The Agenda

Tyler Cowen’s *The Great Stagnation*

I had the great pleasure of reading The Great Stagnation late last week. I want all of you to buy it, or rather all of you with e-readers. The book prompted many thoughts:

(1) I like the business model behind the book. A few months ago, I tried to convince one of my close friends to self-publish a book of essays. He decided to go with a major publisher instead, as he felt needed the economic security a generous advance would provide. Tyler isn’t self-publishing this book, but he has priced it aggressively and he is ably promoting it through his blog. He is enacting Kevin Kelly’s 1,000 True Fans approach, though my sense is that he has a far wider impact.

(2) The business model behind the book reflects some of the deeper themes in the book itself, which is closely related to arguments Tyler has advanced in his stimulating essay on how to think about U.S. inequality and The Age of the Infovore, a book that was criminally underrated, mostly due, I suspect, to its confusing original title.

(3) I’m wary of summarizing the book — I really want you to read it for yourself — but the basic idea is very straightforward: Americans have grown accustomed to painless, automatic increases in prosperity. This is true of Americans on the right, who believe that painless tax cuts will deliver prosperity, and Americans on the left, who believe that above-market wages and more public investment funded by painless tax increases on the rich will deliver prosperity. Tyler convincingly argues that we’ve run out of this “low-hanging fruit.”

In 1920, the marginal college student was fully capable of profiting from a rigorous college education. In 2011, the marginal college student is perhaps less capable, due to a confluence of factors. Some believe that credit constraints are the driver of an increase in dropout rates. Others, myself included, believe that traditional college instruction isn’t necessarily right for, say, 80 percent of the population, and that the rigidity that defines an education sector that is tightly regulated and fueled by third-party public dollars doesn’t lend itself to the kind of specialization that would yield big productivity increases. This is a subject of particular interest to me.

(4) On the Infovore front, the great technological advances of our time are better at generating consumer surplus than the kind of revenue increases that can sustain the public sector. Moreover, the consumer surplus tends to flow to novelty-seeking, complexity-loving, information-hungry people. These people are unevenly distributed across social groups, e.g., they are disproportionately college-educated. As Tyler suggested in his inequality essay, our society is arguably becoming happier and more happiness-focused thanks to the proliferation of internet-enabled “cheap fun” while also experiencing stagnation in GDP and wage growth.

(5) One of the conclusions I drew from the book — a conclusion that, in fairness, reflects an existing prejudice of mine — is that we should educate young people in part to help them have a happier, more fulfilling life, in the hopeful expectation that a love of learning will prove economically useful at some point down the life. This flows together with Matt Crawford’s arguments in Shop Class as Soulcraft, though I don’t necessarily share all of Crawford’s views on political economy.

(6) It is easy to criticize the Cameron conservatives for their emphasis on “general well-being,” an admittedly fuzzy concept. Yet I do think that Tyler’s framework lends itself to a new way of approaching public policy dilemmas (though I should note that Tyler won’t necessarily endorse my leaps and extrapolations), e.g.,

(a) Commuting and congestion should be taken much more seriously then they are at present. Long commutes are a big source of misery for individuals and families. Encouraging telecommuting along the lines of Utah’s state government should be an urgent priority, on environmental, productivity-enhancing, and well-being grounds.

(b) Trickle-down is actually a pretty useful way of thinking about contemporary economic life. As one of the leading global economies, the U.S. is in a tough spot. While other countries have the low-hanging fruit of mimicking our most productive practices, e.g., the relative efficiency of our retail sector, we have to engage in a costly trial-and-error discovery process to become more productive. This trial-and-error process sometimes translates into labor market volatility. Relatively weak labor protections make it easier for firms to hire and fire, and it also makes it easier for them to find new ways to organize their labor force in new and potentially more productive ways.

But the wealth that we’re generating increasingly derives from the creation of knowledge capital. So a large and growing number of us cater to the small number of people who create the most valuable knowledge capital, and I don’t attach any normative significance to “most valuable” in this context. It is really useful to actually live in close proximity to these people.

This leads us back to commuting. The places we should worry about are the rural and urban places that are most disconnected from concentrations of great wealth. Many writers, including David Frum, have noted that “Red America” tends to be more egalitarian in the narrow sense that monolithically Republican places have narrower patterns of income dispersion than big, dense cities. This is true. But this isn’t necessarily a good thing As Ed Glaeser argues in Triumph of the City, big cities have high poverty concentrations because they attract poor people with the promise (and reality) of economic opportunity. This is also why poor people cluster near mass transit. More low-cost mobility means more access to economic opportunity. The disconnected poor are a huge problem. Why? Because they’re too far away for benefit from trickle-down.

(c) Chrystia Freeland’s Atlantic essay on the new global elite attracted a lot of attention for its thesis that we’re seeing a secession of the rich — a new global elite that feels increasingly independent of national loyalties, and that is perhaps more susceptible to horizontal, class-based solidarity. You won’t be surprised to learn that I don’t share all of her concerns. This was a telling passage:

I heard a similar sentiment from the Taiwanese-born, 30-something CFO of a U.S. Internet company. A gentle, unpretentious man who went from public school to Harvard, he’s nonetheless not terribly sympathetic to the complaints of the American middle class. “We demand a higher paycheck than the rest of the world,” he told me. “So if you’re going to demand 10 times the paycheck, you need to deliver 10 times the value. It sounds harsh, but maybe people in the middle class need to decide to take a pay cut.”

It’s worth unpacking this paragraph. Is he not sympathetic to the complaints of the American middle class, or is he somewhat more sympathetic than most Americans to the relative deprivation experienced by the poor elsewhere in the world? Is it obvious that nationalist solidarity is the right way to think about these issues? Are there alternative nationalist narratives we could embrace, e.g., we want America’s most successful people to be as successful as possible, and then live close to them so that we can share in some of their success through market mechanisms rather than by leveraging our power as voters to secure more redistribution that might jeopardize wealth creation? Many will call this a false choice — and it might be a false choice! — but I’m not so sure.

(d) I hope that Tyler is wrong about the likelihood of sluggish growth in the medium-term for the most advanced market democracies. If he’s not, we need to think seriously about how to create interesting, engaging, fulfilling work for large numbers of people for whom the market wage falls below the reservation wage. We can’t all be knowledge workers. But perhaps we can all find work that activates our senses.

Obviously we’re going to keep talking about all of these issues forever. Many thanks to Tyler for writing a really terrific provocation.


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