Brad Delong on stagnationist arguments
He has a very long and interesting post — over 9000 words — so do read the whole thing. Here is one excerpt:
…we have an argument that we were not as rich as we thought we were, an argument which indeed seems to me to be true, but that is not an argument that future growth will slow but rather that past growth was misperceived because of irrational exuberance. Only with “no new net job creation in the last decade…” is there even a datum that I see as about a “great stagnation”. But then Tyler branches off into failures of American governance, failures that seem to me to be no greater than the failures of American governance have always been. Yes, failing governance. Yes, overestimated wealth at the end of the 1990s and in the mid-2000s. Yes, a somewhat more sclerotic-appearing labor market as far as cyclical adjustment is concerned. Yes, a successful class war waged by the 1% on the rest of us–or, rather, if my household income in 2014 is what I think it will be, on the rest of you. Yes, a huge demand shortfall-driven business-cycle downturn.
Where in all of this is the promised “great stagnation”? I do not see it.
The latter part of his post, however, is more sympathetic to stagnationist arguments, so do read the whole thing.
I would offer a few points in response:
1. I am not the “pessimist” Brad thinks I am; I sometimes say I am a revenue pessimist, but a happiness optimist. In this regard Brad’s case for an ongoing growth in well-being is not opposed to all stagnationist ideas. But we are still short a few transformative technologies compared say to 1870-1960, and that matters for what kinds of changes we are going to get.
2. For all the usefulness of the AD-AS model for the short run, I don’t see AD and AS as so clearly separable over the medium term and certainly not over the long term. In this regard I think today’s Keynesians are often taking that model too literally. Had we done a better job of generating wealth, demand today and looking forward would be stronger.
3. I don’t see a belief in the efficacy of institutional changes as an alternative to stagnationist views. One can and probably should believe both a) big institutional changes could bring us significant growth benefits, and b) given some approximation of the current set of policies, we have been on a relatively unfruitful part of the technology yield curve. On top of that c) policies don’t always change so quickly and so “b)” remains an important consideration, and d) the “golden years” for growth themselves had some pretty terrible policies and institutions, not the least of which was an extreme legacy of racial, gender, and other kinds of (grossly inefficient) discrimination. Transformative technologies can overcome a lot of human stupidity, and it would be nice to have more of those.