argument comes up. Yes, women work more now...but it's not like married women didn't work in 1973. They just do so more now. But the number didn't start from near zero.

Lord writes:

I don't disagree that this may be a return to mean, but it is then a lower mean and we aren't making as much progress as we hoped. Nor is there any doubt the world, ie emerging markets, are doing much better. The more interesting question is whether this improvement comes at the expense of that of the developed or as an eventual spur to it and why they can't both prosper at the same time though developed progress is usually more difficult.

Steve Roth writes:

Here's a question: why have we never had the meteoric growth we have seen, and are now seeing, elsewhere? Catch-up, probably.

I guess we should look forward to China pulling ahead of us so we can cadge their technology, management expertise, etc. and see some really hot growth.

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