The Past Speaks

Did the rate of technological innovation slow down around 1973?

1973 AMC Gremlin. Photo by Christopher Ziemnowicz

I’m much more interested in economics and economic history than the average historian, certainly the average historian based in a pure history department. However, every so often there is a book about an economic-historical topic that is so important that every historian ought to read it, regardless of how far their particular research specialism is from the domain of economic history. I think that one such book recently appeared. Tyler Cowen’s new e-book has attracted considerable attention in the American and international press and may well become the most talked about non-fiction title of the year.

For references to this book in the press, see here, here, and here.  For blogosphere reaction, see here, here, and here. I also suspect that the ideas in this book may influence public policy debates in the coming years. So if you have to read one book about the economy this year, this would probably be the one to read!

Tyler Cowen’s book The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History,Got Sick, and Will (Eventually) Feel Better is currently available online in Kindle from Amazon. This means you have to download it to your computer rather than getting a hard copy in the mail. I will refer to the technology Cowen has adopted to publish ideas a bit later in this blog post, because I think it calls into question Cowen’s thesis that technological innovation plateaued around 1970 and that American material lives haven’t really changed that much since then.

In an interview about the book Cowen gave a few days ago (see here) he shares an anecdote about his grandmother. (Cowen was born in 1962, which gives you a rough idea of when his grandmother lived). Cowen remarks that his grandmother, who was from rural Wisconsin, died in a society that was radically different from the one in which she had been born.  Rural Wisconsin in the early 20^th century was a world of horse-drawn buggies, gas lamps, and iceboxes. Hunger was common even in the United States. Cowen’s grandmother died in a world of freeways, air conditioning, supermarkets full of cheap food, and colour TVs in wood-grain cabinets.

Cowen’s point is that since his grandmother died, everyday life in the United States has remained more or less that same. Median incomes, which increased dramatically over the course of his grandmother’s lifetime, have remained stagnant since the 1970s, which means that the material lives for most American families hasn’t changed that much in the last 40 years. GDP per capita, life expectancy, they have all continued to go up, but at a far slower rate than in the period before the 1970s. We appear to have hit a sort of plateau, at least according to Cowen.

Suburban Sprawl

Cowen admits that a few little gadgets have come along (mobile phones, Skype, YouTube,  downloadable music, books on economics becoming available through Kindle), but he says that these really haven’t added that much to the welfare of the average person.  In terms of the number of square feet of living space, the number of pieces of furniture in their living room, the amount of meat they have for dinner, things are pretty much where they were in the 1970s.

IBM 360 Computer, late 1960s

Five main points about this book occurred to me.

First, predicting a long period of technological stagnation is not new. In each generation, there are people who confidently declare that technology has peaked and that nothing new remains to be invented. They have been proved wrong, so far.

Second, I’m certain how reliable the GDP stats cited by Cowen are. Obviously GDP per capita is a pretty important metric, but there are many goods and services it doesn’t capture. Many of the post-1970 technologies that give me happiness (talking on Skype with distant families, keeping in touch with friends on Facebook) or that make my work easier (e.g., Jstor) cost very little, certainly compared to the price of a 1958 Chevrolet Bel-Air. It is hard to compare the price of a base-model Chevrolet in 1958 with a base-model Chevrolet today, since the latter car has airbags and a CD player. GDP stats don’t do a good job of capturing these sorts of qualitative improvements in products. There is a tremendous irony in Cowen using the internet to distribute a book claiming that we are in a state of technological stagnation. A blogger named Dirk has dealt with this issue much more eloquently than I could in his post on The Great Stagnation. Dirk asks whether a teleportation machine that would allow one to travel instantaneously to any point on the planet would raise or lower GDP.

My hypothetical example was a teleportation machine. What if some physicist discovered some new laws to the universe and suddenly invented one?  A few hours later I discovered that on page 11% Tyler writes: “It would make my life a lot better to have a teleportation machine.”

So at least for a drunken moment I was thinking along similar lines. So I ask: what then? Would a teleportation machine improve median income?  My guess is that the invention of a teleportation machine would increase median income a lot if it were costly to manufacture. If it were cheap to manufacture and cheap to use, it probably wouldn’t increase median income much, just like the internet. Yet it would surely increase the standard of living for nearly everyone. So now I’m confused. Isn’t it a good thing when great innovations happen to also not cost much to implement? Isn’t that a win/win?

Third, I think that the title of this book has a parochial American element. I’m not saying that Cowen is a parochial person who is only aware of developments in the US. In fact, Cowen mentions globalization and outsourcing in this book. He also recognises that some of the innovations that have made the lives of Americans (and others) better in recent decades were developed by non-Americans, chiefly Europeans and Japanese. But perhaps the problems he is talking about are common to the developed world as a whole, not just the US. The title of this book is misleading, since it suggests that it was only Americans who ate the low-hanging fruit.

It seems to me that one of the big themes of the last 60 years of world history in convergence towards American living standards. Sadly, Cowen says little about this. What do I mean by convergence? In 1950 there was a massive gap between American living standards and those of most other countries, with the trivial exceptions of Canada and Australia, two other white settler economies which had per capita incomes similar to some US states. In 1950, the gap between bombed-out Western Europe and the United States was huge. Japan was even poorer.  During WWII, there was an obvious physical difference between Americans of Western European ancestry and Western Europeans: the Americans were taller. Although GDP per capita is still a bit higher in the US than in these other countries, the gap in living standards has narrowed, especially when we take non-GDP measures of well-being, such as average height, into account.

In fact, people in some Western European countries today are taller than white Americans, which suggests that young people there now eat better than Americans. It used to be that Japanese people were much smaller than Europeans, but Japanese men born in the 1970s are nearly as tall as Englishmen born in the same decade. As more and more countries acquire quasi-American standards of living (drive-thru Starbucks), we can expect more countries to converge in this way.

Fourth, I’m wondering about the political implications of Cowen’s argument that developments in the fields of science and technology are to blame for the post-1973 slowdown in the growth of American living standards. At least one blogger has already dealt with this issue, but here are my thoughts.

People on the left of the political spectrum in the US have their own explanation for why economic growth has slowed down since the mid-1970s: growing inequality and the Republicans’ attacks on the redistributive state. Paul Krugman and others argue that the stagnation in median incomes since the 1970s has a political origin: Reaganite Republicans.

In what has been the conventional wisdom among left-wing Americans who think about such issues, the United States between the New Deal of the 1930s and the 1970s was dominated by centre-left policies: labour laws were pro-union, union membership was high, and tax rates were very progressive, which meant that measurable inequality was low. There was a consensus in favour of Keynesianism and the idea that the government needed to put purchasing power into the hands of the poor, so that they could stimulate the economy. During this same period of centre-left policies, the United States saw massive improvements in human welfare for the average person.

Since 1980, Republican free-marketeers have dominated the US.: taxes and social programs have been cut and inequality has gone up at the same time that the rate of economic growth has fallen. (For inequality, see this graph, which shows that while the average income in the US has increased dramatically since the 1970s, the gains have essentially been confined to the elite).

According to left-wing Americans, had the US persisted with FDR-Kennedy-Lyndon Johnson style after 1980, the country would today have a more dynamic economy and would be a more equal society. Progressive take the stagnant living standards of the typical American and fact Dutchmen now tower over visiting Yanks as proof of the bankruptcy of the Republican/libertarian agenda.

Cowen, who is a prominent libertarian, says that the true causes of the post-1973  slowdown have nothing to do with the policies of Reagan and the Bushes or the distribution of wealth within American society. Instead, the post-1973 stagnation in median incomes in the United States is due to a slowing of the conveyer belt of inventions linking the laboratory to the average person. Cowen’s claim has massive political implications.

Fifth, a think tank recently released some predictions about GDP per capita in various countries in 2050 (see image below).

GDP Per Capita in 2050

I’m skeptical of all such efforts to guess what the ratio of, say, German to American per capita wealth will be in 40 years because I suspect that countries will be using totally different technologies to compete in 2050. I wonder what Cowen would think of these prediction games.