The Great Stagnation: How America Ate All the Low-Hanging Fruit of Modern History, Got Sick, and Will [Eventually] Feel Better

If you have time to read only 70 odd-pages today and yet you want to understand what lies at the root of the seemingly endless (and often frustrating) debate of re-distributionists vs fiscal conservatives in United States, you must read this lucid book written in the kind of accessible language that Tyler Cowen prefers on his marvelous blog 'Marginal Revolution' (which I must admit I have followed for years). Tyler, one the sharpest heterodox thinkers of our times postulates that the United States has entered a period of 'Great Stagnation' since the 1970s, wherein despite superficial and marginal improvements in living standards, wide-ranging availability of free/cheap online pleasure and accessibility to information on the internet- show more technological progress has largely plateaued because the national economy has already picked the 'low hanging fruits' to their fullest, and as a consequence median incomes remain stagnant. He further clarifies that the fiscal-stimulus driven minimal growth that has accompanied the post-financial crisis recovery has also largely been 'jobless' and the country is looking toward a future where the most dynamic sectors of its economy are employing historically minuscule numbers of people (i.e digital companies) while at the same time the sectors of the US economy where government spending is increasing the most are displaying worse-than expected levels of productivity/ return on investment. If any of you follow Eric Weinstein's Portal you would know that what Tyler is essentially articulating in this book is what Weinstein calls the EGO (Embedded Growth Obligations) of institutions that were designed and premised to function in a world where growth is endless, and so is technological progress. Every line of this book is a cold hard wake-up call for an obsolete gamut of politics that surrounds the kind of wishful thinking surrounding 'economic growth'. show less

Very rarely do I read an essay where I agree so strongly with the overall premise, yet disagree so strongly with so many of the supporting arguments. Cowen is a fairly libertarian economist best-known for his blog, but even though I'm much more liberal than he is I still keep up with him just because he's one of the more intellectually ecumenical economists out there, and one of the few who seems truly comfortable with the rapidly changing technological landscape we live in (indeed, this extended essay is being published Kindle-only - try to imagine John Nash or Joe Stiglitz doing that!) There's a lot packed in this short work, and I feel bad oversimplifying, but the basic premise is that America has reached a point where the steady show more year-after-year increase in living standards that we've become accustomed to is obsolete - in other words, the second derivative of GDP might be getting close to zero or even negative from here on out. Looking at the past decade you'll find a great deal to support his thesis: skyrocketing tuition costs and medical expenses, literally no net gain in jobs since the end of the Clinton administration, the worst decade ever for the Dow, soaring inequality, important societal institutions increasingly devoted to bubble-chasing... it's tough to argue with that stuff.

Last year I read a really interesting book by Joseph Tainter called the Collapse of Complex Societies whose basic argument was that societies are problem-solving systems, and eventually a society will get too complex (read: use too many resources) to be sustainable, and eventually collapse. The marginal benefit of adding more problem-solvers decreases over time and eventually turns negative, and society has no choice but to keep growing ever-faster or simply disintegrate a la the Romans or the Mayans. While very abstract, and seemingly refuted by most of American history, I think the overall argument fits neatly with the very recent story Cowen presents here, of a country which has run out of low-hanging fruit to pluck (not only has the rate of innovation slowed, new innovations are simply harder to get to) and must now work harder just to stay full, let alone collect a surplus. I do disagree with many of the specific examples he picks, though: the Affordable Care Act was not that large relative to total health spending, and even if it was a big marginal cost for the health care system, which it wasn't, surely it was a large marginal gain for the people affected?

Additionally, during his discussion of how the Internet creates a lot of consumer surplus without necessarily creating wealth, when I read that Facebook or Twitter is worth billions without actually employing many people or directly adding much value to the economy, I don't think "wow, the economy has certainly changed", I think "man, this reminds me of the dotcom bubble". It's perfectly possible for new businesses to replace old ones without employing many people (in fact, performing the same service for a lower cost is almost the definition of progress), but something about social media companies in particular makes it seem unlikely that they're the foundation of a new, more prosperous future. I also think his dismissal of Paul Krugman's calls for a revival of New Deal institutions (see Krugman's excellent The Conscience of a Liberal) are taking Mancur Olson's warnings about special interests a bit too far and relying too much on Brink Lindsey's flawed defenses of skill-biased technological change as the main driver of inequality. His jabs at the Recovery Act are too flip and not supported by data, marring an otherwise great section on the financial crisis and its aftermath. However, the final chapter on how to approach potential solutions to this slowdown challenge is great, if somewhat devoid of specifics, and ultimately, like I said, many of my disagreements could be worked into the book without altering his overall point. Rarely do you see a work so small with so many big ideas in it. show less

If you have time to read only 70 odd-pages today and yet you want to understand what lies at the root of the seemingly endless (and often frustrating) debate of re-distributionists vs fiscal conservatives in United States, you must read this lucid book written in the kind of accessible language that Tyler Cowen prefers on his marvelous blog 'Marginal Revolution' (which I must admit I have followed for years). Tyler, one the sharpest heterodox thinkers of our times postulates that the United States has entered a period of 'Great Stagnation' since the 1970s, wherein despite superficial and marginal improvements in living standards, wide-ranging availability of free/cheap online pleasure and accessibility to information on the internet- show more technological progress has largely plateaued because the national economy has already picked the 'low hanging fruits' to their fullest, and as a consequence median incomes remain stagnant. He further clarifies that the fiscal-stimulus driven minimal growth that has accompanied the post-financial crisis recovery has also largely been 'jobless' and the country is looking toward a future where the most dynamic sectors of its economy are employing historically minuscule numbers of people (i.e digital companies) while at the same time the sectors of the US economy where government spending is increasing the most are displaying worse-than expected levels of productivity/ return on investment. If any of you follow Eric Weinstein's Portal you would know that what Tyler is essentially articulating in this book is what Weinstein calls the EGO (Embedded Growth Obligations) of institutions that were designed and premised to function in a world where growth is endless, and so is technological progress. Every line of this book is a cold hard wake-up call for an obsolete gamut of politics that surrounds the kind of wishful thinking surrounding 'economic growth'. show less

If you have time to read only 70 odd-pages today and yet you want to understand what lies at the root of the seemingly endless (and often frustrating) debate of re-distributionists vs fiscal conservatives in United States, you must read this lucid book written in the kind of accessible language that Tyler Cowen prefers on his marvelous blog 'Marginal Revolution' (which I must admit I have followed for years). Tyler, one the sharpest heterodox thinkers of our times postulates that the United States has entered a period of 'Great Stagnation' since the 1970s, wherein despite superficial and marginal improvements in living standards, wide-ranging availability of free/cheap online pleasure and accessibility to information on the internet- show more technological progress has largely plateaued because the national economy has already picked the 'low hanging fruits' to their fullest, and as a consequence median incomes remain stagnant. He further clarifies that the fiscal-stimulus driven minimal growth that has accompanied the post-financial crisis recovery has also largely been 'jobless' and the country is looking toward a future where the most dynamic sectors of its economy are employing historically minuscule numbers of people (i.e digital companies) while at the same time the sectors of the US economy where government spending is increasing the most are displaying worse-than expected levels of productivity/ return on investment. If any of you follow Eric Weinstein's Portal you would know that what Tyler is essentially articulating in this book is what Weinstein calls the EGO (Embedded Growth Obligations) of institutions that were designed and premised to function in a world where growth is endless, and so is technological progress. Every line of this book is a cold hard wake-up call for an obsolete gamut of politics that surrounds the kind of wishful thinking surrounding 'economic growth'. show less

Concise but brilliant, this book is a great bird's-eye-view of the state of modern American society and economy. Cowen's contention is that much of the country's problems stem from a single cause: a technological slowdown in which the easy "low-hanging fruit" has been plucked, leaving new gains generally expensive and costly. The big exception is the Internet, but Cowen notes that its benefits A) haven't produced much actual money, in the grand scheme, and B) accrue chiefly to a small subset of society, the educated cognitive elite of knowledge workers. Still, Cowen finds hope at the end — we're already doing many things right, and adjusting to his "great stagnation" may be largely a matter of lowering our expectations.

My chief show more concern with this book is that it strongly reinforces my existing biases and preconceptions, which makes me skeptical. Is it really brilliant, or do I just think that way because I already agreed with it? show less

Tyler Cowen's The Great Stagnation was the conversation-leader at the beginning of the year. Everyone read it, wrote columns about it, or blogged about it. Pundits still refer to it and debate it quite often. If I were assigning a book for students or faculty or policy makers to read and discuss, this would be at the top of the list.

Cowen's hypothesis is that much of the U.S.'s growth in the last 200 years has been by picking the "low-hanging" fruit:
1. As U.S. expanded westward, it acquired more resources ("free land").
2. Women and minorities gained acceptance and entered the workforce. Uneducated populace became more educated in 20th century.
3. There were gains in technology that had positive externalities.

#1 and #2 have basically show more peaked. We've also seen declines in high school graduation rates since the 1960s. So, we appear to have pretty much gotten the benefit of increased labor force participation and society-wide education. #3 just isn't happening like it did during the Industrial Revolution. Cowen argues that while the internet makes us more productive, it doesn't get us the GDP growth we expect. Facebook, Twitter, Apple, etc. are putting out great innovations, but these aren't creating many jobs or income (GDP). One could argue that iPods have destroyed as many jobs as they have created. Cowen is libertarian-slanted, so he doesn't gripe about this-- he's simply pointing out that if we're expecting a high rate of GDP growth we're setting ourselves up for huge disappointment.

"Life is better and we have more stuff, but the pace of change has slowed down compared to what people saw two or three generations ago."

So, Cowen notes that we're consuming less and focused more on emotional, spiritual happiness. The internet makes us very happy very cheaply, which means when we lose our jobs or lose income, we may be slightly more content and accepting of that. Median wages have stagnated.

The funny thing is, getting away from materialism on such a large scale—whatever the virtues of that switch—really, really hurts. It is the hurt that we in America are living right now.



Why it matters:
If the government expects GDP to grow at a 4% rate over the next 50 years in making its calculations about how much tax revenue it will has to spend, and instead we get something like 1% growth, interest rates will go up and we'll have overbuilt various sectors. Retirees won't see their stock portfolios grow like they'd like and may have retired too early.

Cowen makes the empirical point:

"The larger the role of government in the economy, the more the published figures for GDP growth are overstating improvements in our living standard...For better or worse, we used a lot of this new low-hanging fruit to build big government. Big government was one of the final creations from these new technologies."

We're all going to be disappointed. Cowen points to Japan's two "lost decades" as an example of a wealthy country managing economic stagnation without coming apart at the seams, and suggests we learn from Japan's example. Yikes!

Cowen uses his Stagnation hypothesis to explain the recent financial crises and recession. Everyone expected much greater GDP growth than was possible, and so they overinvested. Sooner or later, this causes a crash. Even now, people are expecting more GDP growth than what is possible, and this is causing frustration with an inevitable "jobless recovery," The Great Stagnation explains why the last few economic recoveries were "jobless."

Cowen's prescriptions:
1. End protectionis policies and allow gains from trade to happen:

"If fewer Americans make cheap plastic toys, maybe more Americans can search for technological breakthroughs or in some broader way contribute to that enterprise."

2. Have a societal shift away from idolizing sports and entertainment stars and idolizing scientists instead. If it becomes "cool" to be a scientist, we'll get more of them and more technologies invented. I agree with this, and this thought has affected my behavior heavily in the last 5-6 years.

I give this book 5 stars. Everyone read it for a reason. Kindle Singles are great things. show less

This is a long essay about what Tyler Cowen considers to be the real roots of our current economic and political frustrations: a stagnation in technological advances that started around 1970. This sounds counter-intuitive, but Cowen makes a good case for his approach.

Up until that point, America always had a great deal of what Cowen refers to as "low-hanging fruit": first, and for a very long time, land so abundant it was practically free. Europeans could come to America, stake their claim, work hard, and be substantially better off than they'd been in Europe. Next, the enormous technological advances of the 19th and first half of the 20th century--steam engines, trains, the telegraph, electricity, the telephone, the car, the airplane. show more Thirdly, large numbers of smart, uneducated people who could be educated and add tremendously to productivity. Technological advances and the expansion of education continued to make huge differences in the lives of nearly everyone, raising the standard of living and the available wealth dramatically in each generation.

But by the late sixties, there were fewer opportunities to continue making those dramatic advances. Most Americans are now being educated, and the gains to be made are incremental gains amongst the most challenged learners--students with language barriers, or learning disabilities, or who are from families that are economically disadvantaged, or broken or disrupted in ways that make the parents less available or less able to give the students a stable basis. Overcoming those obstacles and educating these students is important and will benefit the economy as a whole as well as the individuals affected--but not nearly as dramatically as previous, more general advances in education. Technology also has had mostly incremental gains--better cars or better planes, medical gains now concentrated in care for the elderly and other marginal-gain areas. We'll all be glad for those advances when we are old, and they're important, but, again, not making dramatic changes in most people's everyday lives. There's no room for the dramatic advances in medicine and hygiene that took place through the first half of the 20th century.

Moreover, the largest parts of our economy now are government expenditures, medicine, and education, and two of the three should be very dynamic parts of our modern economy. They are, unfortunately, areas where real value, quality, and productivity are hard to measure effectively, and the market forces that control food prices or electronics prices simply aren't effective because of this.

As a result of all these trends, we have slow or stagnant growth, and a political system hampered by the frustrations of a population that is barely keeping even rather than experiencing the steadily rising standard of living of their parents and grandparents.

The one exception to this general picture of technological stagnation is the internet. Cowen discusses with great enthusiasm the advances connected to the internet, the ways in which they have dramatically changed and enhanced the lives of much of the population. By way of the internet, for the cost of a connection and the minor cost of electricity, we have access to information, education, entertainment, and contacts and friendships all over the world. It gives us access to opportunities to be happier, smarter, more fulfilled, without expenses we can't afford in the midst of our Great Stagnation.

And that in turn means that, while easing the pain of the economic slowdown, the internet also paradoxically makes it worse, because we're not spending the money to generate the more externally productive economic activity that's a vital part of reviving the economy.

All this sounds pretty grim, but in fact Cowen sees real prospects for a path out of our stagnation, for the creation of new "low-hanging fruit" that will make possible a return to dynamic growth, development, and human progress. If you have political opinions at all, whatever they are, you will disagree with some of what he says, but this is an essay grounded in fact and reality. Even if you don't in the end agree with Cowen's approach to a solution, you'll find yourself challenged to think by his discussion and analysis.

Recommended.

I received a free electronic galley from the publisher via NetGalley. show less