The Great Stagnation

In this highly recommended episode of the EconTalk podast, Russ Roberts and Tyler Cowen discuss Cowen’s new $4 ebook, The Great Stagnation.

The premise of Cowen’s ebook is that the growth and progress experienced by the average family from around 1890 to about 1970 was much higher than the progress experienced since.   He believes the first period picked the low-hanging fruit like greatly reducing death to disease through antibiotics, plumbing and hygiene and reducing infant mortality through better baby delivery methods.  Since the low hanging fruit has been picked, Cowen believes improvements have been slower and tougher to make.

That thesis has received a good deal of criticism from economists on the conservative and libertarian end of political spectrum, surprisingly.   Some of the criticisms include:

  • The measures Cowen uses to make his case are flawed and don’t properly reflect technological improvements that allow so many more people to afford things that weren’t conceivable even ten or twenty years ago.
  • Cowen’s exaggerates the meaning of stagnation.
  • Tyler, himself, is courting leftist bloggers (I don’t think that one came from an economist, but I seen it in the comments on various sites discussing Tyler’s book).

As Cowen points out on EconTalk:

I’m coming along and saying the rate of growth for the typical family has declined, and oddly I’m hearing skepticism from a lot of the same economists who are criticizing current policies for lowering the rate of economic growth. That’s always fun.

Great point.

Even though many people think of the late 70s through 00s as a time of deregulation, it has been a time when government has grown larger than necessary — under both Democratic and Republican administrations — with greater interference in private markets.

Government influence on markets in contributing to the financial crisis was a good example.

The politicians’ influence on the private market showed up in policy aimed at expanding home ownership through such things as the Community Reinvestment Act, Fannie Mae and Freddie Mac and Federal Reserve monetary policy.

A specific example: Fannie and Freddie were sanctioned by the implicit (now explicit) guarantees from government (taxpayers) to buy loads of sub prime mortgages — that is, mortgages from folks who did not have a good history of repaying debt — thereby creating a market for something that really didn’t have much, if any, value.

To better understand Tyler’s point on how all this might divert resources from productive pursuits and slow real growth, consider what would happen if government signed up taxpayers to buy surpluses of the singing and dancing mounted fish that were a popular novelty item a few years ago.

You can imagine that a lot of people would make singing and dancing mounted fish and we would have more of those things than anybody would want.  Which means taxpayers would be funding the purchase of loads of those fish when they could have spent their hard earned wealth on things they found more valuable.

Which gets to another point Cowen made in the discussion.

So, when we talk about biases in measuring output and living standards, the bias I worry about the most is we’re spending a lot of money and simply writing it down as value added when it might not be.

This comment of Tyler’s inspired by post C + I, which I plan to write more about soon.

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