Book Summary: “The Great Stagnation” by Tyler Cowen


Title:  The Great Stagnation: How America Ate All the Low Hanging Fruit of Modern History, Got Sick and Will (Eventually) Feel Better
Author: Tyler Cowen
Scope: 3 stars
Readability: 4 stars
My personal rating: 4 stars
See more on my book rating system.

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Topic of Book

Cowen argues that we live in a time of diminished economic growth due to a decline in “low-hanging fruit”.

If you would like to learn more about the role of innovation and economic growth in creating progress, read my book From Poverty to Progress: How Humans Invented Progress, and How We Can Keep It Going.

Key Take-aways

  • Strong economic growth up until 1970 was generated by “low-hanging fruit” that no longer exists:
    • Free land on the frontier
    • Massive technological innovation between 1880 and 1940
    • Rapid increase in educational achievement
  • Most of the “growth” in our current economy has been in the sectors of government, health care and education. All of these sectors have seen very slow increases in productivity.
  • With slower economic growth, our politics is getting increasingly polarized and is destabilizing society.
  • The computer and internet improved our lives, but they create relatively few jobs or revenue.
  • The growth of government and interest groups have stifled innovation.

Important Quotes from Book

“America is in disarray and our economy is failing us. We have been through the biggest financial crisis since the Great Depression, unemployment remains stubbornly high, and talk of a double-dip recession persists. Americans are not pulling the world economy out of its sluggish state”

“Around the globe, the populous countries that have been wealthy for some time share one common feature: Their rates of economic growth have slowed down since about 1970. That’s a sign that the pace of technological development has been slowing down.”

“There have been three major forms of low-hanging fruit in U.S. history:”

“1. Free land: Up through the end of the nineteenth century, free and fertile American land was plentiful and there for the taking. A lot of this land was close to lakes and rivers.”

“Not only did the United States reap a huge bounty from this free land (often stolen from Native Americans, one should not forget), but abundant resources helped the United States attract many of the brightest and most ambitious workers from Europe. Taking in these workers, and letting them cultivate the land, was like plucking low-hanging fruit.”

“2. Technological breakthroughs: The period from 1880 to 1940 brought numerous major technological advances into our lives. The long list of new developments includes electricity, electric lights, powerful motors, automobiles, airplanes, household appliances, the telephone, indoor plumbing, pharmaceuticals, mass production, the typewriter, the tape recorder, the phonograph, and radio, to name just a few, with television coming at the end of that period.”

“Today, in contrast, apart from the seemingly magical internet, life in broad material terms isn’t so different from what it was in 1953.”

“3. Smart, Uneducated Kids: In 1900, only 6.4 percent of Americans of the appropriate age group graduated from high school. By 1960, 60 percent of Americans were graduating from high school, almost ten times the rate of only sixty years earlier. This rate peaked at about 80 percent in the late 1960s and since then has fallen by about six percentage points. ”

“A lot of the growth of the United States, up through the 1970s or so, has been based on these three forms of low-hanging fruit. Each of them is pretty much gone today.”

“The fact that we’ve enjoyed a number of forms of low-hanging fruit in the past—and not just one—suggests that we might be due for some more of it in some form. This makes me an optimist for the longer run.”

“A lot of the world, by the way, has a form of low-hanging fruit that the United States does not, to wit: Borrow and implement the best technologies and institutional ideas of North America, Europe, and Japan.”

“A fundamental way to put the point is this: A lot of our recent innovations are “private goods” rather than “public goods.”

“If one sentence were to sum up the mechanism driving the Great Stagnation, it is this: Recent and current innovation is more geared to private goods than to public goods. That simple observation ties together the three major macroeconomic events of our time: growing income inequality, stagnant median income, and, as we will see in chapter five, the financial crisis.”

“Government consumption spending, education spending, and health care spending overlap to some extent, but in total, without double counting, they still exceed 25 percent of U.S. GDP. They are also three of our most rapidly growing sectors, and at least two of them—health care and education—ought to be two of our most dynamic sectors. Those are also three sectors where it is especially hard to measure value and especially hard to bring about accountability and clear results. They are, to my eye, also three sectors where there is massive government distortion of incentives.”

“Arguably, those are three sectors where we are overestimating quality and overestimating results and thus not getting enough for our money. That means we may well be a good deal poorer than the measures of productivity and gross domestic product indicate. At the very least, we don’t know what results we have achieved, and that’s scary. The future of our economy is hitched to sectors that are not well geared to produce clear results and measurable value.”

“We’ve been missing out on a lot of innovation, but there’s one sector where we’ve had more innovation than almost anyone had expected, and that is the internet. Very rapidly, the internet gets a lot better, a lot faster, and a lot more interesting.”

“Unlike electricity, the internet hasn’t changed everyone’s life, but it has changed a lot of lives, and its influence will be even stronger for the next generation.”

“The funny thing about the internet, from an economic point of view, is that so many of the products are free… Much of the value of the internet is experienced at the personal level and so will never show up in the productivity numbers. ”

“There is a second major difference between the internet and the previous arrival of low-hanging fruit, and it has to do with employment. The major internet companies perform a lot of their miracles by information technology and not so much by human hands.”

“The internet is wonderful, but it’s not saving the revenue-generating sector of the economy.”

“Politics is very difficult in an America without much low-hanging fruit. Low-hanging fruit means there are lots of material goodies to hand out and lots of fairly easy ways to make people happier, namely by giving them more stuff. That’s not the case now, as we are struggling fiscally simply to make good on previous promises to Medicare and Social Security recipients, as well as bondholders.”

“For the last forty years, most Americans have been expecting more than their government is capable of delivering. That mistake is at the root of why our government is functioning poorly.”

“A simple model of American politics is that interest groups are threatening to seize most of the economic pie but we pay them off by throwing them some subsidies to maintain political order.”

“Starting in the nineteenth century, large institutions—including government but also big corporations—became possible for the first time in human history. Large institutional structures require capabilities of communications, organization, and coordination. Only during the latter part of the nineteenth century did those capabilities fall into place. For better or worse, we used a lot of this new low-hanging fruit to build big government. Big government was one of the final creations from these new technologies.”

“The reality is that members of the American left have, whether they like it or not, become the new conservatives. At least in economic policy, they are usually the defenders of the status quo. In contrast, some of the so-called “conservatives” are the radicals seeking major change;”

“Fundamentally, we live in a social democracy, ”

“Will future scientific breakthroughs improve most people’s lives on a daily basis?

I see three major categories for discussion: favorable trends already under way, unfavorable trends to combat, and how we can support the favorable trends.”

“The first favorable trend is the interest in science and engineering in India and China.”

“The second favorable trend is that the internet may do more for revenue generation in the future than it has done to date”

“Third, we now see a critical mass in the American electorate favoring concrete steps to bring greater quality and accountability to K-12 education, whether through better incentives, school choice, charter schools, better monitoring, or whatever works.”

“What else can we do? My recommendation is this: Raise the social status of scientists.”

“We should have a greater awareness that there is a political malaise and we should not add to it. Be tolerant, and realize there are some pretty deep-seated reasons for all the political strife and all the hard feelings and all the polarization. Government revenue, and private sector revenue, simply isn’t rising at the rate of our demands and expectations… Don’t demonize those you disagree with.”

If you would like to learn more about the role of innovation and economic growth in creating progress, read my book From Poverty to Progress: How Humans Invented Progress, and How We Can Keep It Going.

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