*The Great Stagnation*, excerpt

by on January 22, 2011 at 3:20 pm in Books, Economics, History, Science | Permalink

From my new eBook, here is one bit:

I’m also persuaded by the median income numbers because they are supported by related measurements of other magnitudes. For example, another way to study economic growth is to look not at median income but at national income, gdp, or gross domestic product, the total production of goods and services.  Charles I. Jones, an economist at Stanford University, has “disassembled” American economic growth into component parts, such as increases in capital investment, increases in work hours, increases in research and development, and other factors. Looking at 1950–1993, he found that 80 percent of the growth from that period came from the application of previously discovered ideas, combined with heavy additional investment in education and research, in a manner that cannot be easily repeated for the future. In other words, we’ve been riding off the past. Even more worryingly, he finds that now that we are done exhausting this accumulated stock of benefits, we are discovering new ideas at a speed that will drive a future growth rate of less than one-third of a percent (that’s a rough estimate, not an exact one, but it is consistent with the basic message here). It could be worse yet if the idea-generating countries continue to lose population, as we are seeing in Western Europe and Japan.

I do not hold the view that relative stagnation will last forever, only that it has lasted for thirty-seven years and that it will not end immediately.  Oddly, it is the so-called "economic right" — which complains bitterly about decades of increasing taxes and regulation and litigation and government privilege — which finds such a claim hardest to accept.

You can pre-order the eBook; the Amazon link is here, Barnes&Noble here, $4.00.  I offer further information on the book here.

1 Andrew January 22, 2011 at 11:36 am

Americans do it with superior penetration.

2 Chris January 22, 2011 at 11:52 am

Man, you need to find a way for people that aren't into all this fancy new tech ebook stuff to read this. I want to read this, but only have a computer, no ipad, no kindle.

3 Sergey Kurdakov January 22, 2011 at 12:01 pm

Yes, still the question is if underlying assumptions ( Solow or Romer/Lucas growth model ) are correct.

look here – there could other approaches:

http://cedm.epp.cmu.edu/files/slides/Ayres.pdf

at least – I could be noticed somehow that machines 'work' using energy is not captured by Solow/Romer/Lucas models.

There is another fact, though explainable by other means, that actually robots are direct substitution for labor in sense – one can have no technological progress ( except for new software for robots), still investing into robots driving, building etc – it is possible to have visible economic growth ( as a growth in labor in Solow model ).
example – heated greenhouses, especially equipped with robots can make 6 fold increase in food production – one have no need for new inventions – but more energy ( which we also know now how to produce and more cheap than now – see advanced nuclear projects of different kinds).

So the question arises -if we could estimate how much we could produce more food/equipment etc without major inventions but with robots/energy inputs we can realistically assume in near future?

and it looks like – we would get – we could have much more different goods – at least several times more – just by using energy inputs. But could this at the same time be easily captured in Solow model? This is a major question I see in respect of inventions as major driver of growth.

And if there will not be much inventions in near future, then, OK, but
what is most promising path,except for new inventions?

I think –
more energy use, getting more from
intelligent machines which perform tasks directly substituting labor – automated cars ( already exist ), building robots ( already exist) etc.

if to look into other fields from http://cedm.epp.cmu.edu/files/slides/Ayres.pdf we can see software.

and yes – it can find it's use, in other fields too – for example
in teaching. We can have much less educators ( Salman Khan seems showed a path – just one man can provide reasonably good education for almost all children with proper organisation of process from parents ), and these freed people can apply their skills in other fields.

So we can grow much more even now. The problem – is where economists look for the solutions.

From your quote – it is 'inventions' – but might be that the story depends on inventions ( energy saving and energy efficiency affecting approaches ) in indirect way, and direct use of energy ( scaling it's use ) can make quite different future, than common models could offer us to hope to?

4 Elvin January 22, 2011 at 12:09 pm

George,
Tyler is a liberalitarian. He has never written a nice thing about conservatives, the right, or Republicans. Just check how much he sites and links to left-leaning bloggers. For example, he's more interested in what Ezra Klein or Kevin Drum has to to say than with say, George Will or the National Review.
I don't think it would bother Tyler if a left-leaning elite ran the country.

5 Steve Reilly January 22, 2011 at 12:11 pm

We've had thirty seven years of stagnation, and yet your new book is designed for a device that only came out a couple of years ago, and costs much less than just about any book published on paper? I haven't read the book yet, and maybe it will change my mind, but I'm having trouble squaring the paragraph above with the obvious fact that technological progress doesn't seem to be slowing down.

6 The Dirty mac January 22, 2011 at 12:44 pm

Thirty-seven years ago, my family didn't even have an electric typewriter. I share Tyler's love for ethnic foods. I grew up in the New York area, and to me in the early seventies ethnic food meant spare ribs at the one Chinese restaurant in town.

7 Slocum January 22, 2011 at 1:03 pm

Oddly, it is the so-called "economic right" — which complains bitterly about decades of increasing taxes and regulation and litigation and government privilege — which finds such a claim hardest to accept.

My skepticism is not that the nominal household income or GDP number are wrong, but that the inflation-adjusted numbers are wildly off because they fail to capture the innovations and transformational improvements in goods and services. Consider music. The music industry, measured in sales, is shrinking. 25 years ago as a college student, I bought a lot LPs and CDs (probably a few hundred $$ a year). Now I spend very little. Am I worse off as a music listener now? Obviously not — I am immensely better off. But judging by the gross dollar volume of the music business, you would reach exactly the wrong conclusion about 'stagnation'.

The photography business has shrunk as film, paper and processing volumes have cratered. But amateur photographers can take an unlimited number of images, duplicate them at zero cost, and display them immediately in enlarged form at, again, zero marginal cost. As with music, from the perspective of the contribution to GDP, you'd reach exactly the wrong conclusion.

When I was young in the 60s and 70s, kids used to get in trouble for playing in their good 'school clothes'. It was still rather common for middle class women to buy patterns and fabric and sew clothes for their families to save money. My (college-educated) mother didn't do that, but she mended and ironed patches on jeans and darned socks (and my family owned a clothing store)! Now there is such a glut of serviceable used clothing that much of it is re-exported in bales to the developing world. But, again, has the contribution of clothing sales to GDP increased in real dollars? Probably not.

I could continue in this vein for some time across many more categories of goods & services — better, cheaper, & more durable with transformational new products that have decimated existing industries (to the detriment of measured output and great benefit to consumers). Yes, based on standard measures of inflation, GDP and median household income may have stagnated in recent decades. But median living standards have improved dramatically nonetheless.

8 dearieme January 22, 2011 at 1:07 pm

Your point, Slocum, is that there has been a huge failure of invention of more intelligent economic indicators?

9 RD January 22, 2011 at 1:40 pm

I'll be interested to read the argument, but I'm a little surprised at the pessimism and the apparent acceptance of data suggesting such a long period of stagnation.

10 E. Barandiaran January 22, 2011 at 1:55 pm

Tyler, I have yet to read your book but upon reading your bit I think I have a good title for a review BLEAK OUTLOOK, BUT NOT BLEAK ENOUGH? To get the idea (sorry it's not original) read this post http://blog.speculist.com/2011/01/bleak-outlook-b

As a Harvard elitist, you will like the post's Kennedyesque conclusion:
"The heart must be in place from the beginning — or we're in a lot of trouble."

11 Joe January 22, 2011 at 2:32 pm

Why can't this book be bought in Europe? Some of the aspects of the Kindle business model baffles me. Could anyone point to a good reason that a book that is in Ebook format only can not be bought in any country?

12 Bill January 22, 2011 at 2:52 pm

I would be interested in how much this analysis of the period 1950 to 1993 depends on the assumption of a closed economy, or at least one competing with other economies with similar wage structures (Europe).

Gloabalization is a changing variable across this period.

13 Grant January 22, 2011 at 4:18 pm

It's almost like the economic right are not disinterested benevolent actors but are instead ideological class warriors calling for the transfer of wealth from the working classes to the wealthy. Almost.

14 Steve Sailer January 22, 2011 at 5:51 pm

If you look at the future in a Heinlein novel — flying cars and space colonization — it's a lot more transportation-oriented (and thus energy intensive) than the future we ended up getting, where most of the improvements have been in electronics. Having all the world's information at your fingertips is wonderful, but it's a lot different from spreading out across the galaxy.

15 Lord January 22, 2011 at 6:10 pm

One shouldn't confuse technology with growth. Printing developed in the 15th century and gunpowder became widespread in the 16th, but not until the 18th did we leave the Mathusian era. Many things can change without having a material effect on growth. They may be small changes, large but one time changes, discrete rather than continuous changes, changes that aren't systemic, or what they affect may be too small a portion of the economy to make much difference. In time, when applied in conjunction with other inventions, they may become significant though they may not be currently.

16 Randall Parker January 22, 2011 at 10:18 pm

One reason for the stagnation: Energy Return On Energy Invested (EROEI) has been in decline for decades. EROEI is now so low that economic growth is difficult. We need to throw more capital at problems that used to get solved by larger amounts of energy.

17 Andrew January 23, 2011 at 1:38 am

Technology is orthogonal to economics. It certainly isn't deflation. Inflation/deflation is about money. The Fed money system requires growth (and of course the expectation of growth). Some of the growth has come from penetration of technology rather than strictly 'economic growth' (division of labor, productivity, population). Another way of stating it is that you can't invent the internet because it's already been invented. Likewise the IPod created a phenomena but Apple developed almost none of the fundamental novel technology. If these two concepts are separable, and if we mistook the proliferation of technology for the creation of technology that could make growth assumptions wrong. We have seen equilibrium, and we don't like it.

18 C January 23, 2011 at 4:15 am

If entrepreneurs and business people are getting the most bang for buck from using old ideas, then they should use old ideas. That doesn't mean there aren't any new ideas worth pursuing once the returns to the old ideas start to fall. Reminds me of the "We must be running out of oil because most production is on already discovered sites!!!" abandonment of marginal thinking and other assorted nincompoopery.

By the way, when times were good there was no shortage of "the sky is no limit" theses. Now things are bad for a couple years and everyone is doom and gloom. I'm skeptical of predictions about the future that happen to coincide with how we feel at this second.

19 Yancey Ward January 23, 2011 at 8:01 am

but if I couldn't get medicine for myself I'd be pretty fucked.

Dave,

But what medicine for today compared to yesteryear? Almost nothing available yesteryear has really risen in relative cost. The rises are almost entirely due to stuff that wasn't even available 40 years ago.

20 Randall Parker January 23, 2011 at 8:39 am

Previously discovered ideas: Tyler could be right about this. Look at the transistor. Show me something as fundamental as the transistor that has been discovered since 1950 that is getting incorporated into products.

21 Mark January 23, 2011 at 11:53 am

@Randall Parker, @Steve Roth

The obvious answer is DNA-associated technologies. Not conceived in 1950 or available at all in the 60s. First DNA sequencing was in 1970s.

Examples of large product categories based on this:
(1) forensic DNA testing for crime
(2) paternity testing based on DNA – the ONLY standard
(3) HIV testing. Current standard approach is to look for HIV sequences
(4) pathogen testing, e.g. drug resistant TB
(5) 23andme, other genomic service companies for consumers…

Second Category: MRI (and fMRI)
No MRI in 1960s at all. This is a fundamental, extremely widely used technology – see the MRI centers in cities.

Yes, these two are RADICALLY different technologies than what was available in 1950.
There are other examples, too.

22 ricketson January 23, 2011 at 12:44 pm

as long as we're listing technologies…

1) many antibiotics and painkillers from the 50s/60s have been surpassed by much better ones.

2) I'd mark the microchip as being as important as the transistor. IIRC, it originated in the 50s.

3) Fiber-optics and lasers are pretty important.

4) GM crops.

5) Even when we consider traditional consumer technologies (e.g. cars, airplanes), we need to recognize that their internal structure and production process have changed a lot over the past several decade.

23 Philo January 23, 2011 at 5:27 pm

"80 percent of the growth from that period [1950-1993] came from the application of previously discovered ideas," OK, I'll bite: how much of the growth in the previous 44 years [1906-1949] came from "previously discovered ideas," such as the rule of law, double-entry bookkeeping, corporate organization, Newtonian physics, the telephone (light bulb, automobile, airplane), etc., etc.? Was it really less than 80%?

You have to be pretty credulous to take this seriously.

24 Ryan Vann January 24, 2011 at 9:48 am

What is a relative stagnation?

25 Mikko Sarela January 24, 2011 at 10:44 pm

I'm from Finland and would like to buy the book. Amazon is refusing to sell it to me. Would you happen to know where I can get a copy? I will gladly pay, of course.

26 Anton Tykhyy January 25, 2011 at 7:48 am

I'm from Eastern Europe and had to circumvent Amazon's region restriction to buy the book. I'm sure other readers on the Continent would like to buy and read the book but can't. Is this restriction really welfare-improving?

27 Paul January 26, 2011 at 6:51 am

Now it's not available to customers in the United States, according to Amazon. What's going on? Nevertheless, Amazon let me purchase it, but then I couldn't download it! Nice business model. Still, I was able to get an Amazon person on the phone pretty quickly and they refunded my money. Alot of effort for a $4 exchange. I can't wait to read the book, Tyler, if only Amazon would let me.

28 joeedh February 17, 2011 at 1:22 pm

Kaleberg: ah no, the overall program of computer research isn't "old stuff." You are thinking of consumer software (e.g. Windows).

Warning: this is a sign of groupthink formation. Commentators beware.

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