Any rabid follower of economics blogs, and I know there are many, has probably heard of libertarian-ish economist and blogger Tyler Cowen’s new e-book “The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better.” No, he didn’t pick the e-book format because the title wouldn’t fit on a normal book cover; it was more like the 15,000-word piece was in publisher’s no-man’s land, too short to be a book and too long to be in a magazine.
There is a story here about the future of publishing, but let’s get back to the actual content of the e-book. Here is the gist: Cowen is claiming that much of America’s growth is thanks to it taking advantage of an abundance of low-hanging fruit. Let’s take a trip in the Utopianist time machine, back about a century before everything went sour in 1973. The idea is that the United States grew rapidly mainly because it took advantage of underutilized resources. In the late 19th Century, new European immigrants had plenty of land and natural resources for the taking. Later, in the first half of the 20th Century, these natural resources, namely fossil fuels, were utilized by technological advances to make us materially richer. After that came a revolution in education, as young, smart men and women starting graduating high school and college at record rates.
This is why China and India have been so successful; they are utilizing their untapped resources. Smart kids are being educated in schools instead of working on farms, natural resources are being used to build huge, ambitious projects, etc. The problem is that one day China and India will hit a wall, just like us. Cowen gives some alarming stats [via NY Times]:
The income numbers for Americans reflect this slowdown in growth. From 1947 to 1973 — a period of just 26 years — inflation-adjusted median income in the United States more than doubled. But in the 31 years from 1973 to 2004, it rose only 22 percent. And, over the last decade, it actually declined … If pre-1973 growth rates had continued, for example, median family income in the United States would now be more than $90,000, as opposed to its current range of around $50,000.
Not too many people would argue with the first part of his diagnosis. It’s hard to deny the United States benefited greatly from vast tracts of “free” land, technological advances and an educated workforce. It’s the reasons for the post-1973 slowdown that has caused quite a bit of argument amongst economists and journalists on the interwebs. Aside from the Alan Parsons Project, plenty of other impediments to our national well-being popped up in the 1970s. Getting a critical mass of students to graduate high school is easy; getting students to obtain college and graduate degrees is harder. Inventing the car meant factories employing tons of engineers, blue collar workers and everything in-between; now tech companies only need a fraction of the workers, benefitting the “well-educated and the curious to a disproportionate degree, but apparently not enough to bolster median income.”
This idea that tech companies like Facebook and Google don’t bolster median income like the companies of yore that produced material things is one of the bigger points of contention in Cowen’s book. Professor Karl Smith doesn’t think we’ve run out of low-hanging fruit; he just thinks we haven’t educated our children enough to reach it. Others say we’ve ignored low-hanging fruit in the burgeoning middle-class in Latin America and Asia.
Still, Cowen’s message resonates. Americans have been raised to think of rapid growth as a kind of birthright. Until that new low-hanging fruit is discovered, we’re going to have to get used to a period of stagnant growth, no matter how much we are in denial.
Photo: Kodumut, Flickr, CC
