Arnold Kling  

The Great Stagnation, Chapter One

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I will review Tyler Cowen's new Kindle single one chapter at a time.

My father always said that the first iron law of social science is, "Sometimes it's this way, and sometimes it's that way." In other words, beware of people arguing absolute propositions in social science. In that regard, Cowen's opening chapter is something to beware of. He is arguing like a lawyer, piling on evidence (some of it quite dubious) for one side, rather than offering a balanced point of view. I will explain below.

Cowen's thesis, as you probably know by now, is that as a society we have picked the "low-hanging fruit" that support economic growth, and now we are in the middle of a period of slow growth. I think it is important to keep in mind that this point of view is likely to enjoy a better reception than it deserves. Bryan Caplan's list of the four biases that non-economists have relative to economists includes "pessimistic bias," and Cowen is, either consciously or otherwise, playing to that. Anyway, Cowen writes,


apart from the seemingly magical internet, life in broad material terms isn't so different from what it was in 1953.

Really? In 1953, you had a much bigger chance of being stranded on the road with a broken-down car, and if you were stranded you had no phone. And if you were far from home and needed to have your car repaired, how could you get money to pay for it? You did not have a credit card, and there was no ATM to get cash. I guess you went down to Western Union to get money wired to you.

Medical care: many ailments would have been misdiagnosed or treated incorrectly--ulcers, hypertension, high cholesterol. If you were susceptible to depression, you could have gone for treatment with electric shock.

If you went back to 1895, gave a clerical worker or factory worker or health care worker the Rip Van Winkle treatment, and then woke them up in 1953, how hard would it be to train them to work with the then-current technology? Try the same thing going from 1953 to today, and I think it would be at least as hard.

Above all, I think that work has become optional for many more people than was the case in 1953. The most important way in which growth has been mis-measured by GDP is that it fails to capture the increase in leisure (including much better quality and quantity of life after 65) as well as the more pleasant work environments that many people enjoy.

Cowen writes,


In contrast to earlier in the twentieth century, who today is the marginal student thrown into the college environment? It is someone who cannot write a clear English sentence, perhaps cannot read well, and cannot perform all the functions of basic arithmetic.

This assertion, which I believe is valid, is a two-sentence refutation of the notion that more assistance for college education will solve the problem of slow growth of median incomes in the United States.

By the same token, however, taking a global perspective, there are people around the world who never before could have contributed to a knowledge-based economy and who are doing so. Look at median incomes in the world as a whole, and the news over recent decades is good. The distribution of incomes within the U.S. may be going one way, but the distribution of world income may be going another.

Cowen's claim is that once the "low-hanging fruit" of universal basic education has been picked, it is much harder to get to the higher fruit of universal college education. On that point, I would have to agree. However, I have more hope that if we reduced credentialization then those who are not suited for a college education could find decent employment.

Later, Cowen writes,


it was easier for the average person to produce an important innovation in the nineteenth century than in the twentieth century...innovation was easier and it could be done by amateurs.

I do not think that innovation is a process that is driven by "aha!" moments. Even if the rate at which those moments are occurring is declining in some sense, I doubt that this is a critical issue. I think of innovation as a process that depends on culture and institutions, which determine the way that innovations are filtered and diffused.

Still later, Cowen writes,


Recent and current innovation is more geared to private goods than to public goods.

I regret his use of the loaded expressions "private goods" and "public goods." A more neutral way of making the point would be to talk about the percentage of innovation captured by the innovator, which historically has been estimated to be really low. Of course, the older the innovation (the wheel, fire, the plow), the more of its benefits are likely to have been captured by later generations.

I will concede that recent financial innovations have yielded benefits that were captured largely by financial institutions. In fact, after you account for the benefits that went to Wall Street, the amount enjoyed by everyone else might be negative. If you think that is inherent in the process of financial innovation, then you may want to try to put some sand in the gears of the financial innovation process. If you think, as I do, that financial innovation is only bad when it serves the purpose of regulatory arbitrage, then your concern is more with making regulatory arbitrage less lucrative.

Overall, I recommend approaching The Great Staganation with skepticism. I remember the early 1970's as a great time to argue that we were running out of resources. Now may seem like a great time to argue for secular stagnation. Ten years from now, it may not seem that way at all.



TRACKBACKS (1 to date)
TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/4564
The author at Eli Dourado in a related article titled Winning the Stagnant Future writes:
    I’m tempted to do a serious review of Tyler’s book, but I’m happy to outsource most of my comments to Arnold Kling. Instead, I’ll just make one brief point about the validity of the various numbers used to justify claims of stag... [Tracked on January 27, 2011 3:01 PM]
COMMENTS (27 to date)
Tyler Cowen writes:

You are not, however, considering the single most important piece of evidence and that is the income statistics themselves.

Pat writes:

Tyler,

The single most important piece of evidence showing that life isn't broad material terms isn't so different from what it was in 1953 is (sic) income statistics?

Hmmm.

Pat

Pat writes:

Sorry - bad typo

Meant to ask, "The single most important piece of evidence showing that life in broad material terms isn't so different from what it was in 1953 is (sic) income statistics?"

Guy in the veal calf office writes:
Recent and current innovation is more geared to private goods than to public goods.

How can anyone possibly know this? How can anyone know (1) all the current innovation that is not yet popular and (2) what all those individual pieces of innovation will be good for? When the Internet was invented, how could anyone have possibly know about what followed? Better, when the wine press was invented do you think anyone imagined the role of cheap books?

fructose writes:
If you were susceptible to depression, you could have gone for treatment with electric shock.

I'm inclined to agree with your point, but this quote is actually counter-evidence, since electroconvulsive therapy is actually effective for depression, and SSRIs actually are not.

Chris T writes:

You are not, however, considering the single most important piece of evidence and that is the income statistics themselves.

This is only true for the United States; global income growth was the highest in at least 50 years during the 2000's. Rather odd to focus on one country's economy as an indicator of technological progress which knows no borders.

http://www.economist.com/node/10852462

Thomas DeMeo writes:

As an economy becomes more complex, more and more opportunities will present themselves that aren't the result of some huge singular leap forward in technology, but are rather made up of combinations of less spectacular technologies which are coordinated to produce big improvements. They are tougher to bring to market because the coordination issues can take years or decades to work out.

For example, we will soon be able to pay for things with our phones. This won't be based on any one earth shattering technology, but it will require aligning a number of current technologies with cooperation across a number of separate business entities.

Coordination and cooperation is just harder than singular innovation, but thats where more and more of the opportunity is.

Ak Mike writes:

Prof. Cowen is obviously correct that innovation has slowed down, but that's been going on for a while. For any period between the present and the beginning of the nineteenth century or earlier, change and innovation was greater in the first half than in the second. Thus change from 1811 - 1911 was greater than from 1911-today. Change from 1931-1971 was greater than from 1971-today, etc.

I would ascribe this slowdown, not to using up low-hanging fruit, but to the increasing sclerosis of over-regulation and over-organization, which in turn is one of the unfortunate consequences of what is in other ways a good thing, namely our remarkable social stability. The barnacles are getting quite thick.

hsearles writes:

If the income stays the same, but the goods that the income buys changes then I must conclude that income statistics are a bad measurement of well-bring. I may make the same amount as I would in the 'fifties, but I also have an x-box and a flatscreen tv. Admitting that I do not know exactly what I would have had five decades ago, I nonetheless prefer my current bundle of goods to the bundle of goods I would have had in the 'fifties. Does that valuation not mean anything or is it just income statistics that determine my wellbeing?

Chris T writes:

Prof. Cowen is obviously correct that innovation has slowed down, but that's been going on for a while.

Except that it's not obvious. Even the income data (whether that is even a good metric is questionable) he uses is only true for the United States. Global data shows the complete opposite. Even in the United States, an indicator one would expect to be more directly associated with technology - productivity - has been at historical highs over the last fifteen years, particularly in manufacturing.

Observational evidence seems to consist of using an incorrect conception of technology and a failure to properly estimate the times involved.

(I will concede the perceptual change was probably much greater. This is due more to those living at the time lacking a historical reference frame for significant change.)

Yancey Ward writes:

The income statistics themselves are, at best, a very imperfect measure of true income. Really, this sounds like a case of don't believe your own lying eyes, believe this number that we have created and don't really grasp how to adjust to the ever changing basket of goods that are not only available, but widely adopted.

Silas Barta writes:

Sounds like an interesting book. I'd probably download it if I could get it for free like one of the reviewers who are giving it publicity right on schedule.

Ak Mike writes:

Chris, I think you have it backwards. Productivity data is at its most reliable when it measures production of the same kinds of goods. When a worker switches from turning out $100 worth of buggy whips per day to $100 worth of radios, what's the measured increase in productivity?

Those living today perceive the current historically small changes as significant, because they lack an appropriate reference frame. Maybe you think that the Internet, robotic machine tool advances and the iPhone are a big deal because you didn't live through 1880-1920 when electricity, lighting, telephones, movies, sound recording, radios, automobiles and airplanes were developed.

Larry Glenn writes:

Anyone taking a long view of history will see that innovation on this planet is expanding exponentially. I think it pompous and didactic to think otherwise!

Phil Rothman writes:

I agree with Larry Glenn's comment. What kind of glasses is Tyler Cowen wearing to help observe and analyze technological changes past and present?

NoneChuck writes:

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Chris T writes:

Ak - National productivity measures don't much care what's being produced, just the aggregate value of it. In manufacturing, United States industrial output has doubled even while the number of people employed fell by 7 million since 1980 (most of it since 2000). The only explanation is technology.

When a worker switches from turning out $100 worth of buggy whips per day to $100 worth of radios, what's the measured increase in productivity?

Zero, the value of the goods produced hasn't changed.

Maybe you think that the Internet, robotic machine tool advances and the iPhone are a big deal because you didn't live through 1880-1920 when electricity, lighting, telephones, movies, sound recording, radios, automobiles and airplanes were developed.

Electricity was first described as a separate phenomenon in 1600. The first generator appeared until 1830 and the first large-scale transmission network was set up in 1882. So electricity took 280 years of constant study and development before it was practical for general use (specific applications, such as the telegraph, showed up earlier).

The first filament was developed in 1800, the bulb was patented in 1841, and the bulb finally became economically practical in 1882.

The telephone came out of earlier experiments with the electrical transmission of sound.

Each of these along with sound recording, movies, radio, the airplane, and car each came out of a long line of innovation lasting centuries. The 1880-1920 time period is simply when they became economically practical. There were no big innovative jumps, all required decades or even centuries of development across multiple fields.

Henry writes:

"as a society we have picked the "low-hanging fruit" that support economic growth, and now we are in the middle of a period of slow growth."

Different approach - we grew fast after WW2 when we had no world economic competitors and had great material and financial surpluses.

As a matter of bouyancy and equilibrium, as 2nd and 3rd world populations increase their standard of living, 1st world standard of living decrease in relative terms. This is as natural as two adjacent bodies of water seeking equilibrium.

In parallel, while countries like China achieve and apply surpluses to spur economic growth, we struggle to achieve surpluses.

How can you have economic growth without surpluses and investment?

MernaMoose writes:

as a society we have picked the "low-hanging fruit" that support economic growth, and now we are in the middle of a period of slow growth

Let's frame it properly: this is Tyler Cowen's conjecture. There is a long, long road to travel before it is shown to have any particular validity to it. As Arnold correctly indicates in his introduction.

As someone who works in R&D and "technological innovation", I don't see evidence for this conjecture. My conjecture (based on two decades working hands-on in R&D) is, that reality is just the opposite.

I have read a fair bit on the history of science and technology and it only seems like it was low hanging fruit in retrospect. To say "technological slow-down" is the root of our current economic condition is a dubious proposition at best.

I have heard a thousand variations on the same old Malthusian theme. I'm still waiting to see one of them proven true.

I've also heard this "science just isn't advancing much anymore" idea come from none other than, scientists themselves. Almost invariably, scientists who feel that they, their very own important selves, are not getting enough funding.

But if you want to get your ideas funded there are things you have to be willing to do, and entrepreneurial skills you have to develop. I'd posit that if anything, we've spawned an entire generation of lazy scientists who are unwilling (or unable? too dumb, even?) to learn and develop the requisite skills.

In today's world, Santa Claus will not leave R&D checks for you under the Christmas Tree.

The idea that it was ever any different in the past is a great myth. But in fact, I find it overall easier to run down funding for genuinely worthwhile ideas, than it was two decades ago.

If you're willing to put the sales pitch together and go spend the time doing the sales job.

Derek Scruggs writes:

Your counterexamples strike me as high hanging fruit. While you are more likely to be stuck by the side of the road in 1953 the absolute likelihood was still very small. It's not as if roads in 1953 were overrun by stranded cars and hitchhikers. If technological progress has lowered the number of stranded cars you see in a given day to zero, what is the absolute improvement? I'll wager less than 1% of total vehicles on the road.

The same is true of many medical ailments you cite. There may haves been more heart attacks per capita in 1953 but the more relevant metric is that in 1953 the vast, vast majority of people had no reason to visit a hospital.

Compare this to the development of the automobile. Compared to 1895, by 1953 huge swaths of the population had made this new invention the central organizing premise of their daily lives (i.e. the suburbs). Even more so as the interstate system grew, but even by 1953 I believe Chicago had opened the Edens Expressway.

Even today, when so many more people can telecommute, most people still cluster in suburbs. There has not been a mass migration to, say, the Cayman Islands.

Another place to look might be food production and distribution. The heaviest lifting (or low hanging fruit) in terms of basic nutrition was done prior to 1970. Since that time our biggest concern has been overconsumption (obesity).

Tracy W writes:

but the more relevant metric is that in 1953 the vast, vast majority of people had no reason to visit a hospital

Is this true? Novels of the time are full of people visiting hospitals. Of course a lot more things happened in hospital (eg babies being born), and the time spent being taken care of in hospital was longer for more minor things.

Offsetting that of course is things like severe brain injuries that almost certainly weren't survivable in the 1950s now being survived and resulting in months of hospital care and rehabilitation. But, having had to visit my brother regularly in the brain injury ward, I'd prefer that to the option of visiting a cemetery. (Especially as eventually he got out, and went travelling to South America).

On the "organising principle of their lives" - I lost my mobile phone once a few years ago for a couple of days, and that was my social life totally disrupted. I know that I managed to meet people for coffee or lunch without a cellphone, but I don't know how I did it.

As for food production and distribution - in my lifetime I've seen the expansion of sushi, Indonesian, microwaves, a far wider range of fruit and vegetables, and of course Hubbards' muselis.

fundamentalist writes:

In 2004 the WSJ ran an article on the American dream in 1954. The dream house had 1,200 sq ft, no A/C, one bath, no carpet and a one-car garage (because families owned just one car). The exterior was painted and required constant repainting. Today the dream home is 2,000 sq ft, central heat and air, two baths, carpet or wood floors, two-car garage (for our two cars) and brick exterior.

I think the slowdown has resulted more from a shift to services vs manufacturing. As Americans become wealthier we spend more of our money on education, healthcare and leisure activities (as noted in a recent column by Dr. Kling here). Increases in productivity in all of those areas is much more difficult than in manufacturing or technology. For example, how do you improve the productivity of an orchestra? Well, you can record their music and sell the recordings, or you can broadcast them, but that was done almost a century ago already. Not much more you can do.

Roger writes:

In the 19th century a popular topic was "Progress." A hundred and fifty years later it is clear that if there is such a thing (and certainly there is if properly defined) that it depends upon the values of those affected.

Stagnation is no different. Progress, Regress and Stagnation depend upon the values, goals or milestones of those evaluating the trend.

If one's goal is an increase in per capita GDP, then perhaps Prof. Cohen makes a case. That has certainly never been my goal, nor really the goal of anyone I've ever met.

I absolutely can't imagine being stuck in the 50's. My mixed racial family would have us ostracized, I would be unable to affordably get to the beach to surf, I would be unable to play virtual reality on-line video games, my home theater would be a 12 inch joke and viewing would be limited to 3 miserable channels. My interest in painting would be limited to stinky, messy oils rather than convenient acrylics. Medical care would be archaic. I would be unable to do research using the internet. I have no idea how I would manage my investment portfolio. And on, and on...

Professor Cohen's suggested goals don't reflect mine at all. He sees stagnation while I see wondrous advance. (Though in fairness I have not read the book, though I follow his blog.)

Tracy W writes:

As Americans become wealthier we spend more of our money on education, healthcare and leisure activities (as noted in a recent column by Dr. Kling here). Increases in productivity in all of those areas is much more difficult than in manufacturing or technology

The healthcare assertion strikes me as unbelievable - what, penicillin, keyhole surgery, anaesthesia, didn't increase productivity? How about that scene in Star Trek where Dr McCoy gives a woman a pill and her kidney is instantly cured?

Leisure activities - Internet, heated swimming pools, cheap airplane flights, e-books, new music (eg jazz, rock-and-roll, rap, hip-hop), mobile smartphones, video games, Skype, etc.

Education productivity? How about carving skis for skiing, computer feedback for skills like typing, word pronunciation, maths problems. I think the reason we haven't seen much productivity in teaching is that people haven't been rigorous about quality-assessment, rather than a lack of raw potential.

That said, it's notorious in the sciences that what was cutting-edge techniques only mastered by experts are 20 years later being taught to graduate students as a matter of course.

For example, how do you improve the productivity of an orchestra? Well, you can record their music and sell the recordings, or you can broadcast them, but that was done almost a century ago already. Not much more you can do.

Compose new pieces. Cheaper travel to spread innovations and quality teaching more quickly. Combine with film for a whole new experience (most obviously Fantasia). Improve acoustics of the hall. Reduce needed practice time, or maintain and improve the average quality of each performance.

Dan H. writes:

To say that we're running out of 'low hanging fruit' is just not true. Scientific knowledge isn't just increasing - it's increasing exponentially.

I can point at a number of recent breakthroughs in science that are just coming into commercial feasibility, but which could have drastic effects on our productivity and standard of living:

- Nanotechnology promises to revolutionize materials science. We're just now starting to see the first nanotech products coming to market - stain resistant clothing, for example. But in the future, nanotech could change everything.

- Mapping the genome. Genetic engineering and diagnostics are now moving into mainstream medicine, and there are a number of potentially life-altering research paths ongoing.

- Battery technology. Lithium-Ion and Lithium-Polymer batteries have only been available for the mass market in safe, packaged form for a few years now, but they have already enabled a revolution in personal computing, micromechanical devices, and electric cars. We wouldn't have iPhones and iPads without them. Battery technology is still advancing, and with every advance hundreds of new, previously impractical technologies are becoming possible.

- Moore's law. It's still going. The computing power we will have ten years from now will be astounding. New applications and opportunities are opening all the time as computing power improves.

- Network Connectivity. The Internet is the single biggest lifestyle-improving and productivity enhancing technology I've seen in my own lifetime. The next generation internet will be fast enough to give us all full-time, real-time, high definition connections to each other.

-3D printing. We can now upload blueprints for complex mechanical devices to 3D printers, and have them generate those devices. I've seen and heard a flute that was made in one step in a 3D printer - it includes moving valves, gaskets, and materials of different consistency, all produced in one shot by a 3D printer. As the price of these printers comes down and their capability goes up, they could change the world.

As I'm typing this, I realize that I could go on for pages. There is no dearth of innovation or opportunity. Quite the opposite, in fact. It's never been easier to become a writer, or a software developer, or (soon) a custom machinist. Inventors have access to virtual supply chains through the internet. Single individuals can build virtual factories this way. Worldwide shipping is cheaper than it's ever been. New markets are opening all over the world.

Whatever the cause of the stagnation of the income in the west, it's not because of a lack of technology. Technologically, it's raining soup. You just need to grab a bucket.

matt j writes:

It seems a lot of the reviewers of the review have not read the book. Even Arnold seems to miss the obvious. Yes cars, phones and the rest are more prevalant and of higher quality now than in 1953 but what is new? GPS? We had that, called a map. DVR? Kindle? Internet? Just twists on our entertainment choices. A refrigerator greatly increased the economy of food. Telegraphs shortened our world tremendously, Facebook only a percentage increase over what was there.

Simplulo writes:

Which is stronger, Tyler Cowen's Stagnation or Vernor Vinge's Singularity? I think the latter:
http://singularity.org
What's dragging the US down now are the sorts of un-libertarian forces that Mercatus and Cato usually fight against.

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