The Great Stagnation! (don’t panic)

According to the FT, the “most talked-about non-fiction book of the year” is the economist Tyler Cowen’s The Great Stagnation, more of a long essay really, which you can only get in e-book format. It’s worth reading, particularly for what it says about the politics of well-being.

Cowen suggests that we in the West are in the midst of a great economic stagnation, because all the “low-hanging fruit” of technological innovation, which drove the economic boom of the last two centuries, have already been picked. Life in 1800 was, for the average westerner, markedly different to life in 1960. Scientific advances in transport, energy, hygiene and medicine, housing, education and government made the material conditions of life significantly better for someone born in 1950 than for someone born in 1800. But the pace of technological advance slowed significantly in the last few decades, Cowen says, so that “life in broad material terms isn’t so different from what it was in 1953…The wonders portrayed in The Jetsons have not come to pass. You don’t have a jet pack.”

Tyler Cowen? Tyler Durden more like! Kind of reminds me of that other Tyler, snarling: “We’ve all been raised on television to believe that one day we’d all be millionaires, and movie gods, and rock stars. But we won’t. And we’re slowly learning that fact. And we’re very, very pissed off.”

Just to consider T’other Tyler’s main point – how does Cowen know how high or low the ‘fruit’ of future technological advances are? The whole point about future inventions is we don’t see the fruit at all until they fall on some genius’s head, like Newton’s apple. We can’t tell how low or high the remaining fruit is.

And Cowen doesn’t provide enough evidence that innovation has slowed. I’m not a scientist, but in the last 30 years others have decoded the human genome, come up with a totally new hypothesis about how organisms interact to preserve life on Earth, started to analyse the climate and realized we’re in danger of destroying it, begun to map the universe, made advances in analysing dark matter with the Hadron collider, invented brain scanning and made major advances in neuroscience, brought new empirical rigour to the study of wellbeing, and, um, invented the personal computer, the Internet, the kindle, the smart phone, the smart home, the smart car and all the other gadgetry of the Digital Age. To me, the present is like the Jetsons.

Despite the fact that government spending on education, health and welfare continues to rise, Cowen argues that performance in these areas is not necessarily rising and may, in fact, be getting slowly worse. This isn’t necessarily anyone’s fault, says Cowen. The low-hanging fruit have been picked, and we’re now in an ‘ideas slow-down’. We must simply get used to annual GDP growth of 1% a year, rather than 3% – unlike the emerging markets, who can attain 6-8% growth simply by copying and disseminating ideas invented in the past by western scientists, like the car.

The Credit Crunch was really part of a broader phenomenon of over-optimism, Cowen argues. This over-optimism wasn’t just confined to investment bankers. We all thought everything would simply carry on getting better, median income would continue to grow and GDP would continue to rise – so we all bet on future growth through personal, corporate and government borrowing. But this was a mistake, based on a failure to recognize what Daniel Pink describes as “a period of truly staggering underachievement in business, technology and social progress”.

A lot of the social unrest and personal suffering of our times comes, Cowen argues, from a frustration that material progress is not continuing at its past rate, and that governments are struggling to meet spending commitments made in times of faster economic growth. He writes: “Low-hanging fruit means there are lots of material goodies to hand out, and lots of fairly easy ways to make people happier, namely by giving them more stuff. That’s not the case now, as we are struggling fiscally to make good on previous promises to Medicare and Social Security recipients, as well as bondholders.”

That’s why the politics of stagnation can be pretty acrimonious. On the Right, it can lead to the voodoo economics of tax cuts supposedly leading to greater economic growth, which Cowen thinks is one of the great delusions of our age. On the Left, it can lead to demands for greater redistribution through programmes like Medicare. But Cowen warns: “Like unfunded tax cuts, the remedy cannot be applied forever. Taxpayers in the top 5% of income already pay for more than 43% of the US government, and taxpayers in the top 1% pay for more than 27%; at some point, taking more resources from the wealthy yields diminishing returns.”

At its worst, the politics of stagnation becomes a “dysfunctional politics”, as the public coffers grow emptier, populist politicians and special interest groups attack each other, and an indignant populace used to higher government spending takes to the streets. Cowen worries about the “honest middle” of politics becoming drowned out by angry, irrational and shrill political voices (ie Glenn Beck).

And yet, all is not entirely bleak.

What about the internet?  It’s the big exception to Cowen’s gloomy vision, and he acknowledges that, and devotes a chapter to it. Cowen is a big fan of the internet – he writes a blog, and he did bring out an e-book after all. He agrees with the likes of Clay Shirky that PCs and the internet have radically changed our lives, and on the whole made our lives better informed, more engaging and more fun.

But here’s the rub: contrary to the euphoria of the 1990s, the digital age hasn’t led to big economic growth. The breakthrough internet companies don’t provide many jobs. Twitter only has around 300 employees. Even the iPod, one of the great inventions of the last few years, has only created around 20,000 jobs worldwide. Nothing compared to, say, the aeroplane or the telephone.

And Cowen notes, as Clay Shirky and Daniel Pink have also noted, that “the funny thing about the internet, from an economic point of view, is that so many of the products are free. In a typical day, I might write two tweets, read twenty blogs, track down a few movie reviews, browse on eBay, and watch Clarence White play guitar on YouTube. None of this costs me a penny.”

The internet is good fun, and open-source projects like Wikipedia are encouraging in what they say about human generosity, but they’re not great news from the perspective of government revenues, job creation and private consumption. “Web 2.0 is not filling government coffers or supporting many families, even though it’s been great for users.”

Cowen is not, in fact, a pessimist, despite the pessimistic title of his book. He says:

the new low-hanging fruit is in our minds and in our laptops and not so much in the revenue-generating sector of the economy. There is low-hanging fruit; it’s just not of the traditional kind. Another way of putting this is, you can be an optimist when it comes to our happiness and personal growth, yet still be a pessimist when it comes to generating economic revenue or paying back our financial debts. [my italics]

So, wait a second, Cowen is optimistic that our personal lives are perhaps becoming happier and more fulfilled? Why doesn’t he call his essay ‘the great fulfillment’ then? After all, why should we put ‘generating economic revenue’ ahead of our wellbeing. We’ll pay our debts – personal and national – and then we will probably shift to a new normal of being much less-leveraged, on the new expectation of lower economic growth in the future. And that, perhaps, will be a good thing, both for us personally, and for the planet.

On that last point – Cowen fails to mention climate change once in his essay, but surely it is pertinent. The great technological advances of the last two centuries generated high GDP growth and great advances in our material well-being. But those advances were fired by fossil fuels, the emissions from which are now threatening the balance of our climate. So even if the pace of technological advance hadn’t slowed, we’d still be facing natural speed-bumps in terms of the capacity of our climate to absorb more CO2.

Another way to put it is, the last era of great technological change led to huge economic growth but ended up threatening our existence on the planet. Perhaps the next great technological breakthroughs will help clean up the mess left by the last era, not necessarily leading to another boom in GDP, but to something more important – a sustainable existence on the planet.

I think Cowen is trying to measure and describe a new world in old world terms. He is saying ‘the world now is not what it was, it’s worse’. It’s not worse, it’s something different, something new. Cowen looks at all the time people spend doing things and making things for free on the internet, and thinks this perhaps “made the downturn a lot more bearable”. In other words, the internet is a nice way to kill time, but doesn’t really boost GDP.

But that is using an old world measurement for the new world. People are less motivated by profit than economists used to think. We are now not so much “profit maximizers” as “purpose maximizers”, as Daniel Pink puts it. People spend so much time and effort on the internet because it gives them a sense of engagement and purpose. We’re not just killing time. We’re making meaning. GDP does not adequately measure this new world.

Cowen writes: “Even if we can, at the personal level, manage to feel fulfilled under slower economic growth, it is not compatible with how modern politics is structured, namely as a ravenous beast”. He’s right, of course, that we face the challenge of how we will continue to pay for public services if the public coffers are shrinking, and how to keep multicultural society afloat when there are no longer so many “goodies to hand out”.

This is not easy, as David Cameron is already finding out.We can’t expect public spending to simply carry on rising. We have to work out how we can do better with the resources we’ve got, and perhaps how we can tap into the ‘cognitive surplus’ of citizens to get them engaged in the improvement of local services, rather than sitting back and expecting a big government to take care of everything for us. That, I guess, is the thinking behind the much-mocked concept of the Big Society. I also think that, in an era of slower economic growth and public spending cuts, people become more aggravated by any perceived ‘free riders’ on public welfare, so there should be a more concerted effort to catch tax and welfare dodgers at the top and bottom of society. People don’t like paying taxes because they don’t think they are getting their money’s worth, because they know how easy it is to defraud large and unwieldy public institutions.

One reason for tentative optimism is that I don’t think the politics of stagnation has become anything like as acrimonious here as in the US. In fact, there is quite a cross-party consensus about the need for a new politics of well-being. It has support from everyone from David Willetts, Oliver Letwin, David Cameron and Phillip Blond on the right, to Lord Layard, Geoff Mulgan, Matthew Taylor, Richard Reeves, the New Economics Foundation, Jon Cruddas and Maurice Glasman on the left.

The UK has been ahead of the curve in the politics of wellbeing, recognizing, for example, that if progress in this era is more in intrinsic goods like wellbeing and meaning, as opposed to extrinsic goods like higher income, then we need to adapt our measurements of progress, so that we can begin to measure the gains in wellbeing, meaning, engagement, autonomy and fun which Cowen thinks the digital age has brought.

If we are in a ‘great stagnation’, then it may be good for the planet, and it may even be good for our society. A period of stagnation by one measurement, but perhaps a period of flourishing by another.

If you like this and are interested in the politics of well-being, you might enjoy my blog, www.politicsofwellbeing.com