Book Report - The Great Stagnation

His thesis is that economic growth has stagnated. He rejects GDP as the best measure of economic growth.

Also Jason I think you’re overfocusing on the government thing. His point is pretty simple: Government spending is included at-cost in GDP; we may not be receiving the actual dollar cost value from that spending. He’s not trying to discredit government (at least not in this book); it’s just a point to support that GDP may not be the most accurate measure of economic health.

Kissin’ cousin.

I reject the underlying premise that folks, on average, are living at about the same standard as they did in the 70s.

Look at just about any specific measure of consumption:

Percentage of folks with:

Phone service
Color TVs
Washing machines
Air conditioning
Air travel

or stuff like:

Average lifespan
Infant mortality
Percent graduating high school or college

And I think you’ll find VAST improvements over the last 35 years. (Note, I haven’t checked these before posting this, but based on stuff I’ve seen in the past, I feel reasonably confident in my statements.)

And of course, that’s not even counting the lifestyle improvements brought on by new or nearly new inventions, like:

The internet
Mobile telephones
Consumer level recording and playback devices for audio and video (i.e. MP3s, CDs, Blu-Ray/DVDs, and their predecessors)
Video games

Perhaps the improvements over the last 35 years fall short of those over the preceding 35 years. Perhaps the low hanging fruit has been plucked. (I’m not so sure, but it’s a debateable point.) But an argument that conditions haven’t improved for the average (mean or median, take your pick) worker seems not to jive with facts on the ground, at the consumer level.


Not sure about everything you listed Phil, but I know for a fact that HS graduation rates have fallen from the 70s. Nor do I think electrification & phone service have advanced significantly since then (the big electrification push occured in the 30s and 40s).

And let me be clear - Cowen’s point isn’t that there is no economic growth, rather than it’s been very slow, especially compared to the period from 1870-1970.

If he’s redefining growth to mean median income, sure, but that’s because of distribution. There’s been plenty of income growth, the top half just got all of it.

Cite? My quick googling finds this which shows a steady rise over time, and dramatic improvements since 1970.

14,441.4bn is the GDP in 2008, not government spending. Government spending in 2008 was 5335.24bn. See here.


Yeah I’m totally dumb there, mea culpa. Let’s see if I can’t do better:

Assuming the budget numbers aren’t in real numbers the budgets for these 10 year intervals in 2008 dollars are:

1970: 1785.29 bn dollars
1980: 2456.52 bn dollars
1990: 3440.83 bn dollars
2000: 4051.26 bn dollars
2008: 5334.65 bn dollars

So while the budget is pretty constant as a percentage of GDP; I don’t find that to be a convincing argument that the budget is not in part driving GDP. If you reduced spending levels to 1970 levels you’d have a GDP of 10,892 bn dollars; which is like more than a 25% reduction.

Note: this is a separate argument from “should we spend as much money as we are today.” It’s a simple observation that government spending has grown dramatically in real terms over the 38 year period from 1970 to 2008.

What’s the driving that spending (serious question)?

Don’t forget to correct for population as well–the current population is 150% of that in 1970, so reducing per capita spending to 1970 levels would be less of an impact (although still substantial).

Cowen cites a high of 80% in the late 1960s. Since then he claims that we’ve dropped by about 6%.

Here is a link. They show a graduation rate of 70.06% in 2008. Sadly their data only goes back to 1990, when the graduation rate was 71.18%.

This paper seems to claim it’s declined quite a bit over the past 40 years.

The exact rate of graduation and whether it’s going up or down is actually secondary to the larger point though: further education has diminishing returns. You’re going to get less economic return out of getting the final 20 or 30% through high school than you did out of getting the first 70% through high school.

No clue. Damien points out (rightfully) that population growth is part of it; with more people you need more employees to provide government services.

Tangental but maybe something: At least locally, we’ve pretty much whacked all Vo-Tech stuff out of high school. All of that stuff (auto-body shop, welding, other skilled labor, etc) has been pushed out to community colleges or for profit schools.

The interfluidity guy has some interesting stuff.

I think of government, education, health care, and finance collectively as the “information asymmetry industry”, and I find it terrifying that many people presume that they are the future growth industries for the United States. Dani Rodrik has pointed out that tradable goods are special, in terms of engendering development in often corrupt emerging markets. Cowen offers an astute explantion: tradables that compete in international markets are usually low-information-asymmetry goods. Apparent value (revenue from trade) and real value are likely to be closely aligned and hard to fake. I worry that specialization in the information asymmetry industry could be an antidevelopment strategy for developed countries.

Cowen seems really focused on the “extensive margin” — the development of qualitatively new goods. I don’t think “growth”, in aggregate or as experienced by the median family, really captures what Cowen thinks we are missing. Instead, I think that Cowen is lamenting a scarcity of breathtaking resets. Developments like electrification and the widespread adoption of automobiles didn’t make people richer as much as they completely changed the circumstances of everyday life. Indirectly, they also made the production and marketing of previously extant goods much more efficient: Electricity helped make bread cheaper. But I don’t think cheap bread impresses Cowen as much as the fact that, post-electricity, humans colonized the night and Presidents colonized living rooms. Income statistics do end up capturing these sorts of changes, but in a manner that is arbitrary and formal. Ultimately, different technological regimes are incommensurable in welfare terms.

Medicare/Medicaid are a huge chunk of it–those programs were instituted by legislation passed in '65, and now account for something like 22% of the total budget. Together, I think they account for about half the per-capita growth in government spending.

Ah ha.

[INDENT]Assuming that TFP = technology, this graph definitely seems to support Tyler Cowen’s hypothesis of a “Great Stagnation” in technological progress around 1973.[/INDENT] [INDENT]However, just for fun, I decided to update the graph. John Fernald, ever the careful empiricist, breaks his TFP series down into two categories: total factor productivity in the production of durable goods (cars, buildings, TVs, machinery) and TFP in the production of nondurable goods (clothing, food). Here’s what it looks like when we graph both of those on the same graph:[/INDENT]
[INDENT]Wow! If you look only at productivity in the durables sector, there was no Great Stagnation at all - in fact, quite the reverse, since durables TFP has been growing more strongly post-1993 than it ever did pre-1973! [/INDENT] [INDENT]Form this graph, it definitely looks like something big did happen to technological progress. But it looks like it happened not in 1973, as Cowen claims, but a decade earlier. In the 15 years to 1963, TFP in the two sectors grew pretty much in tandem. But sometime in the early- to mid-60s, they diverged wildly, with nondurables TFP rising anemically through the late 70s and then basically flatlining until now. Durables TFP looks to have suffered its own very minor slowdown in the mid-70s (which is probably the reason why overall TFP looks like it took a turn around that time), but exploded with unprecedented vigor after '93.[/INDENT]

That chart is useless…also …cars…durable…bah

On the subject of the Internet and its economic effect (measured and otherwise): today Tyler Cowen linked to a study on the subject.

edit: wtf Tapatalk just butchered the quoted text. Sigh. I wish I could post to this forum efficiently from the iPad!

Anyway, I have no idea how to even begin evaluating these claims, especially the one regarding the consumer surplus generated by the internet. I do appreciate attempts to quantify it however. As Cowen points out, this latest data tends to support his stagnation hypothesis (or rather, it refutes some of the rebuttals).