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. (more…)