David R. Henderson  

Tyler Cowen Versus My Co-Bloggers

CPI Bias Deja Vu... Good Ol' Day Time Machine...

Yesterday, my co-bloggers, Arnold Kling and Bryan Caplan posted critical comments on Tyler Cowen's "Great Stagnation" thesis. Tyler replied as a commenter to both.

Tyler insisted to Arnold that he is being misunderstood. The growth in economic well-being for the median family, argues Tyler, has not ended; rather, growth has declined. The median family is better off today than 30+ years ago, says Tyler, but the increase in well-being is less than in the previous period of the same length.

First, let me say, because some of these niceties are sometimes missed in the blogosphere, that I like and respect all three gentlemen, and I don't use the word "gentlemen" the way cops sometimes do when they talk about suspected perps. My Encyclopedia wouldn't be nearly as good as it is had not Tyler not gone above and beyond in his role on the Board of Advisors. Arnold has doggedly pursued truth on this blog all these many years, and it wouldn't have existed without Arnold. And Bryan has insight after insight, both in his academic work and in his blogging. To take one instance, he has increasingly radicalized me on the issue of immigration.

Second, I think a lot of these differences could have been avoided had not Tyler titled his piece "The Great Stagnation." What do you think of when you read that something that has stagnated? Do you think it has grown, gotten better, improved? I don't. Economist Steve Horwitz, in a comment on Bryan's post, writes:

The language of "stagnation" suggests that it is about the first derivative. To stagnate is to STOP growing, not to grow more slowly. FWIW, Dictionary.com has the third definition of "stagnation" as:

"to stop developing, growing, progressing, or advancing"

That's the point. Tyler seems to want to communicate two contradictory ideas. In the actual piece, he argues that the growth in well-being is positive but less than it had been. Fine. I won't be surprised if, when I actually figure out how to use my Kindle, and I buy his mini-book, he actually persuades me of that. I won't be surprised if he doesn't persuade me either. [I'll briefly note the irony that I, who have not yet learned how to use my Kindle, am arguing that the incredible advance in electronic technology has made people's lives much better.] But Tyler's title communicates something different. So, by the way, does his subtitle. It's "How America Ate All The Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better." Got sick? Really? That makes it sound worse than the great stagnation. That makes it sound like the great regression.

In his post, Bryan gave Tyler an out. Bryan wrote:

Of course, Tyler might say that his thought experiment works for 1900 versus 2000, but not 1973 versus 2010.

This was the thought experiment in which you have the same number of nominal $ to spend and you're trying to decide to spend it on items in the 1900 catalogue or the 2000 catalogue. Tyler would have spent it on items in the 2000 catalogue.

But Tyler surprised me. He didn't take the out. Instead he changed the subject. He wrote, as a commenter:

Michael Stack is exactly right. Furthermore it is more than strange for Bryan to think that the earlier era, with the federal government at less than five percent of gdp, and open borders, did not have much higher growth for the typical family! You are the one caught in a contradiction, not I.

But those are not mutually exclusive propositions. Bryan could well be caught in a contradiction, although I don't think he is. The concept of ceteris paribus enters here. I have no doubt that Bryan would say--I certainly would--that we would be even better off with open borders and a government spending less than 5% of GDP. But even he is caught in a contradiction, what does that have to do with whether his criticism of Tyler is right?

I would still like to know Tyler's answer on choosing between spending a given number of nominal $ on items in the 1973 catalogue vs. spending on items in the 2000 catalogue. Even better would be 1973 vs. 2010.

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CATEGORIES: Growth: Consequences

COMMENTS (12 to date)
Tyler Cowen writes:

I see the correct comparison as between, say spending in 1917 vs. 1957 catalogs and spending in 1957 vs. 1997 catalogs, to choose two equal forty-year periods, tweak it if you wish. Which is a more obvious choice? One can debate the absolute merits of the later catalogs while sticking firm on this key comparative point, as I would wish to do.

I didn't mean to avoid "taking the out" (if I understand you properly), but I wanted to add something to what is in the book rather than just repeat what is in the book. It wasn't obvious to me from Bryan's post that he has in fact read the book.

Tyler Cowen writes:

By the way, on the title, "The Great Stagnation" was a known phrase which predates my book, see for instance http://www.ft.com/cms/s/2/1a8a5cb2-9ab2-11df-87e6-00144feab49a.html#axzz1D5gAYNVM or many other sources. It refers to the phenomena I describe in the book.

David R. Henderson writes:

@Tyler Cowen,
I checked the link in your second comment. As you know, I haven't read your book either, but I did read the article you cite above. The article refers to a great stagnation in the sense Horwitz and I use it: an actual leveling to zero growth, not a decline in the growth rate to a lower positive number. I never doubted that people had used the term. But you're using the term differently. In the actual content of your book, if I understand it correctly, you're using the term to mean slow growth rather than no growth. That's a pretty big difference.

A. writes:

It is a pretty awful subtitle, even if it did accurately portray the argument.

If Tyler is arguing that growth has merely slowed, couldn't he still choose the modern catalog and not contradict himself?

Hugh writes:

Does the rise of consumer debt give us some insight?

If things were getting so much better why did people load up on debt? Were they just crazy or were they trying to offset a fall in perceived living standards?

Tyler Cowen writes:

David, it is in the cited FT article (and in other sources, except perhaps Wolff) a lower positive number, not zero. That's what people mean by "the great stagnation." Most people who write on this admit that some important things, other than the number, have gotten much better. That is simply the term and while other terms such as "Industrial Revolution" have lots of simplifications, in general we go with established usage.

David R. Henderson writes:

@A. asks:
"If Tyler is arguing that growth has merely slowed, couldn't he still choose the modern catalog and not contradict himself?"
Yes. And as Tyler said in his first comment above, you would show more progress from 1917 to 1957 than from 1957 to 1997. That's not what's at issue in my post. Here's the issue: If you would rather have $50K in nominal $ and spend it on the 1997 catalog items vs. the 1957 catalog items, then Bryan's point applies. That says we've had net deflation. So although the growth rate of real income may have slowed, it has slowed from a gallop to a slightly slower gallop. Not generally what we mean by stagnation.
I read the article again. Every example they give is of someone who, at least, feels worse off. And to the extent the article examines aggregate data, it reports data where real income has fallen. And it never defines "great stagnation." Tell me the sentence or paragraph I'm missing.

ed writes:

By talking about items in a "catalog," you may introducing confusion. I don't know if you mean to limit your question to manufactured goods, but that is what is typically sold in catalogs. But manufactured goods have gotten much cheaper relative to other goods (Baumol effect).

I'm sure I would rather have $10K to spend on a house in 1957 than today, and housing takes up a larger share of my consumption than all manufactured goods put together. I'd choose 1957 to buy tickets to a symphony performance or Broadway musical. I might choose 1957 as well for $10K worth of college education, certainly if I was studying something like math or literature. (On the other hand, there is no way I'd choose 1957 for most types of health care.)

Also, I'm not entirely sure that the 1957 person would be so eager for the goods and opportunities in our day. Some of this could be a function of what we have gotten used to.

c141nav writes:

John Mauldin uses the phrase "the muddle through economy."

He is previewing Chapter 4 of his new book for free. You can find more here...


Joe Kristan writes:

I've read Tyler's book, enjoyed it, but still lean towards the EconLoggers in this argument. One data point: I can watch this great argument among four brilliant men play out on a computer(!) in Des Moines, at my convenience, while other very smart people from everywhere can add their comments. How much time and money would this have cost somebody in 1957?

Elvin writes:

I think Tyler learned something from Amy Chua. Sensationalize an issue and sell a lot of books.

Overall, I think Tyler has a lot of valid points. In particular, median household income growth is lower. But to argue an era with the personal computers, cell phone, and internet has produced low productivity growth is pretty sloppy. Tyler likes to compare the kitchen, but I'd ask him to compare the office. I'll adjust dates a little bit, but the office of 1957 is closer to the office of 1907 than the office of 2007. I'd say the biggest change in the first 50 year period was the telephone, better typewriters, and some companies buying a mainframe computer. In the second, we had fax machines, BlackBerrries printers, e-mail, internet, and interconnected computers.

Robert Chow writes:

I have no problem with the title "The Great Stagnation" (TGS). I think the title it appropriately captures people are feeling about the economic prospects for the US.

What I disagree with is Mr. Cowen's premise that the slowing of the pace of technological innovation is to blame for the slowing in the growth of median incomes since the 1970s. The pace of technological innovation has in fact accelerated since the 1970s. This is all too apparent if one reads Clay Christensen's "Innovator's Dilemma" and "Disruptive Technologies". Those of us living today can count many more products and technologies that have become obsolete during our lifetime as compared to someone living a century ago. The cycle of technological innovation is accelerating, not slowing. What has changed is that the nature and characteristics of more recent technological innovations, particularly those in computing and information technology. Such characteristics include:

Reduction of Market Inefficiencies. The Internet and other developments in IT technology have helped make markets for goods and services tremendously more efficient. Now businesses and consumers need not be geographically limited in their search for goods and services. The result of such innovation is to push jobs outside the US as businesses and consumers seek lower price goods and services produced outside the US. This then results in the growth incomes for the producers outside the US and the decline in jobs and income for workers here in the US.

Automation. Recent advancements in automation have resulted in tremendous replacement of human workers with machines. This is all too apparent even for the average consumer who now no longer needs to interact with a bank teller (ATMs) or cashier (self checkout). The replacement of human jobs with machines has occurred throughout the entire production chain, from the factory to the distribution and retail channels. Simple supply and demand will tell you that as businesses need less workers, then they need offer less income to fill those positions.

Concentration of Wealth. As Mr. Cowen himself noted in TGS, the financial services sector has aggressively embraced IT innovations and used such innovations to concentrate wealth amongst those already wealthy and redistribution of more wealth and income to a smaller group.

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