David R. Henderson  

Henderson on Cowen's Great Stagnation

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My review of Tyler Cowen's e-book, "The Great Stagnation," is now out in Regulation. It's titled "Tyler Cowen's Unpersuasive Case." In it, I challenge each of Tyler's 3 factors that he claims are behind the great stagnation and show that one of them is, in fact, a piece of low-hanging fruit in front of his nose. An excerpt:

Cowen's third factor in the disappearance of low-hanging fruit is the high percentage of people who attend college. I found this factor more persuasive. He points out that in 1900, only 6.4 percent of high-school-aged Americans graduated from high school. That number peaked in the late 1960s at 80 percent, he notes, and has fallen to about 74 percent more recently. Also, in 1900, only one quarter of one percent of Americans went to college, whereas 40 percent of people aged 18 to 24 are in college today. In other words, there is not much room for improvement in educational attainment and, as he notes, the marginal college student today "cannot write a clear sentence, perhaps cannot read well, and cannot perform all the functions of basic arithmetic."
This suggests a huge piece of low-hanging fruit right in front of his nose: the number of people going to college. Cut that number dramatically and many of the "marginal students" would get jobs doing something productive -- as plumbers, as electricians, or in any of a number of occupations that do not require a college degree. I say this not as a central planner who wishes to decree who shall attend college and who shall not, but as a defender of people's right to use their income and wealth as they see fit rather than being forced to subsidize the education of others. Cut that subsidy to zero and cut taxes accordingly, and you would increase the after-tax income of many people, including the median family, and substantially reduce the number of marginal college students. If a marginal student still wants to go to college and he or his family or someone else he persuades wants to pay for it, then let him.
But rather than advocating cutting back on the number of students attending college, Cowen advocates more. "Educating these students is possible, it is desirable, and we should do more of it," he writes, even though the returns from doing so are "highly uncertain." When I teach economics, I teach my students that when the marginal cost of something exceeds the marginal benefit, we should cut back on the activity, not increase it. What does Cowen teach?

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COMMENTS (5 to date)
David Friedman writes:

Persuasive piece (the whole article). Has Bryan posted a rebuttal yet?

I'm particularly struck by your point that it's the rate of innovation, not the rate of innovation per capita, that matters, and would be interested to see if he has any defense of the measure he chose. One of the advantages of larger populations is that they can increase the total rate of innovation.

And the other biggie is the contrast between median family income and per capita income. You don't say so, but the obvious implication is either increasing inequality or increasing family size--and none of Bryan's explanations (from your review--I haven't read the book) explain either.

David R. Henderson writes:

@David Friedman,
Thanks, David. You mean Tyler, not Bryan.

Leo writes:

It seems so

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Nathan Smith writes:

Of course I don't blame you for not mentioning immigration (you can't really be faulted for too *little* open borders advocacy, and you don't want to sound like a broken record) but that's one piece of obvious low-hanging fruit.

Another important point: even according to the Solow model, savings can raise the level of GDP. I think the Solow model understates this by assuming away the benefits of further division of labor. Further division of labor is beneficial, and capital, by augmenting labor, can facilitate it. Now, the Social Security program is designed to suppress savings, and therefore, capital accumulation. It takes away your money when you're young, gives you money when you're old. Therefore there's less reason to save. Privatizing Social Security would raise the steady state level of GDP according to the Solow model; according to other models, e.g., the one I'm about to finish a dissertation about, it would raise the trend rate of GDP.

In short, the Great Stagnation is a function of bad policy choices.

It would be more useful to raise the social prestige of entrepreneurs than of scientists.

Andrew Mueller writes:

I often see the idea that the marginal college student could drop out and become plumbers, electricians, etc. unconvincing. The marginal college student is nowhere near competent enough to perform well at jobs like this.

Your average junior college dropout is not the equal of your everyday plumber; he's more like your everyday ditch digger with softer hands and worse life skills.

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