Converse's Reviews > The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better
by Tyler Cowen
Cowen, an economist at George Mason University, diagnoses the cause of our current political and economic discontents as due to slow economic growth. He says this slow down started in the early 1970s. He believes the root problem is a slowing down in technical innovation, which results in a lower increase in economic productivity, which in turn causes slower growth. Some of this slow down in technical innovation was probably inevitable, as for example a greater proportion of the population receives secondary schooling the benefits of educating another person probably decrease. Unfortunately, he notes, that in some respects high school and college completion rates are probably a bit lower now than in the 1960s. Secondary problems are problems in measurement which he believes makes the slow down bigger than we realize, as it is hard to correctly measure the value of health care, while government spending is generally measured at cost in gross domestic product (GDP) calculations. Incidently, he is not saying that all additional government spending is wasteful, just that its likely that each new program adds less value than earlier, more basic programs (such as a functioning legal system) and that its hard to value the benefits. The problems in valuing government services and health care are important because of their growing proportion of the economy.
The obvious exception to his diagnosis of technological slowdown is the internet, but he makes a reasonable case that by its very nature internet technology doesn't directly create a lot of new jobs, does destroy some old ones (how many record stores are left?), and many of the benefits are free content, which doesn't generate income. For other technologies, he notes that the material world around him hasn't changed all that much in his 45 years of life. I have certainly seen other economists refer to a slowing of productivity growth from 1973 to the mid 1990s, but I know little of subsequent trends.
He links the financial crisis of 2008 to a lack of understanding that growth rates had declined. If one is under the impression that growth rates are faster than is in fact the case, it is easier to believe that houses (and other assets) will increase in value and therefore you are justified in borrowing to purchase such assets, or in lending money for their purchase.
He is modestly optimistic about the future. He believes that the problems with K-12 education have become so obvious that we will change the system to something more effective, even if we have to go through a period of trial and error. He suggests we find ways of raising the social prestige of scientists to encourage people to go into the sciences so as to increase the rate of technical improvement. I think he should probably of spoken of engineering, rather than science, if technical improvement is what is wanted. In general he sees continuation of slow growth for some years, not a decline in GDP.