The Great Stagnation

Tyler Cowen’s new ebook How The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History,Got Sick, and Will (Eventually) Feel Better is a bravura performance by one of the most interesting thinkers out there. I also think it’s a great innovation in current affairs publishing—much shorter and cheaper than a conventional book in a way that actually leaves you wanting to read more once you finish it. My guess is that this is the future of books.

The argument is in many ways a continuation and expansion of Paul Krugman’s themes from The Age of Diminished Expectations, Third Edition: U.S. Economic Policy in the 1990s. Specifically, the argument is that growth has been slow for the past 30-40 years for fairly fundamental reasons related to a slowing rate of increase in basic science and that our politics has become dysfunctional insofar as it’s failed to adapt to those realities. He also argues in parallel (and with, I think, less hard evidence) that a growing share of innovative energy is going into rent-seeking or otherwise unproductive activities. Cowen says we shouldn’t let rapid growth in China confuse us. What the Chinese are doing is seizing the low-hanging fruit of copying ideas from the US, Europe, and Japan whereas what the rich world needs is brand new ideas. Over the course of the book you get about one insightful point per page across a whole range of subjects. One key lefty-sounding insight is that we need to think higher about ways to improve quality of life that aren’t just about money and materialism.

The prescription is less persuasive than the diagnosis. In particular I think that for a book that talks so much about ideas, innovation, the internet, and rent-seeking it says remarkably little (indeed almost nothing) about intellectual property law. I also think the book goes awry near the end in doing too much to link the stagnation hypothesis to the present-day recession. Rich countries have experienced very divergent fates over the past 36 months when the key evidence for the technological stagnation thesis is that rich countries have experienced a broadly similar fate over the past 36 years. I wanted to hear more about the implications of a world in which catch-up growth by poor countries accounts for the vast majority of increased output. It seems to me that this is going to invert the results of the Simon-Ehrlich Wager in a problematic way.