Economic Growth

Is the Great Stagnation Over?

Yes. Get ready for the Roaring Twenties.

|

In his The Great Stagnation, George Mason University economist Tyler Cowen asserted back in 2011 that the United States' economy had been essentially in a long productivity stall since about the 1970s. Yesterday, at an online panel session hosted by the American Enterprise Institute (AEI), the general consensus of the participants was that the Great Stagnation is coming to its end. The panelists were Tyler Cowen, MIT economist Catherine Tucker, University of Houston economist Dietrich Vollrath, and AEI economist Michael Strain. The session was moderated by AEI economics analyst James Pethokoukis.

Cowen argued 10 years ago that the previous set of general purpose technologies—machines and factories powered by fossil fuels and electricity—had run their courses, at least in the United States and other developed economies. When eventually nearly everyone had a car, electric appliances, and indoor plumbing, technological improvements were being made just at the margins. The result was a significant slowdown in the rates of productivity growth and incomes.

The online crew assembled by AEI expressed some optimism that a whole bunch of new technologies were on the verge of jumpstarting our sluggish economy. Strain declared himself very confident that the Great Stagnation is not permanent. He suggested that entrepreneurs were even now exploring how to adapt a whole suite of new technologies—batteries, vaccines, artificial intelligence, driverless trucks—to their best economic uses and whose benefits will become increasingly evident over the coming decade.

Tucker chimed in that it takes a while for entrepreneurs and innovators to figure out how to profitably apply ideas and new technologies. She noted that her fellow economists have been offering two excuses for why advances in digital technologies were not showing up in productivity figures. The first is that the enhancements were not being measured properly. The second is that the elaboration of general purpose technologies, e.g., steam and electricity in the 20th century, needs 20 to 30 years of experimentation before businesses can figure out how to really rev them up to boost productivity. She pointed out that people initially thought electricity was about the light bulb, but what really promoted economic growth was powering machinery in factories and electric appliances at home.

Cowen cautioned that many technological advances would doubtlessly improve human welfare but still might not show up in U.S. gross domestic product (GDP) and productivity statistics. For example, the new plug-and-play vaccine platforms may well result in highly effective vaccines for malaria and HIV, and that would be a huge boon for millions of people living in poor countries, but those benefits would be unlikely to show up U.S. GDP per capita statistics. He also pointed out that the recent significant advances in green energy production are occurring chiefly as a way to avoid the possible catastrophe of man-made climate change. Because climate change is a hidden counterfactual, replacing fossil fuels with solar, wind, and batteries would not necessarily lead people to feel as though their standard of living had risen.

Strain countered that the toll that infectious disease takes on the stunting of talents and skills in poor countries would be greatly ameliorated by rolling out cheap effective vaccines now made possible by messenger RNA technology. Over a longer time horizon, the U.S. and the rest of the world would significantly benefit from efflorescence of invention and entrepreneurship arising in regions whose development is held back by prevalent plagues.

Cowen noted that many of those poor disease-afflicted regions are not currently producing much in the way of new ideas or total factor productivity, so it might take 40 to 50 years for the beneficial effects of new vaccines to become evident. Until then, global economic growth could still just be the same old story of 2.2 percent annual increase.

Vollrath suggested that technological optimism based on technological advances was warranted, but noted that a lot of current innovations aim at replacing things, not adding a new product. Consequently, technological optimism should not necessarily be keyed off measured GDP and productivity.

Pethokoukis wondered if there might arise less tolerance for technological advances if people did not experience a tangible rise in living standards from them. Vollrath responded that during the current pandemic modern vaccines are incredibly tangible, as are digital technologies, like Zoom, that made work life possible for many Americans while maintaining social distancing. On the other hand, he wondered if people will accept that the productivity statistics aren't changing while nevertheless recognizing that, due to technological innovation, we are living fundamentally different lives. Strain suggested that the fact that we defeated the plague in just one year might induce in people more warmth toward abstract notions of economic and social progress through the process of creative destruction.

In response to the Pethokoukis question, Cowen mused that biomedical innovations might happen so fast that the average age of the U.S. population could rise faster than is currently projected. An older America might become a more status quo oriented society devolving into a tighter complacency and thus become less interested in technological innovation.

Strain speculated that technological progress might exacerbate economic inequality. As an example, he hypothesized that researchers will develop highly effective cancer cures that are also very expensive so that only the wealthiest could take advantage of them. On the other hand, Tucker countered that there is a body of research that finds many new digital technologies reduce inequality and cited research that found switching to digital medical records actually helped the less well off.

Pethokoukis observed that there has been a lot of media focus on how technologies supposedly increase social and economic inequality, enhance the surveillance state, and activate neoluddite concerns about unemployment arising from further automation. Tucker noted that prior to the pandemic she and her colleagues were concerned about a "techlash" accompanied by rising support for policies expressly designed to slow the pace of innovation, including bans, taxes, and stringent regulations on certain technologies.

Vollrath offered that such a techlash could stem from the fact that the marginal utility of many new innovations might not be as high as it was for our grandparents, who first obtained former luxuries like indoor plumbing, refrigeration, and personal automobiles. Getting an updated iPhone does not have the same weight as electrifying your house. The current changes are good, but comparatively not all that great when the earlier gains were so much more tangible.

Cowen, ever the contrarian, pointed out that newer technologies could also make things worse. He offered the example of how terrorists might use drones and crypto technologies to wreak havoc. He added that it's easy to imagine where innovation is bad.

Pethokoukis reverted to the question of whether we should worry about productivity growth. Vollrath responded that perhaps thinking about GDP and productivity is not a good way to measure growth. For example, inventing ways to use less stuff would help limit our impact on the natural environment, but it's harder to measure doing less harm and thus to characterize it as an improvement.

What about the impact of technological innovation on employment? Tucker noted that a lot of research on the effects of artificial intelligence (A.I.), specifically machine learning, finds that A.I. is a human-augmenting, rather than human-replacing, technology. Strain noted that automation has generally freed up people to do different and generally more productive work. Vollrath agreed that two centuries of automation have not reduced overall employment.

Cowen said that he didn't think that technological innovation was leading to job losses but worried instead that the internet was making people weirder in a QAnon sort of way. He observed that we have no good models of the psychological and governance impacts of pervasive digital technologies and that the old political equilibria we had is not coming back.

Looking to the future, Cowen suggested that instead of worrying so much about GDP per capita, let's talk about the capitas. He noted that many wealthy countries are on the verge of depopulating. Consequently, he argued that very important innovations would be those that lessen the burdens of rearing children. Vollrath observed that in general the more people the more ideas that are generated and that a shrinking population might slow down the pace of innovation.

Strain, however, expressed doubt about Cowen's suggestion that the burdens of rearing children is responsible for falling fertility rates in rich developed countries. He pointed out that many rich countries have deployed vast infrastructures to support child rearing. In fact, no pronatalist policies aimed at easing the burdens of parenting have yet yielded a sustained boost of a rich country's fertility rate above the population replacement threshold of 2.1 children per woman. Why? Because liberty and prosperity offer people many enticing life choices and pleasures other than parenthood.

Another Pethokoukis question to the panel was: If we look back in 10 years and find that the Great Stagnation has continued, why might that be the case? Would it mean new technologies are actually not all that good, or would it perhaps be the result of bad policies?

Cowen quipped that we had slunk back into our sloth. Strain said that his chief worry is that policies could be adopted that would prevent the emergence of new technologies while holding back new businesses and innovation. In addition, he suggested that an aging population could result in less demand that would spur businesses to do creative and innovative things. Vollrath expressed concern that the sort of cultural risk averseness embodied in the precautionary principle, rather than a failure of new technologies, could be responsible for a continuation the Great Stagnation. As an example, he cited the European Union's risk-averse and bureaucratically botched rollout of COVID-19 vaccines.

A viewer asked the panelists if new science was so complex that we need to expand the supply to scientists and innovators. Strain emphatically responded, yes, and lots more immigrants, too. He added we should hand out green cards to foreign university students who graduate with diplomas in STEM fields. When asked whether China or America would be more likely to lead the breakout from the Great Stagnation, Cowen basically summarized the consensus: I bet on America.

NEXT: Florida Lawmakers Are Cracking Down on Secret Snitches

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. The fascists have finally achieved governmental control over the economy.

    By yelling “wolf”, they can open up or close down businesses, directly affecting unemployment and business growth.
    By saying “the wolf is out of town now”, they can increase productivity and reduce unemployment.
    In both cases they can use the nearness or farness of the wolf to pass out tax monies to their buddies by calling it stimulus or incentive grants or ‘diversity equity achievement’ funding.

    1. [ PART TIME JOB FOR USA ] Making money online more than 15$ just by doing simple works from home. I have received $18376 last month. Its an easy and simple job to do and its earnings are much better than regular office job and even a little child can do this and earns money. Everybody must try this job by just use the info
      on this page…. Visit Here

    2. That’s true, but the old fable illustrates the very real problem of crying wolf too often.

  2. President Joe Biden will outline plans for $2.25 trillion in new spending on infrastructure, financed by massive tax hikes on businesses and individuals, during a speech scheduled to be delivered in Pittsburgh, Pennsylvania, later today……….USA PART TIME JOB.

  3. President Joe Biden will outline plans for $2.25 trillion in new spending on infrastructure, financed by massive tax hikes on businesses and individuals, during a speech scheduled to be delivered in Pittsburgh, Pennsylvania, later today……….EARNS DOLLARS.

  4. “Get ready for the Roaring Twenties”

    The Weimar Germany Roaring Twenties. Hyperinflation that will knock your socks off.

    Bailey’s been smoking too much DNC propaganda over the last four years and is starting to see things.

    “Cowen said that he didn’t think that technological innovation was leading to job losses but worried instead that the internet was making people weirder in a QAnon sort of way”

    Yeah, Emmanuel QAnonstein is the real problem, and not surreptitious corporatism and the canceling, censorship and bookburning by the quasi government entities controlling the internet.

    1. Blue anon has way more supporters.

      1. And their supporters actually wield political and cultural power.

        1. The bike locks, General. Don’t forget the bike locks.

          1. What could be a better indicator of political power, than committing political violence with very little consequence?

    2. The presumption is that weirdness is a bad thing. It’s mostly a good thing.

      Anyone who’s been around the arts or creative scene has likely come across slogans like, “Keep Vermont weird” or “Keep Louisville weird” or “Keep comics weird” or [insert your local area or preferred hobby or interest].

      The saying implies a rejection of authority, rigid norms, and conformist thinking.

      If the

    3. You have no clue what hyperinflation even is. When banks stop doing mortgage lending – then there’s a reasonable chance that hyperinflation is on the horizon. Until then, all you Austrian/Mises folks need to keep smoking pot.

  5. So the Trump-era economic expansion was Stagnation, but the Obama-era malaise that will be returning is Roaring.

    In other news Trans Women Are Women, Peaceful Protests, Temporary Lockdowns, Violent Insurrection Endangering Our Democracy, and The Most Secure Election In History brought us The Most Popular President Ever.

  6. “Cowen mused that biomedical innovations might happen so fast that the average age of the U.S. population could rise faster than is currently projected. An older America might become a more status quo oriented society devolving into a tighter complacency and thus become less interested in technological innovation.”

    So its the old fuckers; there’s a cure for that all right.

    1. Thanks China!

    2. Boomers gotta Boom

  7. “Because liberty and prosperity offer people many enticing life choices and pleasures other than parenthood.”

    And there’s a cure for that, too.

    1. Malthus was right?

  8. Technology is pretty mature at this point. There really aren’t many discoveries left to profit from, unless you are starting with a billion dollars and well connected friends. That means that socialism has more broad appeal than capitalism, and so we will keep losing the fight against fake crises and plandemics, which will continue to enrich the oligopaly, who will push socialist scams like medicare for all, UBI, gun control and GND to appease the masses.

    What the world needs is freedom and equality. Without that, advanced technologies will be exploited not to help people and make their lives better, but to oppress them.

    1. “Technology is pretty mature at this point. There really aren’t many discoveries left to profit from, unless you are starting with a billion dollars and well connected friends…”

      You.
      Are.
      Full.
      Of.
      Shit.

      1. He’s just here for our amusement.

    2. Without that, advanced technologies will be exploited ..
      You just said the weren’t any more opportunities.
      Idiot.

    3. Funny but physics thought that at the turn of the 20th century..boy did they miss that one.. you don’t know…no one knows

  9. Nah with the serious amount of debt we’ve been forced to take on by insane democrats and RINOs we will only have more inflation and stagnating wages. The oligarchs and the aristocracy have cemented their place in power, the technocrats and meritocracy will enforce their rules, and the yep you got it proletariat will suffer as it happens in every society. Humans always do this.

  10. Technological innovation can bring about tremendous economic growth, and I have no fear of a future where AI, automation, etc. combine to make our economy so productive that millions of workers are displaced from their awful and inefficient jobs. People, in that future, will make a fortune figuring out fill those laid off people’s leisure time with cheap, delicious food, beautiful homes, and fun.

    However, even if that future were sure to happen, Mr. Bailey, there are good reasons to believe the future will be delayed, much like it has in the past.

    Anyone else familiar with the Antikythera mechanism?

    https://en.wikipedia.org/wiki/Antikythera_mechanism

    Whatever else there is to learn from it, add this: the differential gear (integral to the industrial revolution) was invented by the Greeks in the ancient world, forgotten, and reinvented to start the industrial revolution–some 1,800 years later. In other words, the industrial revolution was delayed for almost 2,000 years for political, religious, and economic reasons. And we are still subject to those kinds of delays today.

    In fact, the profoundly stupid policies our government is pursuing, even as I type, are so bad, it’s more than appropriate to assume that whatever breakthroughs we should have been expecting before Biden was elected, those should be pushed further out to sometime in the unforeseeable future now.

    1. We’re squandering the investment dollars of corporations and the wealthy on tax increases, and we’re squandering the future discretionary income of consumers with outrageous spending levels. And that’s just what they’ve show us so far! Did you see the Biden administrations wants to impose a minimum corporate tax rate throughout the G-20?

      There’s more spending on the way, too. There is virtually nothing to stop Biden and the Democrats from instituting the Green New Deal, wiping out trillions in student debt, and implementing Medicare for All–and all of those costs will have a real world impact on the future that might have been.

      There were tons of proprietary projects that no longer make sense on an IRR basis once we start raising taxes, increasing inflation, squandering consumer discretionary income on increased energy costs associated with climate change policies, etc., etc. The IRR function is extremely sensitive to time–just like the real world. Projects that don’t make sense from an IRR perspective don’t happen–if financing technological innovation doesn’t make sense, then either it’s put off by entrepreneurs until it does (maybe never) or the government finances some substitute that doesn’t make sense.

      The implementation of technology is a race car fueled by things like investment dollars and future consumer discretionary spending. No doubt, there is an amazing future we could have under the right conditions, but how quickly we cross the finish line is a function of the political and economic choices we make today. Right now, Joe Biden and the Democrats are choosing to drain the fuel out of our race car, pour it all over the racetrack, and they’re setting it all on fire.

      Whatever future we were sure to enjoy before Joe Biden was elected has now been delayed. There are implementations of technology we will never see in our lifetimes because of what Joe Biden is doing today.

      1. The SleepyJoe effect is worse than the butterfly effect.

      2. Ken,

        Every finance dept in every place I worked uses NPV not IRR…if you recall that calc has some issues…then again what is the cost of capital? ha ha

    2. People, in that future, will make a fortune figuring out fill those laid off people’s leisure time with cheap, delicious food, beautiful homes, and fun.

      You mean like how housing prices totally plummeted after, say, NAFTA? And the laid off workers will purchase these luxury goods with…………… their Biden Bux? Fucking hell. At least the Marxist post-scarcity Utopians have the assumption of a totalitarian state built into their fantasy. You think you’re going to get to the same place while an increasingly small group of oligarchs gets exorbitantly wealthy providing goods that are no longer scarce to people with no money to pay for it.

    3. Hero made tye steam engine 2,600 years ago. But without the institutions of The Industrial Revolution, it never went into mass production and was just a parlor gadget for the elite’s entertainment. Like Charles Fort famously said: “It ‘steam engines’ when it comes steam engine time.”

  11. So Krugman was right when he said the internet was just like the fax machine?

    1. Did Al Gore invent the fax machine, too?!

      1. Sure why not.

        1. Truth is more important than Fax

          1. Well done!

  12. “In his The Great Stagnation, George Mason University economist Tyler Cowen asserted back in 2011 that the United States’ economy had been essentially in a long productivity stall since about the 1970s.”

    Correlation doesn’t equal causation, but that would dovetail nicely with the introduction and expansion of Great Society welfare programs.

    1. And when we finally went “full fiat”.

  13. Strain said that his chief worry is that policies could be adopted that would prevent the emergence of new technologies while holding back new businesses and innovation.

    I’d like to think this guy was smart enough to see Joe Biden coming, but you really don’t have to be that smart to know there’s always a Joe Biden coming.

  14. Virginia Postrel used to write stuff like this decades ago. I thought by now I’d have my own personal robot doing my taxes while I shopped for an umbrella to protect me from the wealth showering down upon me. Turns out I still gotta do my own taxes.

    1. As a kid, I was told that by the time I grew up, we’d take to each other over a two-way wrist radio with a video screen and we’d fly to work in a helicopter.

      Well, the two-way radio/video screen/computer/camera just rides in your pocket instead on on your wrist. And who would take a helicopter to work when your workplace is just an area of your house?

      1. Right when Apple came out with the iWatches, that was when I needed prescription glasses. Just my luck.

        What they need is a Dick Tracy Wrist Watch with holographic prjection capabilities and tactile interaction so the keyboard is the size of a word processor and the icons, links, and avatars are 4-D.

  15. ha ha ha…while it is hard to predict rapid increases in productivity, it does occur but often when a country is at peace, not in debt, with low inflation and very low govt regulations and cronyism. The US in the 1870’s, 1920s, and 1950s..and again in the 1980’s (although the debt issue was handled there by offshoring it which impacted our industrial base). The battle between disruption and govt stamping out innovation is ongoing..Biden’s moronic Keynsian nutjob central planning “infrastructure” bullshit will ignite inflation with a Fed that won’t be able to control it. More and more inflation means more and more govt interference in the market….sorry Ronnie the 2020’s will be a lost decade ending in a world war…bank on it…(with Goldman Sachs being the big winner as always).

    1. I would think with all the stimulus floating around, the hyperinflation would start even before the the infrastructure spending.

  16. Just one question.

    Where are the flying cars I was promised?

    1. Lilium is ahead of everyone else, they are getting a foothold in FL.

  17. Lots of people think the market is overvalued. Of course, individual stocks have been overvalued, like Tesla, and good luck finding a large-cap index fund that isn’t sucking that teat.

    I look at the market and I see steady upward growth interrupted by a major world event. Things are a bit heated compared to the trend, but since we did stimuli and propped everything up, it seems like we’re pretty much where we’d be if the pandemic hadn’t happened.

    If you’re investing for the long haul, there’s only one bit of advice I have: whenever Republicans are in power and oversee their latest global catastrophe, that’s when it’s time to buy.

    And buy green energy. Why not? If we destroy the planet, it won’t matter anyway.

    1. WWI….Wilson, WWII FDR, Korea..Truman…Vietnam LBJ…Iraq Neocon Bush…not exactly backing your theory…..

      the market is driven solely by the Fed these days..nothing more….the scary thing is the Fed can’t ever raise rates anymore because of the impact on interest on the debt (with 3-4T coming up for roll over each year)..you will have to have large tax increases to sop up the printed money and a very intrusive govt picking winners and losers which destorys productivity…govt never ends a program no matter how unproductive it is..welcome to the debt trap..

Please to post comments

Comments are closed.