Tyler Cowen, an economist at George Mason University, is gaining attention for a simple and powerful idea but one that might take us down a wrong public policy path. The simple idea is that America’s slow rate of scientific innovation for several generations is a major cause of a multidecade economic stagnation.
Cowen is thought-provoking yet frustrating. His short book, "The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History, Got Sick, and Will Eventually Feel Better," was first a rapid e-book success before being converted to print in 2011. The low-hanging fruit is the land, technology and uneducated population whose productivity was quickly and easily increased during the first half of the 20th century. However, it has been harder to continue productivity as the more easily obtained resources are exhausted. This has contributed to America’s slower economic growth, especially median wages, since the 1970s.
Cowen argues that we are living off the successes of past innovations and points to the claim that 80 percent of economic growth between 1950 and 1993 is from the application of old inventions as opposed to the creation of new products and processes.
At one level, Cowen is right. A declining rate of return on innovation is simply an application of the law of diminishing returns that is taught in every principles of economics class. Like many general principles of social science, it should be applied with care. The law of diminishing returns could be used to argue against additional years of higher education or to argue that the last month of life does not have as much value as the preceding month.
Cowen focuses too narrowly on economic growth as calculated as the gross domestic product, a rather easily calculated, yet misleading, statistic. He acknowledges this difficulty by addressing how government services and health care are calculated into GDP by their input prices rather than their true value. Nowadays we should be focusing on broader virtues such as national welfare, general happiness or full-employment of human beings.
It is this simple view of economic growth that allows him to make more outlandish claims in several related publications. Cowen recently fine-tuned his argument in a Time interview titled “What if America’s Best Ideas were Behind It.” His work was also the basis for an article in the Jan. 12 print issue of The Economist. That issue is the one with the cover showing Rodin’s “The Thinker” sitting on a toilet wondering “Will we ever invent anything this useful again?” While Cowen probably had nothing to do with that cover, in this case a picture is worth a thousand words because it reflects Cowen’s view that there is not much new in America.
Cowen argues that life for people before World War II was pretty much like life nowadays because our grandparents had cars, ovens and knew about air travel. While I agree that the difference between having a car and not having a car is a bigger difference than a 1909 Model T and a 2013 Lexis, the popularity of motorized vehicles has transformed American life by creating the suburbs, the interstate, joyriding and NASCAR. Similarly, air conditioning, microwave ovens, birth control pills, cardiac care and video games have changed society drastically since the 1970s. While narrow economic analyses of technological change might not be able to capture their impact on economic growth as measured by the change in GDP, my grandparents would be stunned to learn the extent of the popularity of each in today’s America.
Cowen presents many thought-provoking insights for policy-making in 2013. Three important ones are:
Cowen is on-target in warning that as education and health care become a larger part of economic activity, productivity as conventionally measured is unlikely to increase.
My biggest disagreement with Cowen is his major recommendation: the need for more scientific breakthroughs. He proposes more social and financial support for science and technology. While more scientific innovations might reduce pollution or infant mortality or help achieve other desirable goals, waiting for a scientific breakthrough that increases economic growth as much as the automobile is misdirected and seems far-fetched. Our challenges are governing. It does not take a scientific breakthrough to reduce the federal deficit, or to adopt effective financial regulation or to commit to improving children’s literacy. These are political problems, not scientific or technical ones. Solving them takes political commitment and administrative know-how.
David Webber is an associate professor of political science at MU where he is currently teaching a course on "Is America in Decline?" He can be reached at email@example.com. Questions? Contact Opinion editor Elizabeth Conner.