Like the ol' Bloviator, you may have happened to surf across a tumultuous scene of protest and confrontation last week only to discover that this was no recap from Cairo or Bahrain but a live report from Madison, Wisconsin. If so, you might have been moved as he was to ask, "What the hell is wrong with this country?" Thanks to a heads up from New York Times columnist David Brooks, the OB has actually found someone who makes a pretty decent stab at answering this fairly daunting and complex question. Tyler Cowen , a prolific writer and blogger, is what might be called a "cultural economist" at George Mason University. Cowen's new e-book, The Great Stagnation, points out that up until roughly the middle of the twentieth century, the U.S. economy was able to feast on a quite nutritious cornucopia of "low-hanging fruit." (The OB advanced a similar argument way back in 1984 in an essay titled "Why the New South Never Became the North," and at a few points here, he makes bold to supplement what is already a very persuasive argument by Cowen.)
Any listing of this "low-hanging fruit" must include abundant free or extremely cheap land, critical and conveniently situated raw materials such as fossil fuels and iron ore, timely technological advances such as the introduction of the Bessemer process in steel production, the Westinghouse air brake for the railroads, the mechanical reaper, the internal combustion engine, the telegraph, telephone, radio, etc. There was also the critical European population surplus that fed the stream of immigrant labor in the late nineteenth and early twentieth centuries. This almost miraculously rich combination nourished a dynamic, competitive economy and society where innovation was encouraged and rewarded, and though the pie was hardly sliced into equal portions, it was growing fast enough that the size of each portion still increased from generation to generation, including the slice that could be allotted to an increasingly pervasive and involved government sector. By the 1950s, however, we were getting close to gnawing the low-hanging fruit down to the rind without having developed new food sources sufficient to sustain what had been a remarkably long and, the Great Depression notwithstanding, relatively uninterrupted period of growth.
It would be another generation before signs that we had hit a growth rate plateau became apparent. As Cowen points out, while median family income more than doubled between 1947 and 1973, it grew by only 22 percent (in adjusted dollars) over the next thirty years. If, he notes, this figure had continued to grow at the 1947-73 rate, median family income would be around $90,000 today. Generations of commencement speakers, including the OB himself, who have argued that the payoff from a society's investment in education is as close to a sure thing as you can get might rightly be taken to task, given the fact that despite our more than doubled per-pupil investments, math and reading test scores for 17 year olds have not changed since the early 1970s. There is a similar discrepancy in health care, to which we devote 15.5 percent of the GDP as compared to 8.5 percent in Japan, where life expectancy is 6 percent higher and infant mortality is more than 60 percent lower.
Meanwhile, the share of U.S. patent applications from foreign sources has risen from just under one-third in 1972 to just over one-half in 2009. (OB's stats, not Cowen's.) For all the hustle and dynamism that we associate with the Internet, there is no escaping the fact that, taken as a group, Google, Face Book, Twitter, and eBay employ just a shade North of 38,000 folks. Who among us could get along without at least one iPod, but fewer than 14,000 workers are needed to keep up with demand for this signature device, and here we must consider how many jobs - and businesses - have been lost to the advent of digital music downloads. The Internet has clearly made our lives more interesting, but so much of what it offers us at this point is either free or dirt cheap; so it has thus far been less of a force in expanding our economy than we might have envisioned.
One larger point here that we have doubtless all heard before is that the United States has ceased to be a leader among "producer" nations. The OB is hardly the first to complain that far too much of our wealth is accumulated these days in the simple trading of pieces of paper. One hardly has to feel driven to form a support group for the assorted chieftains of the S & P 500 companies to feel that it sounds one hell of a discordant note when the combined salaries of this whole bunch don't add up to the total take of the head shysters of the top twenty-five hedge funds. Clearly, at this point the quest for wealth is not leading to the expanded and improved production of vital goods that is our best hope of revisiting those golden days when the rich, fat fruit hung low. As Cowen points out, most contributions to overall productivity today come from simply cutting loose the less productive workers rather than figuring out how to make all of them more proficient.
Here's a surprise. Our two major political parties have responded to overwhelming evidence of "the great stagnation" by offering us more of the same. The Republicans favor more and more tax cuts, which are an easy sell to the voters but ultimately mean little in view of the GOP's lack of, uh . . . will when it comes to cutting government spending that might benefit its constituency in the slightest. I've yet to see one shred of real evidence that slashing taxes to stimulate the economy actually manages to increase government revenue in the long run, but it will damn sure get the national debt up and going. The Democrats, on the other hand, are still peddling their familiar redistributive strategy that would shift more taxes toward the more affluent and supposedly direct more income and government spending toward the poor. This approach may deliver some brief economic boost as lower-income groups exercise their increased capacity to consume, but even the OB, surely no friend of the rich and famous, has to wonder if this approach isn't getting pretty near the end of the string when the top 5 percent of American earners are already paying 43 percent of all our taxes.
Although Democrats don't want to hear it and Republicans don't really want to do anything about it, the bottom line is that our government is way too expensive for a nation where real median family income is growing by only .15 percent per year. Government was much more affordable back when we were still plucking away at that low-hanging fruit, but now not only is it too pricey, but, be we rabid lefty or righteous righty, we simply expect too much from it. If anything, the same is even truer still of our economy, whose realities we have been unwilling to confront for much too long. Cowen argues that it was our extreme overconfidence, a sometimes buoyant but ultimately burdensome legacy of the old low-hanging-fruit days, that led us to the precipice whence we plunged in 2008. How else could we have managed to convince ourselves everything was fine when we were reduced to stoking our economy by extracting the equity from our homes to the tune of 11.5 percent of GDP in 2005? (Compare this to slightly under 3 percent in 1993.)
We professors are typically a whole lot better at identifying problems - not to mention causing them now and then - than at offering solutions. Cowen tries to be relatively optimistic, but the business of increasing productivity and fostering innovation is now globally competitive, and we can hardly anticipate our rivals' assistance in regaining our one-time advantage. Instead of empty promises to get us, as good ol' Pres. Harding might say, "back to normalcy" in a heartbeat, in addition to figuring out ways to make things better, our stellar politicians would be well advised, Cowen thinks (and the OB agrees), to summon the gumption somehow to tell their constituents that what we're seeing now is likely to be "the new normal" for some time to come. Be sure to Twitter me up when that happens.
