The Great Stagnation: Darkest Before the Dawn?

By | March 1, 2011

Tyler Cowen has written a short book entitled, “The Great Stagnation.” Pretty downer subject, right? The lengthy subtitle gives a little hope: “How America Ate All The Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better.” Here, briefly, are some of the subjects covered.

Productivity is usually best accomplished by reaching for the next easy innovation – “low-hanging fruit.” Innovation always builds on what came before. Our connundrum: the problems that could be easily solved, have largely been solved. How do we continue to be productive?

[Not everyone agrees that productivity has declined in the United States.]

One answer to the productivity problem is, obviously, to solve harder problems. Solving those problems take more time and resources. Then, often, the payoff is not as great as earlier achievements.

Another issue: much recent innovation has occurred in revenue deficient sectors of the economy (think blogging or podcasting), or job deficient sectors of the economy. Example: the globally important company Twitter has less than 400 employees. Much recent productivity gain has been finding ways to do more work with fewer people. That’s great if you own a company, not so great if you’re looking for work.

Politically we have a system that encourages spending money we don’t have on things we don’t need. Neither party has clean hands on this. We thought we were richer than we were – individually, as a nation, and the world. We built up expectations of what our own lives would be like and, as a nation, made entitlement promises based on money that wasn’t really there.

The Internet has made this recession more tolerable than recessions in the past. Broke? Facebook and Farmville cost practically nothing. You can learn (and blog about) anything you care to. This fun might prolong the recession. In past recessions you’d tighten your belt for awhile, but eventually the desire to live a little would overpower your frugality. That’s not happening so much this time.

The book does a good job outlining our problems. Its less clear on solutions. Financially, what can’t go on forever won’t. But how do we reform? He suggests promoting civil political discourse and raising the social status of scientists and other innovators. Fine. Worthy goals. How?

One thing that he mentioned gives me hope. The rise of the consumer class in China and India will drive the world econony and innovation. Another driver of innovation:

a “cognitive surplus” suggests that billions of people rapidly are becoming smarter and better connected to each other. Self-education has never been more fun, and that is because we are in control of that process like never before.

Looking forward I see a prolonged recession. There are bubbles left to pop. But progress during these down years will go on. I suspect our wars on cancer and infectious diseases will turn our way in the next decade. Eventually we will be driven to a sane energy policy – we will have to produce more of our own energy. Natural gas, coal, and new oil fields will be part of that. Nuclear needs to play a much bigger part.

Things will get better.

In the meantime… see you on Facebook.


Check out my highlights and notes on “The Great Stagnation” and other books.