Don’t miss my interview with economist and blogger-extraordinaire Tyler Cowen, author of one of the most talked about books of the year, The Great Stagnation. Cowen is an intellectual omnivore, and our conversation reflects his wide-ranging, and very interesting, thoughts — on education, David Brooks vs. Paul Krugman, the Austrian school of economics, and more. My favorite part is his discussion of how to think about income inequality. But the center of our discussion is growth and why Cowen says we shouldn’t expect it to be restored to 1968 levels anytime soon:
SHAFFER: Your thesis contradicts one of the other most-buzzed books of the year, Matt Ridley’s The Rational Optimist — a striking fact, since you’re both focused on technology and innovation, and are both fairly libertarian. Ridley thinks that the exchange of ideas, promoted by the Internet, leads to innovation, hence inexorable economic growth, and that the current economic downturn is, relative to that rising tide, just one small wave. Where do you differ?
COWEN: Well, all of that I agree with, and I actually consider myself an optimist in this book. I’m not as optimistic as people who just deny that there’s been a problem with a slowdown in living standards and growth. In my view, we’re at a plateau. We are seeing local diminishing returns, but there are going to be other breakthroughs in science, probably in our lifetimes. So that’s an optimistic point of view.
But when I hear people express extreme optimism about the Internet, I say, we’ve had it in mature form for about ten years. Macroeconomically speaking, those are about the worst 10 years we’ve had since about the 1930s. I don’t blame the Internet for that — that would be ridiculous. But nonetheless, it’s yet to really kick in as a major positive moving force at the economic level. It has just a small amount. The best is yet to come.
Look at electricity in human history — it took a few decades for electricity to really revolutionize the American economy. And the Internet will be the same. At some point in the future we will arrive at a new era of low-hanging fruit. We’re just not there yet, and the optimists tend to forget just how long those lags are…
We’re seeing society grow more rapidly along the happiness or utility dimension than we had expected, and seeing it grow more slowly across the jobs-and-revenue dimension than we had expected. And that’s a disconnect. It doesn’t have to be a fatal problem. The problem is when you don’t plan for that and don’t understand that that is happening.
A major issue is that we have a lot of debt commitments — some privately, but mostly in the public sector — that were premised on robust growth in revenue and jobs. But we’re taking a lot of our social dividend out in the form of happiness or utility — which, by the way, is harder to tax.
But that does mean that our fiscal crisis is going to come more quickly and be a lot worse than many people expect, even fiscal conservatives. They still think it’s only a matter of time before we revert to 1968 levels of growth for the typical families. And I don’t see us as being there.
We’re going to have slow growth and persistent, fairly high unemployment.
Cowen makes a compelling case for economic pessimism, and thinks our fiscal policies must be radically readjusted to those realities. Read it all here.