The Great Stagnation
‘The Great Stagnation’ by Tyler Cowen; Dutton Books, 2011. 109pp
Reviewed by Stephen Nash | 23 November 2012
With its sizeable subtitle – ‘How America Ate All the Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better’ – this slim volume has made a big splash since its initial appearance in ebook format at the start of 2011.
On the dust jacket, Ryan Avent, economics correspondent at the Economist, predicts The Great Stagnation will have a ‘profound impact on the way people think about the last thirty years.’ The accuracy of Avent’s prediction remains to be seen. However, whatever conclusions you choose to draw about Cowen’s thesis itself, the book has already played an important role in widening the debate about the economic crisis, taking the discussion beyond a narrow focus on finance and banks and instead placing events in their wider context. Put simply, rather than seeing the financial crisis of 2008 as the problem in and of itself, Cowen argues it should be viewed as symptomatic of a deeper malaise. So while much analysis of the crisis has thus far focussed on finance houses and banker greed – and led to calls for further regulation of the financial system, Cowen argues that a more profound set of changes are necessary.
Instead of focussing merely on the recent period of financial turmoil, The Great Stagnation encourages a longer term view. Over the last 300 years or so, Cowen argues, America has enjoyed a number of advantages which have enabled it to develop rapidly: a huge bounty resulted from free, fertile land and abundant natural resources – and in turn these helped attract the most enterprising workers from Europe; in the period from 1880 to 1940, numerous technological advances were exploited to improve the lives of the mass of the population; and, finally, great gains were realised from improvements in education – the proportion graduating from high school increased from 6% in 1900 to about 80% by the late 1960s.
In the context of this longer term view, Cowen identifies the recession of 1973 – 1975 as signalling the onset of stagnation, with the time since then being characterised by sluggish growth in the economy, a fall in the rate of increase of real wages, a decline in levels of innovation, and the reversal of advances in education.
The metaphor used to explain this change is the ‘low hanging fruit’ of the subtitle. Cowen illustrates this by getting us to think about differences in the rate of change in the past 40 years or so compared to the earlier advances. So, taking innovation as an example, developments in the period from 1880 to 1940 include mass production, electric lights, cars, airplanes, the telephone and television. The person living through those years experienced revolutionary changes in the way that they lived.
By contrast, Cowen argues that the world we inhabit today is not substantially different from that of the 1950s – apart from the Internet. Of course the development of the internet should be celebrated. However, it is also important to put the internet into perspective. As Tom Standage has shown in his book ‘The Victorian Internet’, inventions such as the telegraph meant humanity had already developed systems of almost instant communication by the late 19th century. And as technology expert Norman Lewis has pointed out, the devices produced in the last 40 years by the likes of Apple are simply not comparable to breakthrough innovations like the electric light, the space race, the discovery of nuclear power, or the invention of the jet engine.
One problem with the metaphor ‘low hanging fruit’ is that while it may make for a catchy title, it has a naturalistic feel about it, seemingly suggesting that humanity always takes the easy option. In reality, from Faraday’s experiments on electricity to Babbage’s on the computer, throughout history technological innovation has often been the result of many years of human endeavour, with great scientific breakthroughs taking time to have an impact on the wider society.
When this bigger picture is considered, the ‘low hanging fruit’ analogy becomes a handicap, dismissing too easily the enormous amount of hard work that went into innovation in the past. Today, the real problem is not so much technological – that there are no easy fruit left to pick – but social and cultural. Culturally, there has been a collapse of belief in experimentation and progress, and consequently, a decline in levels of investment in innovation and the development of new products. Unfortunately, Cowen fails to analyse in any real depth the social and political changes of the recent period. Therefore he is unable identify the way that society’s embrace of green and post-material viewpoints is one of the main reasons why those with the resources to invest in production have failed to do so.
However, Cowen does pursue a number of interesting areas of discussion. While avoiding taking sides on the need for a bigger or smaller state, he suggests that the nature of state expenditure does make a difference as to how the rate of growth should be interpreted. For example, depending on how it is measured, growth in government, health care and education can give a distorted picture of the growth of productivity and GDP. Or take the building of a road and its subsequent maintenance. The expenditure on each might be counted in GDP terms, but the latter is not as effective as the core original expenditure. Meanwhile, additional investment in health care to maintain an aging population and increases in education expenditure might both be desirable, but they do not contribute to increased productively in the manner that past increases in state expenditure did.
These are issues that equally apply in Britain, and we would certainly benefit from placing them on the table for discussion. Yet while there appears to be a more rigorous debate in the US, I was disappointed that Cowen didn’t pose some more pertinent questions. Nowhere does he examine the green anti-development agenda, or how greater risk taking might be encouraged to achieve the innovation that he clearly sees as desirable.
Indeed, the remedies Cowen does suggest may in fact be quite problematic in terms of addressing this period of stagnation. In particular Cowen has a problematic understanding of the role of science. While recognising that the growth of science in China and India could lead to important future innovations, in advocating that western societies need to raise the social role of scientists , Cowen fails to recognise that in western societies today, scientists and the use of science can often be a conservative force.
Consequently, while I concur with Cowen’s celebration of the gains made by Norman Borlaug, pioneer of the Green Revolution, it is notable that he ignores the fact that Borlaug’s achievements have today become contentious because the outlook of society – including many scientists – has become dominated by environmental thinking, an outlook which plays a key role in undermining rather than encouraging investment in innovation and economic growth. So while Cowen calls upon society to celebrate science, he adheres to the widespread belief that evidence based science is a means of conducting politics, an outlook likely to reinforce a technocratic and authoritarian approach to the future. Ultimately, we can only truly celebrate science when it takes its rightful place as the servant to humanity.
Nevertheless, all told, this book offers a much needed alternative to the narrow finance focused discussions that prevail today. Instead of looking at quantitative easing and interest rates, it provides a much needed stimulus to broaden our horizons and think politically about how we can move forward materially.
This is an edited version of Stephen Nash’s introductory remarks at the Future Cities Readers’ Group on 7 November 2012