The Great Stagnation: How America Ate All the Low-hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better

Some reviewers have done a good job here, but some have utterly missed major points, if they have read the essay at all, which I doubt, so I will give potential readers an outline.

I. The low-hanging fruit we ate
..A. Examples in the United States
....1. Free land (Homestead Act, etc.)
....2. Technological breakthroughs (electricity, motor vehicles, telephone, radio, television, computers etc.)
....3. Smart, uneducated kids (who were made productive through excellent public education).
....4. This is a partial list; clearly other candidates can be proposed, e.g. cheap fossil fuels.
..B. Examples in other countries ("catch-up growth")
....1. Leveraging the technological breakthroughs of the West (e.g. China, India)
....2. Smart, uneducated kids (e.g. China, India)
..C. MEDIAN income growth in the U.S. has slowed notably since 1973.
....1. Decline in household size is not the cause.
....2. Unmeasured quality improvements (think electronic gadgetry) are not a counter (because there is
...... also unmeasured quality degradation, think traffic jams and AIDS)
..D. Rate of technical innovation has declined notably since 1873 and even more since 1955
....1. Innovation is getting harder; the low fruit has been picked.
....2. Recent innovations have slight marginal benefits
..E. Recent and current innovation is more geared to PRIVATE goods than to PUBLIC goods.
....**This is the driver of the Great Stagnation.
....1. Extracting resources from the government (subsidies for solar power, farm products, other junk;
.....useless construction; useless government employees; legal services, etc.) by lobbying.
....2. Extreme protections of intellectual property (e.g. by ridiculous patent laws that grant monopolies for
...... incandescently obvious ideas, enabled by our retarded judiciary)
....3. Recent financial innovations (CDO's, derivatives, etc.) that benefit Wall Street at public expense.
....4. THESE ALL RESULT IN INCREASED INCOME INEQUALITY.

II. Our New (not so productive) Economy
..A. Most recent productivity gains in the private sector have been achieved by cutting out dead wood
....("discovering who isn't doing much and firing them").
..B. GDP statistics are flawed because they value expenditure at cost; actual value of the expenditure is
.... unknown in sectors where market forces do not operate.
..C. Underperforming sectors where valuation at cost is a big problem:
....1. Government.
......a. The marginal value of government, even if positive, falls as government grows larger.
........(1) Basic expenditures deliver high value. e.g. police, basic infrastructure, national security)
........(2) Ancillary expenditures deliver less value (e.g. bridges to nowhere, urban renewal boondoggles,
......... salaries for school administrators and federal drones
......b. Because government contribution to GDP is valued at cost, the larger the government grows,
........ the more GDP growth and living standards are overstated.
....2. Health care
......a. No bloody clue what things are actually worth; they are valued at cost.
......b. America currently spends 17% of GDP on health care, with outcomes worse than countries
....... that spend far less.
......c. Disproportionate spending on end care for the elderly.
......d. David Cutler's study: health care productivity growth 1995-2005 was negative.
....3. Education
......a. 6% of GDP at present.
......b. No improvements in student reading or math performance since mid 70's.
......c. But we are spending (constant dollars) twice a much now per student as we did then.
......d. High school graduation rate peaked at 80% in late 60's.
......e. Government claims of 88% graduation rate are nonsense.
......f. 20% of all new high school credentials each year come from passing equivalency tests.
..D. INNOVATION MUST OCCUR IN THESE UNDER-PERFORMING SECTORS
... This is where Cowan fails to state solutions clearly, which may disappoint readers, but his point is that
... these are areas where innovative thinking is required and good solutions need to be developed. My summary
... and suggestions:
....1. "If you can't measure it, you can't manage it." Use market approaches, intelligently ascertain value by
..... other means, and if measurement fails, arbitrarily force cuts in low-performing sectors (as a last resort).
....2. Government: 10% staff cuts. Strict spending limits pegged to per-capita government spending during a
.... benchmark period.
....3. Education: Standardized tests, charter schools, e-learning, vouchers (all of course resisted by the
..... education lobby).
....4. Health care: determine what works and pay only for that. Extending the life of an 90-year-old terminally
..... ill person for one month at a cost of $200,000 is not something that works.

III. Does the Internet Change Everything?
..A. Similar to early years of industrial revolution (advances made by amateurs)
..B. Hard to measure its productivity because its value lies largely in the mental dimension; most stuff on the
... internet is free.
....1. Traditional activity does occur (advertising, sale of goods). eBay, Amazon, Craigslist, ads on Google.
....2. While a public good, benefits of the Internet skewed to the intellectually curious.
....3. GDP is understated to extent it does not include the value of free internet pleasures.
..C. As an innovation, the internet has generated few jobs and revenue, compared to earlier innovations.
... (Example: Google employs 20,000, Twitter 300)
..D. Internet has also destroyed jobs in the music industry, book stores, and other forms of entertainment.
..E. So we're getting away from materialism, but it really hurts and people are yelping about it.

IV. The Government of Low-hanging Fruit
..A. Days of government largess are past; we can't slop the public trough like we used to.
..B. We won't be getting real income growth of 2% to 3%. We'll be lucky with 1%.
..C. Tax cuts without spending cuts (right wing approach) are untenable in the long term.
..D. Taking from the rich is also untenable in the long term; top 5% already pays for 43% of the federal
... government; top 1% for 27%.
..E. As real growth stagnates, demands from interest groups (corporations for tax breaks, K-12 teachers for job
... security, medical device makers for Medicare payments, public employees for pensions) will grow more
... strident. Expect more vociferous arguments about how to divide up the stagnant pie.
..F. Because government cannot continue to grow under current conditions, Liberals have become the new
... conservatives, supporting the status quo of handouts, bribes, and squandering.

V. Why did we have such a big financial crisis?
..A. Eight words: "WE THOUGHT WE WERE RICHER THAN WE WERE".
....1. We made plans expecting continued 3% productivity growth and the asset prices such growth would bring.
....2. We were lulled by successful handling of prior crises (e.g. the S&L bust and real estate bubble in the
..... 80's) into believing all risk could be managed effectively.
....3. Overconfidence was the problem. For everyone. Borrowers, investors, bankers, politicians, regulators.
..B. Markets and government failed miserably in estimating risk.
..C. Government encouraged risk by taking by overlooking accounting scandals (Freddie and Fannie) and promoting
... home ownership for everybody.
..D. Short-term response to stagnant incomes was to borrow against appreciated assets (home equity loans,
... mortgage refis), foolishly expecting continued asset appreciation. From 1993 through 2005,
... homeowners extracted equity equal to 11.5% of GDP.
..E. Fiscal stimulus in 2009 was inadequate, but a larger stimulus would not have helped. Problem is not lack of
... aggregate demand, but lack of revenue-generating innovation.
..F. Replacing private debt with public debt solves nothing. Sooner or later you have to pay the piper.
..G. The internet, by giving people much to do for free, may be exacerbating the current stagnation.

VI. Can we fix things?
..A. Promote favorable trends
....1. India and China
......a. Science and engineering interest in India and China: should yield innovations we can exploit.
......b. Offloading unskilled labor abroad gives us more time to pursue innovation (if we are smart enough).
......c. Consumers in China and India can offer a market for our innovations.
....2. Internet may do more for revenue generation in the future
......a. Promotes scientific learning and makes science more of a meritocracy; ideas rapidly shared and improved.
........ (Archaic intellectual property laws will need to change if we are to take advantage of this)
......b. Promotes self-education; a lot better than watching TV.
......c. These should all yield productivity gains.
....3. Improvements in K-12 education
......a. Majority of electorate no longer sides with education lobby.
......b. School choice, charter schools, incentives, better monitoring are now in favor.
....4. Raise the social status of scientists
......a. Science is what fuels economic growth, yet we reward law, medicine, and finance.
......b. [Aside: this is not the case in China and India, where engineers and scientists are more highly
....... esteemed, and occupy the highest offices in government. Here, we have poli sci graduates running things.]
......c. Culture of science is what drove the industrial revolution.
......d. We should not trust individual scientists uncritically, but we should respect science at the higher
....... level (a lot more than law or finance)
..B. Avoid unfavorable trends
....1. Cool the rhetoric, avoid useless strife.
....2. Stick to facts. Educate yourself. Don't demonize those you disagree with.
....3. A prolonged period of slow growth need not be bad -- Japan has tolerated it very well.
..C. Final Word
....1. The next low-hanging fruit may pose dangers. Be vigilant and quick to respond.
....2. Axis and Communist powers turned new technologies to destructive and oppressive ends.
....3. Balance of power can be upset.

Do you like low-hanging fruit? More importantly, do you like reading the words "low-hanging fruit" again and again and again and again? If you're the kind of person who likes to see the phrase "low-hanging fruit" at least once in every sentence that you read, then this is the book for you. If you don't like reading "low-hanging fruit" or if you feel that it is stylistically unforgivable to use the same term or phrase (whether it be "low-hanging fruit" or something else) more than twenty times per page, then this is not the book for you. Maybe you are like me, and think that unironic repetitious use of a single word or phrase, like "low-hanging fruit", is symptomatic of lazy or dogmatic thinking. Low-hanging fruit! Low-hanging fruit and Hayek. How can you argue with that? Case closed!

Tyler Cowen's absolutely horrendous, dare I call it stagnant, writing aside, The Great Stagnation has an interesting premise, but I don't think it's particularly convincing, low-hanging fruit. See the recent work of Daron Acemoglu, who is a more compelling thinker and an incomparably better writer, despite the fact that English is his second language, for a lucid presentation of the idea that innovation is not doomed and that we have not run out of low-hanging fruit.

I didn't read this book until 2015 and still found a great deal of valuable lessons. Tyler Cowen is one of my favorite applied economics writers because of his ability to convey complex concepts in easy-to-understand forms. I have minimal economics training but this book helped me better understand why our (American and the world's) economic situation is the way it is and how to be better prepared for the future. Obviously this book doesn't get into the complexities of many contemporary economic issues (it's less than 100 pages), but it conveyed its big, bold concept (that the economic slowdown of the last decade is an inevitable process) in a clear and persuasive manner. I really liked the metaphor of low-hanging fruit (which is used repeatedly throughout the book), as it helped me conceptualize the rather abstract concept of national/global economics in a tangible, visceral manner.

I would highly recommend reading this, either in kindle or hardcover form.

This book provides some insight into our current economic situation; however, I found it lacking in some of the most important points. It also seems to be an apologia for the current situation which frames our lack of economic progress in terms of "natural forces" instead of conscious human management decisions. Certainly it is true that the United States was blessed with a considerable amount of "free land" and natural resources; however, so was the former Soviet Union. Politics and good governance do matter and this book touches on none of that. Rather there are hints that the author is not revealing his full spectrum of belief but rather simply focusing on an environment which though true nevertheless in incompletely described.

For example, the author contends that we are suffering from a period in which there is a lack of innovation and that having picked the low hanging fruit we must await a new harvest. This is nonsense. Since the author appears to be an internet savvy person where has he been the last decade? More importantly where does he come off with support for his contention that we on a plateau? Go to the following and read the daily output from this site: [...]. Very significant theoretical and practical discoveries are being made daily. If anything the pace of innovation is accelerating and not stagnating. The problem is that this new knowledge is not bearing fruit here in the United States. For example, Applied Materials is the major manufacturer of the sophisticated tools for the manufacture of solar panels, flat panel televisions and other electronic devices. They have recently invested heavily in China. [...] [...]

The more cynical part of me believes this is simply a rather poor attempt to provide plausible arguments for our current situation without examining the full scope of the issue. For example, many of our brightest minds in physics and mathematics are not employed in the pursuit of creating better manufacturing processes and tools but rather ever more arcane algorithms for the support of so-called "financial instruments." Other nation states are making the investment in the future. China certainly is investing heavily in alternative energy. Even "old Europe" is making investments. [...]. Indeed the entire Bushian mythology of "old Europe" is fatally flawed and serves the interests of a failing US status quo.

This is a book worth reading but not staking your life on. It is decidely incomplete in its analyses and should simply be viewed as a relatively small piece of a much larger puzzle. The point which is missed entirely: The future is unfolding - it is just not being led by the United States. That is a failure of good governance and management not a failure of innovation or knowledge.

In essence, Mr. Cowen is arguing that the technological change has slowed down and living standards aren't increasing as fast as they used to. Great new technologies like railroads and the automobile were introduced in the 19th century and first half of the 20th century, but since then we've only gotten improvements to existing technologies. Mr. Cowen seems to think that if technological change had continued we would see aircars (ala the old cartoon The Jetsons), jetpacks, and teleportation machines. Instead we have larger refrigerators.

This is contrary to most accounts that we live in a period of rapid technological change. Computers and electronic products are sold for under a year before an improved model is available, where in the past products would have multi-year lifetimes. But I'm not sure of Mr. Cowen's opinion of computers and electronics, the only technological advance since 1970 he mentions is the internet (which uses computers but is not the same thing).

Talking about the internet, Mr. Cowen abandons any argument about technological change, and instead complains that it's mostly free and doesn't employ enough people, thus not contributing to GDP. Everyplace else in the book he talks about changes in technology and living standards, but for the internet it's the lack of jobs.

The rest of the book is similarly confused. While there are some good points in the book, it really seems to be a complaint that many of the technologies envisioned by science fiction, which some "experts" have predicted would arrive soon, are not here today.

Tyler Cowen's `The Great Stagnation' is less a full-length book than an extended essay which attempts to explain current economic and median-income stagnation in the USA, and what might happen in the future. The author's basic idea is that between 1880 and 1970 the USA benefited from an abundance of `low-hanging fruit': almost limitless land resources relative to population; technological breakthroughs like electricity, indoor plumbing, railroads, automobiles, radio, telephones, tape recorders, mass production and the availability of reliably tested pharmaceuticals; and a continuous supply of first-generation immigrant labor to do all the hard jobs at low rates of pay. This party is now over, and the hangover has set in.

Cowen's analysis of historical trends in technological innovation reveals a plateau since the 1970s in the adoption and wide dissemination of useful new technologies: i.e. like in the 1970s we still drive cars powered by gasoline, and use refrigerators and TVs; they're just incrementally improved but not radically different in concept. Now they're made elsewhere in the world by newly industrialised economies which have imitated the industrial practices of the US and Europe, and are imported rather than home-produced. The newer technologies like the internet and cell phones are for communications, and don't need a lot of workers to run them.

The author goes on to analyse the incremental value of increasing spend on education, which he sees as offering diminishing economic returns, and writes an excellent section analysing healthcare spending - again, beyond a certain point doubling spending offers smaller and smaller incremental returns in health benefits. Cowen uses a graph to demonstrate that although every major European country has a total healthcare expenditure per capita of less than half that of the USA, they all have longer life-expectancy and lower infant mortality - so it's not to do with money per se, but how things are done and how the money is used.

The author's fix-it ideas include raising the social esteem in which scientists are held: well, amen to that, but is that really going to make a big difference? The biggest earners in the USA are now in the financial sector. Trading credit default swaps, derivatives and securitised financial products may enrich the tiny part of the workforce concerned with such chimera, but they tend to relatively impoverish everyone else and do not spread wealth around as in the industrial age, when millions of people were employed in designing and making real, useful things which improved people's lives and which everybody wanted. Cowen predicts we might be in for a longer and deeper economic recession before new scientific innovations can renew society again, and that the rate of progress will remain uneven and people might "look back to the current era with a gloss of nostalgia" - hardly an optimistic prognosis.

The text of this hardcover was originally an e-book, printed to take in new audiences and offer a more permanent artefact than an online blog. Despite its shortcomings its 89 pages present punchy, lucid arguments and make for an easy read of a few hours, brevity and clarity among its chief recommendations.

Cowen helps put our current economic malaise in perspective, pointing out that our really good years are behind us because their major underlying contributors are 'used up.' These include the benefits of free land (Homestead Act) that helped make America a strong exporter of food, important innovations (electricity, refrigerators, cars, phones, TVs, radios) that have made important contributions to most every American's life, going from smart but uneducated children to a nation that led the world in universal education, and readily available energy resources. Those new opportunities and resulting growth are mostly gone - now its minor refinements (eg. 4G cellphones, iPods, eBay).

Cowen also reports on the now rapid growth in areas that are not providing a basis for future growth or improving standards of living. For example, K-12 per-pupil inflation-adjusted spending has increased 250% since 1970, while pupil outcomes (NAEP 17-year-olds, dropout rates) are unchanged). College costs have risen even faster - yet students study less than in the 1960s and employers constantly complain of inadequate preparation. Worst of all - American healthcare leads the world in spending (18% of GDP, up from about 8% in the late 1960s) but we trail other nations in many key areas of patient outcomes (eg. life expectancy, neonatal deaths, etc.).

On the down side, Cohen omits five additional important factors - some negative and some positive. After WWII the U.S. was the only developed nation that emerged unscathed, and thus became an export powerhouse. Since then other nations have rebuilt (U.K., Germany, Japan) or developed (South Korea, China, Taiwan, Mexico) and are now decimating America via 'Free Trade.' Exporting jobs is now extending to the service sector - the most obvious source being India for software development, call-center services, and now pharmaceutical R&D. The Internet is also making strong inroads into bricks and mortar retailing, and now we're seeing Radio Shack and Staples reducing their store count as a result, while Borders and Circuit City have recently disappeared. Another - the 12+ million illegals living within the U.S. and, along with the children of illegals, are taking millions of jobs from Americans. The last factor - increasing automation, with robots becoming cheaper, more versatile, and easier to program, and cheap software displacing the need for eg. CPAs doing taxes, financial reporting, etc.

Bottom-Line: Wall Street is making money hand over fist by outsourcing, downsizing, automating, and hiring illegals. Just don't look for the return of boom years on Main Street anytime soon, if ever.

Tyler Cowen is great! This was a great and short read. Very informative. Everybody should read it, especially since you can do it over the weekend.

Tyler Cowen argues that the improvement of living standards for typical Americans over time has slowed down. He claims that the increases in the standard of living for past generations is attributable to lots of low-hanging fruit, such as abundant cheap land, smart yet to be educated kids, and "technology." Such easily reached fruits have all been picked, and as a result median family income growth has declined.

Tyler Cowen is an awesome person. The book is a quick, fun, and dense with information and insight. It is definitely worth reading. At the same time, I think his big ideas are wrong.

Living standards for everyone have improved. Life expectancy has risen almost linearly. Televisions, cars, and kitchen appliances are better than they used to be. The Internet provides enormous quality of life improvements.

When addressing these considerations, Cowen retreats to an extremely literalist interpretation of his thesis. He concedes that even if meaningful improvements are occurring, they are slower than they used to be. The graph for life expectancy by year is slightly flatter than it used to be. CPI bias understated past growth as well, and does not change the relative comparison. The Internet can't compete with the introduction of the automobile or electricity.

Even if Cowen is right, so what? "The Great Stagnation" sounds like a huge problem if progress has stopped. If progress is simply slower than it was forty years ago, the thesis seems unimportant. After any huge aberration, there will be a regression back towards the trend line. I don't see how it's a problem that needs fixing.

However, the entire premise that there has been a slow-down in productivity growth seems unsupported. The relevant statistic for productivity gains is growth in GDP per capita, not growth in median family income. For GDP per capita, the trend line is unbroken. Median family income has been flat because productivity gains have been sucked up through rising health care costs. A family health care plan is $7,000 more expensive than it was ten years ago. If you include benefits (as you should), total compensation for the median worker has not been flat at all.

Cowen responds to this by questioning whether we are getting our money's worth for what we spend on health care, but this is irrelevant to the question at hand. There is no controversy that health care is expensive to provide, regardless if it is a good value or not. Somehow, as a society, we have been able to consume far more health care, without dramatically reducing our consumption in other areas. This is impossible without dramatic improvements in productivity. Maybe people are making poor spending decisions, but they are making these decisions with far more resources at their disposal than they ever had before.

Not a very powerful book. Cowen is an economist at George Mason. I took economics at George Mason.

Of course that was a very long time ago. Possibly before Cowen was born. It was before we walked on the Moon. I was there when it had only been open one year. A was only one of fewer than 200 students. I was the literal 'Big Man on Campus'. (I'm 6'4"). Alas nostalgia isn't that good a reason to read an economics book. Cowen is minor thinker.