The Great Stagnation and the Possibilities of Redistribution

Tyler Cowen’s new e-pamphlet (The Great Stagnation) takes on the slowing gains to be had from social and technological progress and offers an interesting explanation of some of the trends that many people see as troubling: the flat arc of median incomes since 1973 and the apparently universal surprise that the last decade offered no real growth for the United States even as the developing world boomed. Cowen claims that we have misrecognized increased spending in the areas of medicine, education, government, and financial services as growth. While those areas have seen the most increases in spending in this period, this spending has not garnered as many benefits as the metric of GDP suggests. Thus, we are “not as rich as we thought we were,” and we’ll need to adjust to this stagnation for a long time to come. We’ll still grow, but more slowly: call it the Great Decrease in Acceleration.

One important element in Cowen’s argument is that many of our current woes are due to the misdiagnosis of our problems. Republicans thought they could solve the stagnation by lowering taxes and raising military and Medicare spending. When this didn’t work, they were surprised. Democrats have thought that the internet and sustainable energy initiatives would spur new growth, but this has largely been growth in private consumption of status updates and Youtube videos, not jobs or public goods measurable in GDP. Electric cars are still toys, not engines of growth: this could change, but it hasn’t yet, and importantly, it didn’t over the last decade, when we were nonetheless living as if it had!

So conservative tax cuts won’t work, and progressive technological hope won’t work. In addition, Cowen also suggests that a redistributive agenda will fail. Yet here he is uncharacteristically short on argument or evidence, so I wonder if this is true. Generally, we say the problem with redistribution is that it slows growth, and it’s better to have a larger pie tomorrow than to have a equally-divided pie today. But if there is little growth forthcoming, then redistribution seems like it’s a much better deal, doesn’t it?

Interfluidity puts it this way:

A few nights ago, a gentleman accosted me in a dream and declared himself to be “Tyrone”, Tyler Cowen’s evil twin. Tyrone told me that his brother had “as usual” got it all backwards. […]

For the most part, Tyrone pointed out, technological progress, is labor displacing. It simultaneously creates valuable new techniques for reconfiguring real resources while diminishing the number of people who are required to participate in those transformations, and who can therefore trade their participation for spending power. There is a myth among neoliberal economists that labor markets have always “adjusted” sua sponte: that when laborers were displaced from farms, “higher value” factories arose to employ them; that when the factories were downsized and offshored, a more pleasant, higher-value service economy came to be; etc. That narrative is wrong, he told me. At best it is criminally incomplete. With each technological change, new social institutions had to arise to sustain dispersed purchasing power despite a reduction of numbers and bargaining power of workers in old industries. Displaced workers ultimately did find new work, but only because the new social institutions “artificially” created buyers for all the things displaced workers reinvented themselves to sell. Without this institutional innovation, Tyrone tells me, something like the Great Depression would have been the new normal. Historically, institutions that have arisen to sustain purchasing power despite increasingly labor-efficient core production include direct government transfers and expenditures, labor unions, monetary policy interventions, financial bubbles and financial fraud.

It might be a great time to try out a VAT + Basic Income, for instance. That way workers’ demand for jobs will decrease just as business’s demand for labor has done. Isn’t it about time to take some of our prior productivity gains as leisure and dignity?

One of Cowen’s arguments, lately, has been that the people who lost their jobs in 2008 and 2009 were losing their jobs because they couldn’t produce more value than they were receiving in salary and benefits. He called them zero-marginal product workers. Let’s assume this is true: it’s cheaper to replace such folks with computer programs or robots, so there are productivity gains to be had by letting workers reorganize and retrain. (This supposedly also explains why the stock market could rebound without the labor market rebounding: those workers weren’t profitable, so their loss didn’t effect profits for long.) Isn’t that also the dream of technocratic socialism: let robots do the work, so people have time to think?

This goes to Cowen’s other basic claim, which is that we’ve largely worked through what he calls the “low hanging fruit” of easy expenditures in the sectors that have seen the greatest growth over the last three decades, so increased expenditures have seen diminishing returns. This is especially true for the “low hanging fruit” of allowing women and minorities to enter the workforce and compete without state-sponsored segregation or societal discrimination. The Civil Rights movement can be both massively effective and still unrepeatable: we can’t desegregate again, and there’s no demographic of bright and easily educable scientists and doctors and lawyers to rival the women that used to be forced to stay at home cooking, cleaning, and changing diapers. The economic fruits of justice are “low-hanging” because these are one-time economic gains, and future gains from less discrimination and more equality will be much less powerful and much more difficult to achieve.

So we’ve got more people working harder than ever! What’s wrong with taking a break, now that the rewards of more work look to be diminishing? What are the low hanging fruits of leisure and dignity?

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