Bryan Caplan  

The Wisdom of Steve Miller

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Pete Boettke on Cowen's The Great Stagnation:
The Great Stagnation is a condemnation of government growth over the 20th century.  It was made possible only by the amazing technological progress of the late 19th and early 20th century.  But as the rate of technological innovation slowed, the costs of government growth became more evident. The problem, however, is that so many have gotten used to the economics of illusion that they cannot stand the reality staring them in the face.
My co-author Steve Miller replies:
The problem with TGS is that Tyler really is saying that Schumpeterian growth especially has slowed down. And it hasn't. I understand the libertarian interpretation of his argument. It would be ideologically convenient to say that growth in the size and scope of government has led to stagnation. The problem is it hasn't, because there is no stagnation. There's a counterfactual argument to be made that innovation would have been even greater without a government that consumes roughly a third of GDP. That's fine, but the word stagnation is completely misleading. Economic pessimism is wrong even when libertarian economists are preaching it.
I largely agree with Steve the Wise, of course.  My one quibble is that there is reasonable evidence in favor of a Slight Stagnation.  Herb Stein supposedly quipped that "There is nothing wrong with supply-side economics that division by ten wouldn't fix."  I'm tempted to make an analogous concession to The Great Stagnation, but reflections on CPI bias and consumption-biased technological change stay my hand.
 

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COMMENTS (4 to date)
Steve Horwitz writes:

I'll just repeat what I said at CP in response to Steve's comment: "What Steve Miller said."

I think this is exactly right.

AK writes:

It seems like there are a lot of criticisms of Cowen of the sort, "Hey, look at all this cool technology. There's no stagnation."

But aside from Cowen's poorly chosen title, it doesn't really address his arguments.

Evan writes:
and consumption-biased technological change stay my hand.
I totally agree with this. My consumption has vastly grown in the past few years, and all it's cost me is a high-speed internet connection. Of course, this makes the libertarian critique Boettke makes still fairly sound. A lot of the Internet is a gift economy, so it can't be taxed. By transferring growth from sales to gifts, the growing sectors of the economy are much harder to tax than before.
Eelco Hoogendoorn writes:

I think its a stretch to call the referenced stagnation 'slight'. A reduction of more than half a procent in long term growth makes all the difference in covering up the hubris in government offloading of costs on the future voter, or running hard into the walls drawn up by 'slightly' off extrapolations made decades ago.

And there is no reason to believe this stagnation is anywhere near over. There is nothing like the next steam-engine around the corner (and no, the volt is not the next steamengine; just the steamengine 4.37b). We reaped the lowhanging fruit of lowering the costs of transport such as to integrate the world into one economy. We lowered the cost of sharing information to the point that we are now broadcasting all our toilet visits into the world on twitter. Those are real and tremendous advantages, but aside from an incremental improvement here and there, whats next?

Unless biotech takes off with serious applications in the near future, i expect the developed nations to struggle to hold on to their wealth, rather than bounce back to vindicate the exponential extrapolations that have passed so well for wisdom for the past generations.

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