Tyler Cowen has established himself as the indispensable economics commentator. The general director of the Mercatus Center and holder of the Holbert C. Harris chair of economics at George Mason University (where he also earned his undergraduate degree), Professor Cowen has a Ph.D. in economics from Harvard and an extensive academic publishing record. But he’s perhaps best known for — and most influential in — his work outside of academe, as an author on the popular Marginal Revolution blog and as a commentator for the New York Times, Slate, and The American Interest. He’s also published several accessible books, including Create Your Own Economy, The Age of the Infovore, and Creative Destruction.
His most recent work, The Great Stagnation, has quickly become one of the most talked-about books of the year among economics wonks. Its thesis: The U.S. has seen a slowdown in the growth of median wages since the 1970s because we have eaten “all the low-hanging fruit” in technology, education, and resources — innovations that increased the efficiency of industry, facilitated the provision of new skills to capable but previously deprived students, and expanded access to freely available land. But ever since those gains were realized, our productivity, and hence our average income, has slowed its forward march, leaving us on a technological and economic plateau. Our more recent innovations, like the Internet, improve our quality of life but don’t show up in the material measurements of Gross Domestic Product. This makes Cowen pessimistic about our prospects for regaining 1950s-style economic growth in the near term, but he has some ideas for brightening our future, or at least having more fun under gray skies.
Cowen spoke with NRO’s Matthew Shaffer about The Great Stagnation, income inequality, politicians, Dodd-Frank, Austrian economics, politicians, and more.
MATTHEW SHAFFER: The Great Stagnation is a quick read. But can you give us an even quicker taste? What’s your three-paragraph summary?
TYLER COWEN: The three-paragraph summary is that the rate of technological innovation has been slowing down in American society. Living standards for the typical household rose at a very rapid rate from the late 19th century up through the 1970s. In every generation, living standards for the average household would double.
Now they’re rising at a very slow rate, not much more than zero. In the last ten years, average living standards have fallen. In the past ten years there has been no net job creation in the U.S. economy. I refer to this as a Great Stagnation.
And it is a revolution for our economy, our politics, and our way of life.
SHAFFER: What’s the cause of the slowdown in technological change?
COWEN: Most accounts of this create some set of villains. So commentators on the Left think it’s because the rich or the Republicans now control the U.S. government. But when you look at the actual data on technological innovation, one thing you see is that what I call the “low-hanging fruit” has been exhausted. So radio, flush toilets, electricity, and automobiles — a lot of very basic inventions — have spread to almost all households. [The fact that] they’ve successfully spread means the rate of growth must slow. And other than the Internet, there has not been a comparable breakthrough in technology for quite some time.
The other factor is that we have a malfunctioning education system. [High-school] graduation rates in this country actually have been falling for several decades. Go back to, say, 1900 or 1910 — the marginal student you’re educating is both easy to educate and quite possibly brilliant, or at least going to be highly productive. So education was bringing us significant gains for most of the 20th century — at least the first half. But now the marginal student who is not getting educated, or who is getting educated, is very difficult, and not that productive, and hard to teach. And that’s another way in which this low-hanging fruit has been taken off. It means that at the margin we find it harder to make progress. So in part it’s hard to make additional progress precisely because we’ve done so well in the past.
It’s not a tale of villains. It’s a tale of technological progress.
SHAFFER: So the major technological gain of recent years is the Internet, but the gains of the Internet are not reflected in GDP or median income?
COWEN: That’s correct. Some are, but most are not.
SHAFFER: You dedicate The Great Stagnation to Peter Thiel. But he told us just a few weeks ago that higher education is part of the problem — a bubble we need to pop, a bloated signaling mechanism that’s detaining people from productive market activities.
COWEN: I’m more pro-education than Peter is. I think higher ed in the U.S. is fairly healthy, and by global standards it dominates, and it makes people more productive. But a lot of our K-12 is a disaster. And the single most important reform would just be to fire the worst ten or 15 percent of teachers in the lot, and we would have massive improvements. Because we’re a federal society, there’s no single top-down law that would get us there. But cities, communities, counties are working toward that.
I agree with Peter that when it comes to both education and health care, we’re adding these expenditures into our measure of GDP, and we’re valuing them at cost, as if every dollar we spend is creating a dollar worth of value. And that isn’t close to being true. It’s one reason why our measured GDP is perhaps higher than our actual living standard.
