Wednesday, December 7, 2011

Is technology progressing more slowly (and is that why our economy stinks)?

Tyler Cowen, a noted blogger and economist at George Mason University, wrote a short e-book last year called The Great Stagnation. It sparked a huge debate in the economic community and blogosphere because 1) it was very interesting and 2) his thesis seems to explain why our economy (and median income growth) has been doing so poorly over the last decade (with charts, I’ve written a little about this stagnation here). Tyler cites a technological slowdown as being to blame for our troubles. He explains how it happened thusly:
In a figurative sense, the American economy has enjoyed lots of low-hanging fruit since at least the seventeenth century, whether it be free land, lots of immigrant labor, or powerful new technologies. Yet during the last forty years, that low-hanging fruit started disappearing, and we started pretending it was still there. We have failed to recognize that we are at a technological plateau and the trees are more bare than we would like to think. That’s it. That is what has gone wrong.
Cowen goes on to cite various facts demonstrating the nature of the slowdown since the 1970s. For example, he notes the fact that in 1947 median family income was $21,771 and by 1973 it had already doubled to $44,381; when comparing 1973 to 2004 (a longer period), median income had just gone from $44,381 to $54,061, which was just a 22 percent increase. In other words, our grandparents’ generation saw a much larger increase in living standards than our parents have.

As mentioned, he attributes this slowdown to the fact that our country has picked most of our low-hanging fruit. The first that he cites is the fact that our country once had plentiful land next to important rivers and ports, and that ambitious immigrants could easily come to the country, “work hard on good U.S. topsoil, and enjoy a higher standard of living.” While we still have tons of land, most of it is in disadvantageous locales.

Second, the country was able to make vast gains by simply educating the population (and indeed, in the early twentieth century we led the world in this regard). Cowen here cites the fact that in 1900, only 6.4 percent of Americans graduated from college, whereas by 1960 60 percent of Americans did so. A lot of potential was brought off the farm during this period (to the country’s great benefit), and we’ve already accomplished the same feat for college enrollment. While there are incremental gains still to be made, progress going forward will be much harder to achieve.

The last thing he attributes the income stagnation to is the lack of technological innovation in the last 30 years. It’s counterintuitive, but the data bears it out. For example, he cites a figure from physicist Jonathan Huebner (to the right, and from the book) which shows that innovation actually peaked in 1873 (which is in line with what this book says), and that it was easier for the average person to “produce an important innovation in the nineteenth century than in the twentieth century.” This is not because people were so educated then, but because innovation was then easier and could be done by amateurs. Further, he states that the absolute number of patents produced in the US has declined from 1966 (54,600) to 1993 (53,200), and that the number of patents per researcher has “been falling for most of the twentieth century.”

Indeed, if you think of the advances made by our grandparents generation compared to ours, this will start to make sense. Societal gains from 1880 to 1940 brought a whole host of technological advances, including “electricity, electric lights, powerful motors, automobiles, airplanes, household appliances, the telephone, indoor plumbing, pharmaceuticals, mass production, the typewriter, the tape recorder, the phonograph, and radio, to name just a few, with television coming at the end of that period.” Even the  microwave was first on sale in 1947. If you think of innovation over the last 60 years (from 1951), the internet comes to mind as the only one that’s really revolutionary. We certainly have much more stuff, and the innovations from the early twentieth century have been spread to most of the population (think cars, air travel, refrigerator, dishwashers, microwaves), but life in the kitchen and home is much the same now as it was then. For a great example, Paul Krugman similarly looks at the progress (or lack of it) in his own kitchen and makes a comparison between eras here.

So, Cowen's whole point is that technological progress has slowed and that’s why the economy isn’t growing the way is used to. His proposed fix for the current situation is to raise the social status of scientists, and he thinks it would be a big help "if people love science, care deeply about science", and "view scientific achievement as a pinnacle of our best qualities as leaders of Western civilization." Sign me up, Tyler. We scientists have been been needing someone to stroke our ego for way too long.

Considering the way it turns typical thinking on its head (and for only $4), The Great Stagnation is well worth your time and money.

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