The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History,Got Sick, and Will (Eventually) Feel Better by Tyler Cowen.
I wouldn't be a bit surprised - if tomorrow, Men in Black disclosing his Andromeda galaxy origins, capture Tyler Cowen. Obviously, I wasn't surprised when he wrote a pessimistic titled book, priced at $3.99 and available only on Kindle. Not being surprised and caught with my pants down are completely different... I wasn't yet "prepared" to switch to e-books. Talk about having an open mind - I guess, I am at an age where great mental stagnation starts to creep in slowly. I hated him for making me switch but I grateful for helping me see my mental stagnation. So I made the switch, well... not so fast; I downloaded Kindle for Mac and bought my first e-book. I hate to admit this.. I loved it. Finished this small book in less than an hour and bought the real Kindle today. Phew!! imagine how much marginal revolution has influenced and infiltrated into my life.
I agree more or less on everything written and the book isn't pessimistic as the title sounds. Sooner or later, somebody had to state these facts and stop us from being self-delusional.
On the economics of Lake Wobegon:
We thought we were richer than we were.
Tyler never writes much on politics on his blog; but he switched gears here. On the dissonance of the left and the right:
The American left has pointed out and indeed stressed measures of stagnant median income, but it usually blames politics, insufficient redistribution, or poor educational opportunities rather than considering the idea of a technological plateau. The American right is more likely to deny the relevance of the slow-growth numbers, but at this point, the combination of slow median income growth, rising income inequality, and a massive financial crisis—the latter accompanied by overoptimism about the financial future—is too strong and too persistent to treat as a mere artifact of statistical mis-measurement.
Meaningful innovation has become harder, and so we must spend more money to accomplish real innovations, which means a lower and declining rate of return on technology.For the last forty years, most Americans have been expecting more than their government is capable of delivering. That mistake is at the root of why our government is functioning poorly. Instead of admitting its limitations, or trying to manage our expectations, government starts lying to us about what is possible. Only lies and exaggerations can promise voters and other citizens a much higher rate of real income growth, and so our politics has become increasingly full of ... lies and exaggerations. The options are the “tax cut exaggeration” and the “redistribution exaggeration.” This period of government growth includes the Progressive era and the New Deal, the two major inspirations for left- leaning thinkers today. Despite the anticorporate bias of some left-wing thinkers, the New Deal and Progressive era initiatives were a direct result of the growth of big business and the rise of a consumer society. Big government and big business have long marched together in American history. You can call one good and the other bad (depending on your point of view), but that’s missing their common origin and ongoing alliance.
Tyler infers that the great stagnation and the economic irrelevance of internet has forced us to look inward. It sounds great but the idealist in me wishes people inward for the sake of self reflection. May be that's to much to ask.. may be all we can ever get on that front is a nudge from the great stagnation.
If one sentence were to sum up the mechanism driving the Great Stagnation, it is this: Recent and current innovation is more geared to private goods than to public goods. That simple observation ties together the three major macroeconomic events of our time: growing income inequality, stagnant median income, and the financial crisis. More and more, “production”—that word my fellow economists have been using for generations—has become interior to the human mind rather than set on a factory floor.
The forward march of technology has indeed continued, but it’s giving us Twitter and better painkillers and some life extension when we are old and sick. And I love Twitter and I’ll probably value those painkillers, too, once I need them. We’re living the age-old wish of getting away from money, money, money and finding some of our biggest innovative successes in sectors that are good for us but not revenue intensive. We’re getting away from materialism, at least in some critical regards. We may still lust after the fancy car, but I see a lot of people looking inward. They are taking lower-paying but more interesting jobs, which offera greater sense of challenge and control. I see a lot of well-off people cruising the Web, and cherishing their Twitter feed, rather than shopping for diamonds. The funny thing is, getting away from materialism on such a large scale—whatever the virtues of that switch—really, really hurts. It is the hurt that we in America are living right now.
On the dissonance of the Media:
Those happy events bred in us the wrong kind of optimism. We read lots of good news, but we didn’t get much low- hanging fruit in the form of major new technologies and major advances in living standards. We got a bit of low-hanging fruit from the “peace dividend” following the fall of the Soviet Union, but that has since been reversed by our responses to terrorism. We also got a bit of low-hanging fruit from cheap Chinese and Indian production, although, again, that has not led to major new technologies. At the same time, we didn’t see headlines like NOT SO MANY STRIKING NEW INNOVATIONS THIS YEAR. No, and so our expectations remained out of synch.
On an ineffective Keynesianism:
Fiscal stimulus is directed at remedying problems with spending and aggregate demand, and indeed spending has been insufficient. Nonetheless, the root of our difficulties lies in the relative paucity of revenue-generating low-hanging fruit. You can argue that we need to ease out of our mistakes slowly rather than quickly, and in this regard, there remains some argument for fiscal stimulus as a braking measure on the downside. Still, replacing private debt with public debt won’t restore prosperity because it doesn’t create anything. We made a lot of plans on the basis of inflated home and equity prices and we still haven’t fully adjusted to the notion that we’re poorer than we had thought. Fiscal stimulus hinders and postpones that result, rather than hastening it. Furthermore, every time a politician talks about quick recovery, it makes the problem a little bit worse. People think they can go back to their old habits, when we first need to produce some more wealth before previous spending patterns can prove sustainable.
On the future of innovation and economic growth:
My colleague (in the Economics Department at George Mason University) Alex Tabarrok stresses how China and India, in their roles as consumers, will be encouraging more innovation. Let’s say you discover a new anticancer drug and hold the intellectual property rights. You can now sell that drug to many more people—because of India and China—and that will spur more innovation in the first place. A wealthier and more populous world, all other things equal, raises the return to beneficial invention of the sort that helps a large number of people.
Norman Borlaug passed away, two months after I started this blog and started my rant (here and more) on the importance of Borlaug. It was melancholic to read about him in the final chapter... Tyler as always is right. We need to improve the status of scientists; they deserve to be the new rock stars to help us swim out of this great stagnation.
I was struck when Norman Borlaug died in 2009. Borlaug, as you may know, was a leader of the “Green Revolution” and the inventor of more robust seeds and crop varieties, which were then used in India, Africa, and many other poorer parts of the world. It is no exaggeration to say that Borlaug’s work saved the lives of millions of human beings by preventing starvation. Yet when Borlaug died, most Americans still did not know who he was. The press covered his passing, but in a low-key manner, even though one of the most important people of his era had died. In my ideal world, Borlaug would have a much higher social status than he did.
My final thoughts... there was probably never any low hanging fruits... low hanging fruits are products of innovation, life style choices, herd-ism, avarice (or lack of it) and that longing for that dopamine driven rewards. In this great stagnation, we have to realize our mental stagnation as well. This stagnation is our longing to cling the past and refusing to adapt. Let's swim away from economics of dollars and not necessarily swim inward but swim towards the great unknown with optimism. Most importantly, we should learn from adversity and to enjoy this process of swimming. Let's try leave a legacy of optimism and leave a better world for the next generation to inherit.
I wouldn't be a bit surprised - if tomorrow, Men in Black disclosing his Andromeda galaxy origins, capture Tyler Cowen. Obviously, I wasn't surprised when he wrote a pessimistic titled book, priced at $3.99 and available only on Kindle. Not being surprised and caught with my pants down are completely different... I wasn't yet "prepared" to switch to e-books. Talk about having an open mind - I guess, I am at an age where great mental stagnation starts to creep in slowly. I hated him for making me switch but I grateful for helping me see my mental stagnation. So I made the switch, well... not so fast; I downloaded Kindle for Mac and bought my first e-book. I hate to admit this.. I loved it. Finished this small book in less than an hour and bought the real Kindle today. Phew!! imagine how much marginal revolution has influenced and infiltrated into my life.
I agree more or less on everything written and the book isn't pessimistic as the title sounds. Sooner or later, somebody had to state these facts and stop us from being self-delusional.
On the economics of Lake Wobegon:
We thought we were richer than we were.
Tyler never writes much on politics on his blog; but he switched gears here. On the dissonance of the left and the right:
The American left has pointed out and indeed stressed measures of stagnant median income, but it usually blames politics, insufficient redistribution, or poor educational opportunities rather than considering the idea of a technological plateau. The American right is more likely to deny the relevance of the slow-growth numbers, but at this point, the combination of slow median income growth, rising income inequality, and a massive financial crisis—the latter accompanied by overoptimism about the financial future—is too strong and too persistent to treat as a mere artifact of statistical mis-measurement.
Meaningful innovation has become harder, and so we must spend more money to accomplish real innovations, which means a lower and declining rate of return on technology.For the last forty years, most Americans have been expecting more than their government is capable of delivering. That mistake is at the root of why our government is functioning poorly. Instead of admitting its limitations, or trying to manage our expectations, government starts lying to us about what is possible. Only lies and exaggerations can promise voters and other citizens a much higher rate of real income growth, and so our politics has become increasingly full of ... lies and exaggerations. The options are the “tax cut exaggeration” and the “redistribution exaggeration.” This period of government growth includes the Progressive era and the New Deal, the two major inspirations for left- leaning thinkers today. Despite the anticorporate bias of some left-wing thinkers, the New Deal and Progressive era initiatives were a direct result of the growth of big business and the rise of a consumer society. Big government and big business have long marched together in American history. You can call one good and the other bad (depending on your point of view), but that’s missing their common origin and ongoing alliance.
Tyler infers that the great stagnation and the economic irrelevance of internet has forced us to look inward. It sounds great but the idealist in me wishes people inward for the sake of self reflection. May be that's to much to ask.. may be all we can ever get on that front is a nudge from the great stagnation.
If one sentence were to sum up the mechanism driving the Great Stagnation, it is this: Recent and current innovation is more geared to private goods than to public goods. That simple observation ties together the three major macroeconomic events of our time: growing income inequality, stagnant median income, and the financial crisis. More and more, “production”—that word my fellow economists have been using for generations—has become interior to the human mind rather than set on a factory floor.
The forward march of technology has indeed continued, but it’s giving us Twitter and better painkillers and some life extension when we are old and sick. And I love Twitter and I’ll probably value those painkillers, too, once I need them. We’re living the age-old wish of getting away from money, money, money and finding some of our biggest innovative successes in sectors that are good for us but not revenue intensive. We’re getting away from materialism, at least in some critical regards. We may still lust after the fancy car, but I see a lot of people looking inward. They are taking lower-paying but more interesting jobs, which offera greater sense of challenge and control. I see a lot of well-off people cruising the Web, and cherishing their Twitter feed, rather than shopping for diamonds. The funny thing is, getting away from materialism on such a large scale—whatever the virtues of that switch—really, really hurts. It is the hurt that we in America are living right now.
On the dissonance of the Media:
Those happy events bred in us the wrong kind of optimism. We read lots of good news, but we didn’t get much low- hanging fruit in the form of major new technologies and major advances in living standards. We got a bit of low-hanging fruit from the “peace dividend” following the fall of the Soviet Union, but that has since been reversed by our responses to terrorism. We also got a bit of low-hanging fruit from cheap Chinese and Indian production, although, again, that has not led to major new technologies. At the same time, we didn’t see headlines like NOT SO MANY STRIKING NEW INNOVATIONS THIS YEAR. No, and so our expectations remained out of synch.
On an ineffective Keynesianism:
Fiscal stimulus is directed at remedying problems with spending and aggregate demand, and indeed spending has been insufficient. Nonetheless, the root of our difficulties lies in the relative paucity of revenue-generating low-hanging fruit. You can argue that we need to ease out of our mistakes slowly rather than quickly, and in this regard, there remains some argument for fiscal stimulus as a braking measure on the downside. Still, replacing private debt with public debt won’t restore prosperity because it doesn’t create anything. We made a lot of plans on the basis of inflated home and equity prices and we still haven’t fully adjusted to the notion that we’re poorer than we had thought. Fiscal stimulus hinders and postpones that result, rather than hastening it. Furthermore, every time a politician talks about quick recovery, it makes the problem a little bit worse. People think they can go back to their old habits, when we first need to produce some more wealth before previous spending patterns can prove sustainable.
On the future of innovation and economic growth:
My colleague (in the Economics Department at George Mason University) Alex Tabarrok stresses how China and India, in their roles as consumers, will be encouraging more innovation. Let’s say you discover a new anticancer drug and hold the intellectual property rights. You can now sell that drug to many more people—because of India and China—and that will spur more innovation in the first place. A wealthier and more populous world, all other things equal, raises the return to beneficial invention of the sort that helps a large number of people.
Norman Borlaug passed away, two months after I started this blog and started my rant (here and more) on the importance of Borlaug. It was melancholic to read about him in the final chapter... Tyler as always is right. We need to improve the status of scientists; they deserve to be the new rock stars to help us swim out of this great stagnation.
I was struck when Norman Borlaug died in 2009. Borlaug, as you may know, was a leader of the “Green Revolution” and the inventor of more robust seeds and crop varieties, which were then used in India, Africa, and many other poorer parts of the world. It is no exaggeration to say that Borlaug’s work saved the lives of millions of human beings by preventing starvation. Yet when Borlaug died, most Americans still did not know who he was. The press covered his passing, but in a low-key manner, even though one of the most important people of his era had died. In my ideal world, Borlaug would have a much higher social status than he did.
My final thoughts... there was probably never any low hanging fruits... low hanging fruits are products of innovation, life style choices, herd-ism, avarice (or lack of it) and that longing for that dopamine driven rewards. In this great stagnation, we have to realize our mental stagnation as well. This stagnation is our longing to cling the past and refusing to adapt. Let's swim away from economics of dollars and not necessarily swim inward but swim towards the great unknown with optimism. Most importantly, we should learn from adversity and to enjoy this process of swimming. Let's try leave a legacy of optimism and leave a better world for the next generation to inherit.
No comments:
Post a Comment