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? Continue reading The Great Stagnation and the Possibilities of Redistribution