Boudreaux to NYT on Brooks on Cowen on The Great Stagnation
Bryan Caplan
can't resist quoting my colleague Don Boudreaux latest letter to the editor verbatim:
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To the Editor:
David Brooks appropriately devotes today's column to my GMU Econ colleague Tyler Cowen's important new book "The Great Stagnation" ("The Experience Economy," Feb. 15). Mr. Brooks offers the intriguing hypothesis that what accounts for the relatively 'stagnant' measured economic growth since the mid-1970s isn't so much the absence of remaining "low-hanging fruit" (as Tyler argues) but, instead, a shift to less materialist values.
I have a different hypothesis: what has stagnated isn't the economy but, rather, economists' and statisticians' capacity to measure economic activity and its contribution to human well-being.
As Mr. Brooks notes, Americans today demand more unique and nuanced experiences. Unfortunately, though, the economic value of experiences - unlike that of more corn, more cows, and more cars - is difficult to measure using mid-20th century national-income-accounting categories. But we are demanding these experiences NOT because we're becoming less materialistic or less wealthy. We're demanding these experiences precisely because, rather than stagnating, our economy and our wealth continue to grow so impressively that they are outstripping last-century's economic categories and measurement techniques.
Sincerely,
Donald J. Boudreaux
Professor of Economics
George Mason University
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Think about it this way: If economic statistics arose in medieval times, we would have measured well-being in something like pounds of grain per capita. Around 1900, these ossified medieval statistics would probably have revealed a Great Stagnation - followed, I suspect, by actual decline due to the growing diversity of the American diet.
P.S. If you know of actual historical data on grain per capita, please share.
econlog.econlib.org
To the "why have we grown slower in recent decades" question there is a number of answers that have been suggested
1 - We haven't grown slower, we've just grown more in ways that don't show up in economic statistics (supported by Don Boudreaux and Bryan Caplan among others.)
2 - Related to one, we have grown according to existing statistics, but the statistics that get the most attention like household wages don't reflect the growth well. (The main specific problems with household wages is that households are smaller than before and wages != total income)
3 - We have used up a lot of the low hanging organization and technological fruit, further improvements are harder - Tyler Cowen
4 - Related to #3 but not the same, we are at the frontier, others can grow faster by copying us, but we can only grow fast when we happen to have an unusual amount of real innovation (not the same as #3, because if there was a slightly richer and more advanced country that we traded with we could grow faster then we do under this theory, not so much under number 2)
5 - We are less concerned about improving income and generating growth because we are wealthier and don't have to work as hard - David Brooks
6 - Unregulated capitalism has been falling apart and the weakness of unions hurts the middle class - Paul Krugman
7 - The opposite of 5, the growth of the states regulatory structure and spending has negatively impacted growth.
8 - Something else
I'd say my opinion is that its largely do to #1, #2, and #7. 7. Maybe a bit of 4. Possibly a little bit of 5. I have some doubt about 3, and disagree with 6. And for something big like this #8 (likely many different #8s) would almost always be a factor.
Edit - I'm skeptical about #3, Tyler Cowen's "great stagnation" because the "low-hanging fruit" is largely used up idea, because I think innovation (technological, market, organizational, etc.) creates new "fruit" it doesn't just use it up. New opportunities for innovation exist that didn't exist or where not recognized before, because of recent innovation. Some of that new fruit hangs low. |
