The Great Stagnation

The Great Stagnation (2010) by Tyler Cowen is an interesting concept done in an interesting way. It’s provoked quite a bit of discussion around on various blogs. Cowen has produced a pamphlet that can be bought electronically for $4. It’s an innovative way to use electronic publishing.

Cowen’s basic thesis is that per capita growth up until 1975 in the US was faster, possibly twice as fast as growth since then. He attributes this to the years before 1975 being where a series of developments could easily be used to add to growth while since them such things have not happened. In the US the use of new land until the 20th century, the industrial revolution and technologies that were low hanging fruit such as the car, aircraft, electricity and shipping all increased per capita wealth. After 1975 no such great opportunities have been found.

This has resulted in governments making promises that they had some formula that could lead people to see an increase growth back to the pre-1975 levels easily while in fact not having this ability and the attempts to do so making the situation worse.

The premise that growth preceding WWII was in fact as fast as the growth after the war until 1975 has been challenged. Growth figures before WWII are not as reliable as those post WWII. Also in other periods it may be that the 1-2% per capita growth that has occurred since 1975 is actually typical growth and that the post WWII growth spurt was an aberration in response to the reconstruction of Europe and Japan and the ability of them to pick up on developments that had not been fully incorporated during the depression and World Wars.

Cowen criticizes the Keynesian Left Wing as attempting to try to use government spending to achieve the levels of growth of the past and the fresh water economists whose proscriptions for reducing government to lower levels are just as likely to fail to recreate the levels of growth of the 1945-75 era.

It’s also worth noting that while the richest parts of the world will only have per capita growth of 1-2% the developing world is experiencing levels of per capita growth of 5% and even more. This has ramifications for developed world growth, if expanding markets help the developed world’s firms enrich themselves it is positive, if it leads to increasing energy and raw material costs it could potentially be detrimental, and of course should it lead to war it could be catastrophic.

Cowen’s solution to the problem is to raise the status of  scientists and engineers. Even this is fairly dubious. People with the capability of becoming scientists and engineers who really contribute to inventing things are fairly successfully used in this endeavour. More is spend on R & D now than has often been the case. The great place that draws off people who are technically really able is finance. It’s hard to see how science and technology could compete with those sorts of salaries. In some areas where surprisingly little is spent, such as in new forms of nuclear energy and alternative energy, a push may help. But in large areas of research such as medical research where vast sums are constantly being spent more money is unlikely to have great effects.

Cowen’s thesis is really interesting and the book is wonderfully thought-provoking as demonstrated by the online discussion. If it had been made into a full length book exploring the ideas it would possibly have run out of steam. Other books with fairly simple thesis that went on far to long, such as Guns, Germs and Steel might have been really great in this format. Hopefully others will use the flexibility of electronic release to explore these sorts of books in future. The idea that slower growth is something that the developed world is going to have to live with is well worth contemplating.

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