Tuesday, April 26, 2011

The Great Stagnation: How America Ate All the Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better, by Tyler Cowen--Review

Penguin Group/Dutton, ISBN 9781101502242, February 2011

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. 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.


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

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