Home The Washington Diplomat December 2011 Academic Livens Up Economics With ‘The Great Stagnation’

Academic Livens Up Economics With ‘The Great Stagnation’

Academic Livens Up Economics With ‘The Great Stagnation’

Trying to get a bead on the U.S. economy is neither easy nor particularly uplifting at the moment. So book-buyers in search of some light reading tend to avoid the economics section, but that instinctive rejection is a mistake in the case of “The Great Stagnation.” The latest opus by Tyler Cowen, a prolific author, professor and popular blogger, is the rarest of things: an economics book that entertains and enlightens.

Whether penning a column for the New York Times, teaching at George Mason University, or writing in his daily blog “Marginal Revolution: Small Steps Toward a Much Better World,” Cowen manages to elucidate dense economic subject matter for the layman, not only tying in larger forces such as globalization and innovation, but also unearthing fascinating and sometimes obscure connections between economics and humanity.

The Los Angeles Times, for instance, praising the Harvard-trained economist’s grasp of culture and society, called Cowen a man who “can talk about Haitian voodoo flags, Iranian cinema, Hong Kong cuisine, Abstract Expressionism, Zairian music and Mexican folk art seemingly with equal facility … [in books] about culture, markets and the pessimists who plague them.”

Checking in at less than 100 pages, Cowen’s latest book can be consumed entirely during a brief flight or rainy afternoon, though digesting its implications is a matter of days, if not weeks.

Photo: Mercatus Center at George Mason University
Tyler Cowen 

“The Great Stagnation: How America Ate All the Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better,” which was released as an e-book in January before hitting the shelves a few months later, is built around a simple concept. “For the typical family in America, living standards haven’t gone up that much in the last 40 years, and this is because the rate of technological progress has slowed down. My grandmother saw a lot of big changes in her life; in my life, other than the Internet, there hasn’t been as much,” Cowen explained during an interview with The Washington Diplomat.

The book tracks a century of “low-hanging fruit” in the form of free land, immigrant labor and powerful new technologies that drove up living standards but began drying up over the last 40 years, leaving the United States in a multi-decade stagnation as it fails to recognize the plateau it has reached. Meanwhile, politicians of all stripes have failed to offer any innovative solutions to pull America out of its economic quagmire, with Democrats trying to increase government spending without any plan to rein in entitlement growth, while Republicans tout the mantra that tax cuts raise revenue and often create bigger fiscal disasters than their counterparts.

When Cowen begins to tick off some of the advances brought to the masses from 1880 to 1940, the list truly is staggering: electricity, powerful motors, cars, airplanes, household appliances, indoor plumbing, television and many others that redefined modern life.

In addition to this technological progress, the George Mason academic mentioned two other pieces of “low-hanging fruit” that fueled the enormous increases in American wages from the latter portion of the 1900s through the first half of the 20th century: the development of America’s unsettled territory and the exploitation of its vast natural resources, as well as giant gains in education. It is primarily thanks to these three advances that the U.S. median family income doubled from 1947 to 1973. In contrast, from 1973 to 2004, the increase was a mere 22 percent. And over the last decade, income has regressed.

The problem, Cowen argues, particularly with regard to the territory and the educational system, is that they can’t easily be repeated. The exploitation of the American frontier was a one-off event. And while further educational gains are certainly possible, the returns have diminished because, compared to a century ago, we no longer have so many uneducated yet smart citizens toiling in poverty. (Among the more striking of the many stats packed into the book: The proportion of Americans with a high school diploma skyrocketed from 6 percent in 1900 to 80 percent in the late 1960s.)

That leaves technology as the most likely driver of future prosperity. According to Cowen, one key is for this generation’s major technological achievement — the Internet — to become a revenue-generator, job-creator, and growth-producer that can fill the void for the innovations of the last century that have been exhausted.

That clearly hasn’t happened yet. Compared to, say, General Motors, today’s most innovative sectors are not labor-intensive and rely on mostly automated technology; even powerhouse innovators like Facebook and Google only employ a tiny number of people. Furthermore, the benefits of the latter companies are largely intangible — we chat on Facebook and check when Julius Caesar was born thanks to Google and Wikipedia — but intellectual stimulation doesn’t translate into economic productivity, Cowen argues.

“Will the Internet usher in a new economic growth explosion? Quite possibly, but it hasn’t delivered very good macroeconomic performance over the last decade. Many of the Internet’s gains are fun — games, chat rooms, Twitter streams — rather than vast sources of revenue,” he wrote in a New York Times piece earlier this year, noting that “the Internet has benefited the well-educated and the curious to a disproportionate degree, but apparently not enough to bolster median income.”

Moreover, the real gains are going to a handful of people, so unless your name is Mark Zuckerberg or Sergey Brin — or one of the rich Wall Street financiers who backed them up — chances are that trolling around online won’t make you substantially wealthier. It wouldn’t be fair to say that technology has failed us — it has enriched our lives immeasurably — but Cowen argues that it’s just not taking us as far as it once did. Wikipedia may open up a world of instantaneous knowledge, but it won’t boost a country’s economic activity or hire the unemployed.

Cowen is the general director of the Mercatus Center at George Mason University, where he also holds the Holbert C. Harris Chair of Economics. Described as a libertarian, he has earned bipartisan respect and a mainstream following. That recognition outside the realm of academic economics predates “The Great Stagnation.” His writing for the New York Times, Slate and other mainstream media outlets connects him with millions of readers. Similarly, most of Cowen’s previous books examined aspects of economics that appeal to general readers — or at the very least won’t scare them off the same way that, say, a discourse on various trade models would.

His 2002 book “Creative Destruction: How Globalization is Changing the World’s Culture” tackles just what the title promises, touching on everything from Parisian cuisine to Mongolian music. In 2007’s “Discover Your Inner Economist: Use Incentives to Fall in Love, Survive Your Next Meeting, and Motivate Your Dentist,” Cowen offers a guide for using economic principles to squeeze a little more out of your daily routine.

Finally, as one of two writers behind the blog Marginal Revolution (his George Mason colleague Alex Tabarrok is the other), Cowen is also something of a titan among web-savvy economists. Marginal Revolution kicked off in 2003, the blogosphere equivalent of the stone age. In those days, Cowen said his colleagues didn’t quite know what to make of his online publication. “I think they thought it was wacky, but … a lot of them followed suit.”

Now an established leader in the cyber realm of economics blogs, Cowen enjoys a level of popularity among his colleagues that he might not otherwise have had. “If I link to [an academic] paper on Marginal Revolution, it gets the authors more downloads than they’ll get in their whole life, even if they’re someone well known, and people love that,” Cowen said. “Its influence, and it means people are pretty nice to me.”

Cowen’s prominence also reflects a broader shift in the relationship between economics and journalism. There used to be a gaping chasm between what a mainstream publication would publish on economics and what the economic scholars were saying. That gap still exists, but it is shrinking. Academic experts like Cowen — and others who blog on a daily basis, including J. Bradford DeLong, Mark Thoma and, most famously, Paul Krugman — are influencing popular opinions on economic issues to a degree that was simply not possible two decades ago.

Cowen says this shift has “completely changed economic and financial journalism, which now starts through the blogosphere.” The overall effect is a more informed debate on one of the most important issues of the day, with academics like Cowen having a greater impact on the national policy debate, and mainstream journalists embracing their work. “With blogs, you can write at a level above what used to be everyman’s economics,” Cowen said. “That’s a good niche for me. I think one should try to make popular economics smarter.”

Of course, blogging is a world unto itself — an immediate new form of communication, but one that ranges from serious academic debate to nonsensical narcissism to bellicose combativeness, which Cowen sometimes sees among hyper-educated bloggers. For example, DeLong, a former Treasury official and professor at the University of California, recently wrote a post whose title included the question, “Are WSJ OpEd Writers Clueless or Liars?” — referring to the Wall Street Journal — which he followed with, “The answer is ‘yes.'”

Cowen steers clear of that kind of commentary. His disagreements are made clear, but there is very little venom. Rather than drawing blood, Cowen gently nudges adversaries in the opposite direction.

“It is a conscious decision, but not one which needs much if any enforcement,” Cowen, who displays a similarly agreeable physical presence, told The Diplomat of his rhetorical approach to blogging. “It is also my natural temperament,” he added. “At the end of the day if I was being so polemical, I would end up disliking my own writing and I don’t want to be in that place, so to speak.”

His writing also goes well beyond economic policy and politics. An avid traveler who spends roughly a quarter of each year on the road, Cowen’s reflections on both popular and high culture regularly pepper Marginal Revolution; one recent post called for a book examining what the career of composer Franz Liszt shows about the decline of mainstream classical liberalism. He even has his own D.C.-area ethnic food guide.

Cowen infuses that light, approachable writing style into his economic assessments, which in part has contributed to the critical success of “The Great Stagnation.” That’s not to say everyone has been bowled over by Cowen’s low-hanging fruit observations. Timothy Noah, writing in Slate, for example, praises the book for being “lucid in its interpretation of past economic trends,” but adds that Cowen “makes an ambitious argument whose chief present advantage (and greatest eventual liability) is that it’s impossible to assess in real time.”

Noah criticizes what he views as holes in Cowen’s theories — on territory, for instance, he points out that for “most of the frontier-less 20th century, economic growth was both brisk and widely shared.” Noah also suggests that computer technology, rather than putting the brakes on middle-class incomes, still holds untapped promise for generating future growth, as well as jobs. And he largely discounts Cowen’s policy prescriptions for reversing America’s economic stagnation — encouraging free trade and scientific research — calling his views on government consumption, health care and education “pretty vague.”

Yet “The Great Stagnation” has generally won plaudits from commentators on both sides of the political aisle. The Wall Street Journal’s Kelly Evans wrote that “in terms of framing the dialogue Tyler Cowen may very well turn out to be this decade’s Thomas Friedman,” while the liberal blogger Matthew Yglesias called it “a bravura performance by one of the most interesting thinkers out there.”

For his part, Cowen defines himself as a libertarian on economics and liberal on social issues, but his opinions are varied enough to defy easy characterizations — reflected in his views on government regulation, for instance. “I would much more strongly regulate leverage in the financial sector, and I would much more strongly regulate and tax carbon,” he told The Diplomat. “And I would deregulate literally almost everything else,” he added. “I would massively deregulate everything I could get my hands on.”

Likewise, he says that politicians have taken a myopic view on income inequality. He admits that America’s wage gap has been widening and that wealth has been concentrating at the very top, largely because of the financial sector. And he criticizes the dangerous risk-taking that’s being fueled by “an unholy dynamic of short-term trading and investing, backed up by bailouts and risk reduction from the government and the Federal Reserve,” he wrote in the American Interest analysis “The Inequality That Matters,” in which he admits that no one has yet figured out how to “limit major banks from repeatedly going short on volatility at social expense.”

At the same time, he points out other nuances often overlooked in the debate about inequality — for instance, that many top earners do indeed work longer hours than other Americans, and that there is less of a discrepancy in overall well being.

“Bill Gates is much, much richer than I am, yet it is not obvious that he is much happier if, indeed, he is happier at all. I have access to penicillin, air travel, good cheap food, the Internet and virtually all of the technical innovations that Gates does,” he wrote. “I don’t have a private jet or take luxury vacations, and — I think it is fair to say — my house is much smaller than his,” he adds. “Still, by broad historical standards, what I share with Bill Gates is far more significant than what I don’t share with him.”

Moreover, Cowen is not inclined to turn economic questions into partisan debates. His analysis of the federal government’s response to the 2008 financial crisis is typical: “The problem is pretty deeply rooted. To blame Obama, to blame Bush, I think, while they’ve made their mistakes, is missing the point.”

Cowen said the positive reaction to his latest book stems in large part from the fact that it has elements both sides can agree on: the political left liked the focus on stagnating standards of living, while the right has also begun to broaden its focus beyond an undying belief in the power of economic growth to alleviate society’s ills.

He also avoided hot-button political issues and detailed policy proposals specifically to avoid provoking knee-jerk dismissals. “I wanted to write a zero policy book … but I do think there’s a lot we can do on policy,” he said. “But I didn’t want to put that in the book because I don’t want people to respond to the basic argument politically.”

That’s not to say Cowen doesn’t have strong opinions about the sorry state of today’s political gridlock on pressing economic issues. He lambasted House Republicans, for example, for needlessly pushing the United States to the brink of financial crisis during the debt ceiling negotiations this summer. “I think what they did with the ceiling was terrible, harmful, destructive. It’s yielded no gain. I’m a fiscal conservative but I think it’s yielded no gain.”

But on the Occupy Wall Street movement, he’s equally dismissive. “It seems pointless to me. They don’t know what they are doing, they don’t know what they want.”

As for the eurozone debacle, Cowen believes certain core European Union countries will be able to maintain the currency, but others will have to exit the monetary union.

Cowen adds that America’s moribund unemployment rate won’t rebound until well after the EU fixes its finances — “five years after the European troubles are over, whether that be next week or three years from now — whenever that point comes, tack on five more years, and then I think we’ll get down to the 6 to 7 [percent unemployment] range,” he predicts.

That bleak outlook is at the heart of some of the criticism behind Cowen’s book. “Maybe the economic stagnation that Cowen says is our lot in life will persist, but don’t resign yourself to it,” the Slate’s Noah argues. “If the middle class is suffering economically today — and it is — then the practical solution is to ease that suffering today. A crystal ball only gets in the way.”

But ultimately, “The Great Stagnation” is an optimistic book, and Cowen believes that the slowdown in rising living standards can and will be overcome. Two of the critical technological advances he sees on the horizon are artificial intelligence applications like the iPhone’s Siri software and new health care innovations stemming from endeavors like the Human Genome Project. Another necessary element to improving living standards would be greater investment and subsidies for scientific research, which would ideally trickle down to future stagnation-bursting innovations. He doesn’t point to a specific field that needs greater support, but rather argues for a return to the post-World War II mindset, when science was a more prestigious and popular vocation.

“Sooner or later, new technological revolutions will occur, perhaps in the biosciences, through genome sequencing, or in energy production, through viable solar power, for example,” he wrote in the New York Times. “But these transformations won’t come overnight, and we’ll have to make do in the meantime.”

So what of the other low-hanging fruit? While the exploitation of land cannot be repeated, Cowen remains hopeful about the potential to improve the U.S. educational system, though the impact on living standards will not replicate what took place a century ago. “Education is much better. You see a lot of experimentation, vouchers, charter schools,” he said. “Basically the terms of debate have totally shifted in the correct direction. We just don’t have the good results yet.”

And that begs the question that every economist is asking these days: What will it take to vault the United States and other stagnating developed nations out of their present morass. It struck me while reading his book that the advances during Cowen’s grandparents’ era were far more the exception to human history than the norm. “I’m not sure we’ll ever have such a burst as we did then,” he admits. “But I also don’t think it’s over.”

About the Author

Patrick Corcoran is a contributing writer for The Washington Diplomat.