Time to buy a Kindle...

Not just because I've been droning on and on about them, but to read "The Great Stagnation" by Tyler Cowen. It is only available in e-book form. I've followed his jaw-droppingly prolific and thoughtful econblog for years, and this short e-book captures many assertions he has made with clarity and solid supportive argument.

Basically the thrust of the book is America has captured all the "low-hanging fruit" - culture changing technology and business innovations like the cars, electricity, antibiotics, etc. that had the effect of lifting the whole economy regardless of income level. Progress (and especially income growth) from now on will be much more incremental and he is not at all sure it will trickle down far beyond the top layers.

Most well-off countries have experienced income growth slowdowns since the early 1970s, so it would seem that a single cause is transcending national borders: the reaching of a technological plateau. The numbers suggest that for almost 40 years, we’ve had near-universal dissemination of the major innovations stemming from the Industrial Revolution, many of which combined efficient machines with potent fossil fuels. Today, no huge improvement for the automobile or airplane is in sight, and the major struggle is to limit their pollution, not to vastly improve their capabilities.

Although America produces plenty of innovations, most are not geared toward significantly raising the average standard of living. It seems that we are coming up with ideas that benefit relatively small numbers of people, compared with the broad-based advances of earlier decades, when the modern world was put into place. If pre-1973 growth rates had continued, for example, median family income in the United States would now be more than $90,000, as opposed to its current range of around $50,000.

Will the Internet usher in a new economic growth explosion? Quite possibly, but it hasn’t delivered very good macroeconomic performance over the last decade. Many of the Internet’s gains are fun — games, chat rooms, Twitter streams — rather than vast sources of revenue, and when there have been measurable monetary gains, they often have been concentrated among a small number of company founders, as with, say, Facebook. As for users, the Internet has benefited the well-educated and the curious to a disproportionate degree, but apparently not enough to bolster median income.

Beyond the income slowdown, there is a further worry: an increasing share of the economy consists of education and health care. That trend is not necessarily bad, but in these two areas, results are often hard to measure. If health care costs rise 6 percent in a year, for example, that counts as higher G.D.P., but how much is our health actually improving? It’s an open question. America spends more on health care than other countries, but those expenditures don’t seem to produce uniformly superior results. And while there have certainly been gains in medical treatment, we may be overvaluing them. In education, we are spending more each year, but test scores have stagnated for decades, graduation rates are down and America’s worst schools are disasters.[More of his op-ed that summarizes the book]

There is plenty of fodder for discussions and the e-book has triggered an avalanche of response, the ones I thought best I include below. 

3. How do we get more value out of our health care and education dollars? This is where a lot of our money is going, and it's also where advances could do the most good. Unfortunately, the current trend is toward rapid growth in costs and, at best, stagnation in quality. If health care comes to consume 25 percent of our economy and we're not living substantially longer or healthier lives than we are today, that'll be a lot of growth we wasted. And growth we waste is little better than growth we don't have. But education and health care are firmly part of the political argument, and the political argument is becoming less and less focused on solutions and more and more about acting out resentments and anxieties and arguing about things we know how to argue about. In the health-care sector, for instance, we spend a lot of time talking about insurers and very little time talking about how to coordinate care for the chronically ill. Given what we want out of the system -- lower costs and more health -- that's downright backwards. In education, we talk often about unions but rarely about poverty or early-childhood programs. [More]

This above point by Ezra matches my greatest concern about our economic future: we will become a culture dominated by universities and hospitals, and we are already hurtling toward it, as factory workers re-train for visiting home care jobs.

One great virtue of Cowen’s account is that he brings into the picture several overlooked trends that have played a large role in America’s historical economic ascent. Once accounted for, the more politically-motivated accounts of the country’s economic performance of the last 40 years are revealed to be incomplete at best (in the case of conservatives) or cartoonish at worst (in the case of Krugman). By upending the standard narratives that describe where the nation has been and where it’s headed, the book will influence your sense of the politically and economically possible.

Of course, there’s something deeply upsetting about his story, since it suggests there’s not much that can be done about some problems the nation faces: if the low-hanging fruit is gone, slower growth and lower rates of innovation are likely inevitable. And when Cowen says we simply must accept that as a nation “we thought we were richer than we were,” that’s tough for any optimistic American to hear. [More]

We are already rewriting history in our heads to imagine the past as free from many of the problems that plague us today, but the truth as Tyler points out, is probably closer to the explanation we simply didn't pay close enough attention to economic symptoms we now obsess over, such as median income going flat.

Going forward, Tyler raises several important questions. How do we encourage technological progress? How do we manage slow growth? And if and when we get a new round of technological breakthroughs, how do we manage those? These are his suggestions:

• Raise the social status of scientists
• Be part of the solution to the current rancor, not part of the problem. Don’t demonize those you disagree with.
• Have realistic expectations.
• Be ready for when more low-hanging fruit actually arrives because sometimes low-hanging fruit is dangerous
• Be prepared for a recession that could last longer than we are used to.
  

Let me comment on two of these. First, the point about raising the social status of scientists. In his state of the union address, President Obama made a big deal about innovation. But he did not highlight a single current scientist. Instead, he featured two brothers, Robert and Gary Allen, who own a Michigan roofing company. Good politics–but perhaps not the right message to kids.
Second, don’t demonize those you disagree with. The point Tyler is making that politics becomes a lot harder in a slow-growth economy, where expectations have to be ratcheted down. The center has a real purpose. [More]

On that note, I will stop quoting the many, many available commentaries. It is a good idea to resurrect a center. Not the center the right thinks we have now moved to, but one that is supported by solid research of what Americans truly value and what they are willing to trade to get it. I am encouraged moderates will once again become the action figures of the future as the extremes simply have no answers for Tyler's questions.

After considerable thought, I have begun to wonder is our tiny sector is immune from the stagnation. After all, we are seeing record incomes. But as he points out, this rise is only enjoyed by fewer and fewer of us. Even as a relatively fertile age of ag innovation helps to keep our output relatively low-priced, benefiting everyone else, it is also a powerful tool for concentration of farm income.

The problem with comparing our profession with other economic activities is this disconnect between macro statistics and individual well-being. In fact, we will likely see that the upcoming years of plenty will be enjoyed a very, very small number of farmers. Technology is, as Tyler says, labor-displacing.