Saturday, February 12, 2011;
At $4 and the length of two New Yorker articles, Tyler Cowen's 15,000-word ebook "The Great Stagnation" is well worth the time and money.
The basic thesis of the book is that advanced economies are slowing down because the pace of innovation is slowing down. It's because in the 20th century, we benefited from, in Cowen's words, a lot of "low-hanging fruit" before, and that fruit is picked.
You can only move your smartest people from the farm to the school system once, after all. As for China and India? Glad you asked. They're mostly picking the same fruit we've picked - and grown - over the past century, bringing electricity and schooling and modern medicine and management techniques to people who never had them before.
Cowen's characterization of plumbing, fossil fuels, public education systems, penicillin and so forth as "low-hanging fruit" bugs me a bit. It took humans quite a while to figure all that out. But he is right to say that once discovered, those innovations produced extremely high returns. From the economy's perspective, the difference between having cars and not having cars is a lot larger than the difference between having cars and having slightly better cars. A 1992 Honda Accord and a 2010 Honda Accord aren't the same, but they're pretty close.
The obvious rejoinder to this is, "What about the Internet?" The problem, as Cowen points out, is that the Internet is not yet employing many people or creating much growth. We needed a lot of people to build cars. We don't need many people to program Facebook. It's possible, Cowen thinks, that the Internet is just a different type of innovation, at least so far as its ripples in the labor market are concerned.
Maybe the Internet needs some time to come into its growth-accelerating own. Or maybe it is going to be an odd innovation in that its gains to human knowledge and enjoyment and well-being will serve to demonstrate that GDP and even median wage growth are insufficient proxies for living standards. Either way, we're still left with a problem: Stagnant wages are a bad thing even if Wikipedia is a big deal.
The major contribution of Cowen's book is to focus our attention on an explanation for our economic woes that's not now central to the debate. I don't think the book has enough data to say how central the declining pace of innovation is to our economy. But there's more than enough to suggest it's a factor.
- Ezra Klein
The Great Stagnation:
How America Ate All the Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better
by Tyler Cowen
Penguin eSpecial, $3.99