The Agenda

Great Stagnation or Return to Normalcy?

Brink Lindsey has an interesting take on Tyler’s new book:

[W]hat Tyler calls the Great Stagnation looks like a return to normalcy after the “Great Boom” of the post-WWII decades. Indeed, recent growth rates are better than those of all other earlier periods. So yes, growth has cooled down since the postwar “Golden Age,” and that fact poses real economic and political challenges. But the Golden Age was the outlier, not our present era; it just doesn’t make sense to talk about the present period as stagnant after centuries of easy growth.

I think that Tyler would embrace this characterization. As Tim Worstall has suggested, one could argue that the “Great Boom” was an artifact of pent-up growth during a long period of relative stagnation. For reasons I’ll return to in a moment, I nevertheless have a less sanguine interpretation of this return to normalcy than Brink.

[B]eginning in the mid-’90s, fueled by the IT revolution, productivity growth came roaring back, nearly equaling the record of the Golden Age. It’s hard to look at these figures and conclude, with Tyler, that the trees in the orchard are becoming bare. Granted, the productivity comeback offers no ground for complacency. The productivity figures look better than the per-capita GDP figures, in large part because the labor force participation rate peaked in the late ’90s, fell during the dot-com bust, and only recovered to early ’90s levels by 2007 (superior growth in output per worker was thus partially cancelled out by sluggish growth in the number of workers).

As regular readers know, I’m very interested in the labor force participation question. Brink focuses on the aging of the population, while I tend to focus on incarceration and the need for a more inclusive labor market, i.e., a freer labor market and lower marginal tax rates combined with a better system of work supports for workers at the low end of the income distribution.

(I’ll add that I find the idea that PPACA is cool because its increase in implicit marginal tax rates just means that some near-elderly will retire sooner profoundly misguided: we have good evidence to the effect that attachment to the labor force extends useful lifespan. I want more public investment not in high-speed rail — what an absurd, absurd idea — but rather in biogerontological research, to devise cures designed to delay the onset of various age-related diseases.)

So why am I less sanguine than Brink? The main reason is that he is older and wiser than I am, and he’s lived through more cycles of national hysteria and despair and boundless, irrational optimism, etc.

The other is that I think we’re dealing with a revolution of rising expectations problem. There is a fairly happy Patience scenario, in which we allow markets to do the work of making new leisure and consumption opportunities more accessible over time and help facilitate absolute upward mobility and risk-taking with a modest safety net. There is an unhappy Impatience scenario in which we devote ever-increasing sums to the public sector that flow more to public sector wages than straight redistribution, forcing tax increases and dampening our growth prospects, leading democratic publics to scrap over a stagnant pie. Higher growth makes the former scenario more likely, lower growth makes the latter scenario more likely.

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