Review of The Great Stagnation

How great was Tyler Cowen’s marketing coup?  Well he forced a technophobe like me to actually learn how to use Kindle.  I wasn’t too happy about that, which makes me inclined to write a very negative review.  But that’s kind of hard to do credibly when I agree with the central proposition of the book; that technological progress (at least as traditionally measured) has slowed dramatically, and will continue to be disappointing for the foreseeable future.

In an earlier post I argued that my grandma’s generation (1890-1969) saw the biggest increase in living standards; most notably a longer lifespan (due to diet/sanitation/health care), indoor plumbing and electric lights.  Less important inventions included home appliances, cars and airplanes, and TVs.  From the horse and buggy era to the moon landing in one life.  And all I’ve seen is the home computer revolution.  Not much consolation for a technophobe like me.  I’m probably even more pessimistic than Tyler.

The parts of the book I liked best were those that discussed governance.  I had noticed that there was a correlation between cultures that are good at governance, and cultures that are good at running big corporations.    But Tyler added an interesting perspective, arguing that the technologies that facilitated the growth of big corporations also facilitated the growth of big government.  I don’t recall if he made this point, but I couldn’t help thinking that the neoliberal revolution, which led to some shrinkage in government size, was also associated with a move away from the big corporate conglomerates of the 1960s, towards smaller and more nimble businesses.

Tyler has a long list of complaints about the wasteful nature of our government/education/health care sectors, which he hinted is really just one big sector.  While reading this section I kept wondering when he was going to mention Singapore, which has constructed a fiscal regime ideally suited for the Great Stagnation.  When he finally did, on “Page” 830-37, he did so in an unexpected context, as an example of a society that reveres scientists and engineers.  He had just suggested that the most important thing we could do to overcome the stagnation was:

Raise the social status of scientists.

My initial reaction was skepticism.  First, how realistic is it to expect something like this to happen?  I suppose the counterargument is that every new idea seems unrealistic, until it actually occurs.  But even if it did, would it really speed up the rate of scientific progress?  My hunch is that if we doubled the number of people going into science, there would be very little acceleration in scientific progress.  First, because the best scientists (think Einstein) are already in science, driven by a love of the subject.  Second, with a reasonably comprehensive research regime, progress in finding a cure for cancer may require a certain set of interconnected discoveries in biochemistry that simply can’t be rushed by throwing more money and people at the problem.  Similarly, progress in info tech may play out at a pace dictated by Moore’s law.  Given Moore’s law, no amount of research could have produced a Kindle in 1983.  Could more scientists speed up Moore’s law?  Perhaps, I’m not qualified to say.  But that’s certainly not the impression I get from reading others talk about information technology.

Here’s another exhortation that caught my eye:

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.

I couldn’t help thinking of Paul Krugman and Tyler Cowen, the two brightest stars of the economic blogosphere.  If only one of those two are able to have this sort of dispassionate take on policy strife, how likely are the rest of us mere mortals to be able keep a clear head and remain above the fray?  Still, it’s great advice.

There was only one place where I thought the book went slightly off the rails.  Toward the end of chapter three Tyler Cowen suggests:

Another way of putting this is, you can be an optimist when it comes to our happiness and personal growth yet still be a pessimist when it comes to generating economic revenue or paying back our financial debts.

And now we come to the book’s greatest flaw.  Tyler forget to discuss the all-important concept of . . . you guessed it . . . NGDP!  If we had more NGDP, we could pay back all those nasty debts.  Now before everyone starts madly typing out angry comments, I do understand the difference between nominal and real debts, I do realize that Tyler is looking and long term secular problems, not short term cyclical problems, and I do realize that the Fisher effect holds in the long run; you can’t inflate away debts forever.  But that got me thinking, and I started wondering whether Tyler is making an analogous error.

Tyler Cowen argues that the internet might produce all sorts of neat applications that give us endless pleasure and amusement, but without generating much revenue.  He used the term ‘revenue’ over and over again, but I always felt there was something missing.  Why should it matter if it generates much revenue?  One answer is so that we can repay our debts, but that doesn’t really answer my question.  More NGDP allows us to repay our debts.  Fiscal and regulatory reform can prevent us from becoming over-indebted again.  Sure, we might not do those reforms, but Tyler seems to be getting at something deeper, an unavoidable problem with the modern economy.  He seems to imply that even a well-regulated modern economy may not generate enough revenue.  I think that’s wrong.

Consider the following thought experiment.  All sorts of technological innovations on the internet cause our consumption (in real terms) to double, even though they don’t create any more revenue.  Because revenue is unchanged, NGDP is also unchanged.  But by assumption RGDP has doubled, meaning the price level has fallen in half.  In that case why shouldn’t we double NGDP, allowing people to repay their debts?  And even if we don’t double NGDP, people’s real incomes will have doubled, at a constant level of NGDP.  Progress will benefit society whether it generates revenue or not.  Real GDP is real, whether it generates revenue or not.

Tyler also argued that we faced a great recalculation problem, with lots of jobs opening up that need high tech skills, but way too many poorly educated workers.  Yet the facts he presents seemed to point in the opposite direction.  He mentions that the new high tech firms like Facebook can get the job done with an extremely low number of workers.  This webtopia that Tyler foresees won’t require many workers at all.  In that case, what should all our surplus workers do?  How will they find jobs?  Not in agriculture, 2 million farmers can feed the whole country.  Not in manufacturing, we are falling below 10% in that sector.  And most people don’t want three washing machines and four cars.  Where would they put them all?  Here’s what I think most people still want:

1.  A bigger and nicer house, with granite counter-tops.

2.  More restaurant meals.

3.  More fun vacations.

That means we need more construction workers, and granite miners (quarriers?)  We need more cooks and waiters.  We need more hotel receptionists and maids.  More people to work on Carnival cruise ships.  I think our workforce is skilled enough to fill those jobs.  It’s very lucky that the high tech companies that will provide all sorts of wonderful services do not need many workers.  We aren’t Singapore, and would have trouble supplying them.

I’m kind of surprised that Tyler Cowen got detoured into the “where will the jobs come from” cul de sac, as it’s usually associated with people who have very different views from Tyler.  Indeed I’m so surprised that I assume I must have misread him somewhere along the way.  Here’s how I think about jobs.  First, what do we want?  If those things can be provided with very few workers, don’t despair, ask what we want after we have gotten our first wish granted.  And so on, until all the workers are employed.

I also have a slight quibble with his views on education.  I share his intuition that the education/health care/government sector is highly wasteful, but I don’t agree with those who measure the output of education with test scores.  When I went to school I recall sitting in a class of 30, bored out of my mind as the teacher droned on, mostly staring at the clock.  My daughter is usually in a class of 20, often with 3 or 4 teachers in the room, doing all sorts of neat activities.  I hated school, she likes it.  You might argue that we live in a rich suburb, but the city of Boston spends just as much per pupil. 

I’m guessing Robin Hanson must have said something to the effect “schooling isn’t about learning.”

FWIW, here are my policy suggestions for the Great Stagnation:

1.  Most important by far; end the war on drugs.  Big pharma can’t cure cancer, but they can end the pain.  But our government won’t let them.  Here’s a government “torture” problem 10,000 times bigger than waterboarding, which is tragically under-reported. (Although Matt Yglesias has a nice post.)

2.  Adopt Houston zoning laws everywhere.  There’s plenty of land around Boston, no reason for houses to be so expensive.

3.  Singapore-style HSAs, pensions and tax regime (including carbon taxes.)

4.  Education vouchers.  It won’t improve tests scores, but it will save boatloads of money.

My review hasn’t given readers a very good summary of this excellent and timely book.  It only costs $4 and one hour—read it yourself.  The best part is a very interesting and perceptive discussion of how the Great Stagnation is putting great strains on many aspects of governance, from political discourse to our ability to finance entitlements and public debts.  I probably agree with 90% of the book.  Even where he has different views from me (say on the social utility of modern finance) he probably has the stronger argument.  My review focused on the 10% where I don’t agree.


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94 Responses to “Review of The Great Stagnation”

  1. Gravatar of Indy Indy
    27. January 2011 at 18:40

    I bought it and finished it early today. I actually thought “When Sumner read this, he’ll probably blog it and immediately go to NGDP.” If only I could predict the markets like that.

    Anyway, as you may remember, I am working on my own book, “The End Of Ideas”, and I was quite upset to hear what Cowen was coming out with, and I was then relieved with the direction he took. It’s distinguished enough from mine that I still think there’s plenty of niche-space left for me. I still call dibs on my term for the post-real-growth society, “Plateaupia”. Not Malthusian Dystopia, just Plateaupia.

    My subject is broad and deep, obviously, so I won’t go into it here – but the bottom line is that many, many fields are reaching maturity and the realm of diminishing marginal returns. I attribute a lot of this to the limits imposed on us by the laws of the natural universe. In the Solow model, real growth comes from two places – capital accumulation per capita, and upward movement of the production curve through technological innovation.

    “Catch-up” developing countries are moving mostly along the curve. Developed countries are closer to equilibrium, and grow by pushing out the PPF. That’s been getting harder and harder to do lately (not in all economically important fields, but in more and more of them. IT has changed our lives, but it’s not nearly the whole economy).

    Perhaps it’s better understood as a thought experiment. If you start with the assumption of a no, or very-slow, real-growth / technological improvement world, what I call, “Plateaupia”, then what needs to change?

  2. Gravatar of Mark A. Sadowski Mark A. Sadowski
    27. January 2011 at 18:52

    Damn it Sumner! Let me expalin it to you. (You !@#$%^&)

    The biggest problem we have right now is a deficiency in NGDP.

    And in that, you are totally right.

    But what happens when that problem is solved?

    Then obviously we don’t need you anymore.

    (Uhm, not!)

    P.S. By the way, I’m also still learning how to Kindle.

  3. Gravatar of Mark A. Sadowski Mark A. Sadowski
    27. January 2011 at 18:57

    P.S. “Being There” is being broadcast on Turner Classic Movies tonight.

  4. Gravatar of James James
    27. January 2011 at 19:02

    “Real GDP is real, whether it generates revenue or not.”

    I don’t think this is true. GDP only counts final goods traded at a positive price (except for govt spending where price is imputed). If there is no trade or no price (as in blog writing and reading), there is no addition to GDP even if utility is increased.

    This is why GDP is an imperfect concept, but it is what it is.

  5. Gravatar of Mark A. Sadowski Mark A. Sadowski
    27. January 2011 at 19:09

    I’m Chance, the Gardiner

    http://www.rottentomatoes.com/m/being_there/trailers/10905992/

  6. Gravatar of cassander cassander
    27. January 2011 at 19:26

    I go back and forth on political civility. On the one hand, I make it a point to not get angry about politics, and I genuinely believe that people are almost always sincere in their beliefs, even when I think they are insane.

    Where I run into trouble is blatantly self interested politics. None of my nice, college educated, liberal, cosmopolitan friends seems to be able to gasp the self interested nature of their belief that the world should be run by nice, educated, liberal cosmopolitans. People who preach endlessly about the evils of corporate greed and selfishness (and would condemn me for saying I want lower taxes because I don’t like paying taxes) think nothing of everyone paying taxes to support their pet issues. I have no word for this but graft, and it dramatically undermines my assumption of good faith.

  7. Gravatar of Mark A. Sadowski Mark A. Sadowski
    27. January 2011 at 19:54

    Mr. Gardiner, The New York Times spoke of your ‘Peculiar brand of optimism,’ what was your reaction to that?

    I’m an American

  8. Gravatar of John John
    27. January 2011 at 20:49

    I just have to jump in, Houston’s zoning laws are extremely onerous! Maybe Boston is worse, but Houston has serious issues. They have minimum parking requirements, and codified nimbyism. References: Lewyn via Tyler, planetizen, etc.

  9. Gravatar of John John
    27. January 2011 at 20:49

    Er sorry, I meant to say institutionalized nimbyism, not codified nimbyism.

  10. Gravatar of david david
    27. January 2011 at 21:12

    @Scott

    Back when I was arguing with you over Singapore, you once said that once one compounds US federal and state and county and city etc. laws, the resulting regulatory environment is as extensive as, or even greater, than Singapore’s. Perhaps, but never mind that; I am curious about a tangentially related issue. Loosely speaking – I don’t have a handy rubric in mind – of the current regulatory environment in the US, of regulations which you oppose, do you think federal restrictions are “worse” or state+regional restrictions are “worse”?

    Ideally one might estimate welfare losses from each type of restriction, sum them, and then compare, but in the absence of empirics, let’s try ballpark guessing…

  11. Gravatar of Mark A. Sadowski Mark A. Sadowski
    27. January 2011 at 21:35

    TCM has switched over to Dr. Strangelove. (Shhh) (Someday I’ll make you Mrs. Buck Turgidson)

  12. Gravatar of Brett Brett
    27. January 2011 at 22:08

    Second, with a reasonably comprehensive research regime, progress in finding a cure for cancer may require a certain set of interconnected discoveries in biochemistry that simply can’t be rushed by throwing more money and people at the problem.

    I think it’s more a case of not knowing which research areas you should be throwing your money towards. In the case of cancer, many of the new drugs not related to the standard three treatments of Chemotherapy, Surgery, and Radiation have come from research into the nature of cancer, particularly its genetics. Yet for a long time, that research was on the back-burner compared to research and funding aimed at finding a “miracle cure” for cancer in the form of chemotherapy (Emperor of All Maladies talks about this).

    However, had we know that genetics research held out significant promise, additional funding probably would have helped. At the very least, it would be more money for research grants.

  13. Gravatar of Mark A. Sadowski Mark A. Sadowski
    27. January 2011 at 22:14

    It’s all here:

    http://www.youtube.com/watch?v=_-mvutiDRvQ

    “Freude, schoner Gotterfunken,
    Tochter aus Elysium,
    Wir betreten feuertrunken,
    Himmlische, dein Heiligtum.
    Deine Zauber binden wieder,
    Was die Mode streng geteilt,
    Alle Menschen werden Bruder,
    Wo dein sanfter Flugel weilt.
    Seid umschlungen, Millionen!
    Diesen KuB der ganzen Welt!
    Bruder – uberm Sternenzelt
    MuB ein lieber Vater wohnen.

    Wem der groBe Wurf gelungen,
    Eines Freundes Freund zu sein,
    Wer ein holdes Weib errungen,
    Mische seinen Jubel ein!
    Ja – wer auch nur eine Seele
    Sein nennt auf dem Erdenrund!
    Und wers nie gekonnt, der stehle
    Weinend sich aus diesem Bund.
    Was den groBen Ring bewohnet,
    Huldige der Sympathie!
    Zu den Sternen leitet sie,
    Wo der Unbekannte thronet.

    Freude trinken alle Wesen
    An den Brusten der Natur,
    Alle Guten, alle Bosen
    Folgen ihrer Rosenspur.
    Kusse gab sie uns und Reben,
    Einen Freund, gepruft im Tod,
    Wollust ward dem Wurm gegeben,
    Und der Cherub steht vor Gott.
    Ihr sturzt nieder, Millionen?
    Ahnest du den Schopfer, Welt?
    Such ihn uberm Sternenzelt!
    Uber Sternen muB er wohnen.

    Freude heiBt die starke Feder
    In der ewigen Natur.
    Freude, Freude treibt die Rader
    In der groBen Weltenuhr.
    Blumen lockt sie aus den Keimen,
    Sonnen aus dem Firmament,
    Spharen rollt sie in den Raumen,
    Die des Sehers Rohr nicht kennt.
    Froh, wie seine Sonnen fliegen
    Durch des Himmels prachtgen Plan,
    Wandelt, Bruder, eure Bahn,
    Freudig wie ein Held zum Siegen.

    Aus der Wahrheit Feuerspiegel
    Lachelt sie den Forscher an.
    Zu der Tugend steilem Hugel
    Leitet sie des Dulders Bahn.
    Auf des Glaubens Sonnenberge
    Sieht man ihre Fahnen wehn,
    Durch den RiB gesprengter Sarge
    Sie im Chor der Engel stehn.
    Duldet mutig, Millionen!
    Duldet fur die beBre Welt!
    Droben uberm Sternenzelt
    Wird ein groBer Gott belohnen.

    Gottern kann man nicht vergelten,
    Schon ists, ihnen gleich zu sein.
    Gram und Armut soll sich melden,
    Mit den Frohen sich erfreun.
    Groll und Rache sei vergessen,
    Unserm Todfeind sei verziehn,
    Keine Trane soll ihn pressen,
    Keine Reue nage ihn.
    Unser Schuldbuch sei vernichtet!
    Ausgesohnt die ganze Welt!
    Bruder – uberm Sternenzelt
    Richtet Gott, wie wir gerichtet.

    Freude sprudelt in Pokalen,
    In der Traube goldnem Blut
    Trinken Sanftmut Kannibalen,
    Die Verzweiflung Heldenmut.
    Bruder, fliegt von euren Sitzen,
    Wenn der volle Romer kreist,
    LaBt den Schaum zum Himmel spritzen:
    Dieses Glas dem guten Geist!
    Den der Sterne Wirbel loben,
    Den des Seraphs Hymne preist,
    Dieses Glas dem guten Geist
    Uberm Sternenzelt dort oben!

    Festen Mut in schweren Leiden,
    Hilfe, wo die Unschuld weint,
    Ewigkeit geschwornen Eiden,
    Wahrheit gegen Freund und Feind,
    Mannerstolz vor Konigsthronen -
    Bruder, galt es Gut und Blut:
    Dem Verdienste seine Kronen,
    Untergang der Lugenbrut!
    SchlieBt den heilgen Zirkel dichter,
    Schwort bei diesem goldnen Wein,
    Dem Gelubde treu zu sein,
    Schwort es bei dem Sternenrichter!”

    Alle Mensche!

  14. Gravatar of Lorenzo from Oz Lorenzo from Oz
    27. January 2011 at 22:33

    John: but the crucial thing is that land use control does not set up quantity restrictions on housing supply. “Quantity controls have price effects” should be the mantra of housing price analysis.

  15. Gravatar of Joseph Joseph
    27. January 2011 at 22:34

    >>…in manufacturing, we are falling below 10%…

    Scott, I guess you have not counted Chinese people. So – do you think this arrangement is forever?

  16. Gravatar of Morgan Warstler Morgan Warstler
    27. January 2011 at 23:17

    1. Largest part of the answer is service jobs: which means we need the top 5% from around the globe to move here, so we can build them a house, cook their meals, take their tickets, cut their hair.

    2. 2nd biggest fix: we need to keep the cheap jobs here. That’s the function of Guaranteed Income. At $3 per hour, there will be no more call centers in India, and very few low end manufacturing jobs in China.

    3. And around the edges we need treat SMB wealth differently than we treat Fortune 1000 wealth. This is really all we need to do to make invention front and center.

    Now, personally I think we could muddle through without 1-3, as long as we focus our efforts on modernizing, and owning the nicer parts of Mexico. And I think Tyler usually misses this completely. If we face a serious long term stagnation, it makes sense that we invest and own many of the returns while other countries play catch up.

    Finally, this may be my bias – but I think you old people are unable to understand how much more impact the Internet has on human existence than the smallish gains that come from sewage treatment and electricity.

    I think it is because you focus wrongly on that which has increased human longevity, which I consider to be meaningless. There were 80 years olds long ago, just less of them – and I’m not in the habit of counting days alive as some kind of utilitarian calculus.

    I look back on life in the early 70′s and it was HORRIBLE. I mean it was fucking awful. You could make me king, and if I had to live before there was broadband, I’d not take the deal.

    But a guy in the 70′s – what he got over a guy in the 40′s wasn’t much different. Everything was still analogue. Place still really mattered. Books still really mattered. Newspapers (liberal editors) still really matters.

    And that’s how you properly weight inventions. I could be happy 5 years ago, at 10 it would be REALLY pushing it – after 20, well shit I might as well go back to 1910, and before that 1750, and before that, well who the hell cares?

  17. Gravatar of Brian Brian
    27. January 2011 at 23:33

    Just a personal curiosity. You quote Tyler as saying, “Raise the social status of scientists.”

    Just yesterday I was asked to read Hayek’s 1945 AER paper “The Use of Knowledge in Society”:

    “…this is because one kind of knowledge, namely, scientific knowledge, occupies now so prominent a place in public imagination that we tend to forget that it is not the only kind that is relevant.”

    Disclaimer: I haven’t read Tyler’s novella yet. So I’m not implying that Hayek and Cowen are at odds. It’s just weird that this happened in the same week.

  18. Gravatar of Liberal Roman Liberal Roman
    27. January 2011 at 23:58

    I am surprised that a book like this comes from a libertarian like Tyler Cowen. Imagine the following scenario…

    We invent robots that can fully take over ALL of our manual tasks. Does that mean we are “economically” and “revenue” screwed? I actually saw an Yglesias blog post on this a year or so back and he basically said that the wealth concentration in such an event would be so high that we would need heavy “spreading the wealth around” if this occurred.

    I think Scott is right on here. The fact that we can feed and produce everything we wanted with only 10% of population is not a bad thing. It means the rest of us can do “fun” things. Even though, it doesn’t appeal to the conservative notion of “tough”.

    And I also don’t think that, even if we have hit a technological plateu (which I think is very suspect, btw), means that we must go back to the Dark Ages in a great debt/deflationary spiral.

    I am still relatively optimistic about the future.

  19. Gravatar of mbk mbk
    28. January 2011 at 01:40

    Just some random notes.

    Scott, you said
    “Singapore, … an example of a society that reveres scientists and engineers.”
    Singapore has lots of engineering-educated people in government for sure, and of course is doing social engineering as well. But revering science… I wouldn’t say so, it’s more pragmatic in its approach.

    When I hear the phrase “a society that reveres scientists and engineers”, I think – France. Come to think of it, Singapore has exactly the spirit of France w.r.t. science, engineering, public works, public sector, reverence for elite education, and economic planning. What’s different is that France is much larger and has a culture of popular protests. So the (very large) nominal government power does not translate into actual political power. That makes the societal outcome vastly different. And yes before living in Singapore I lived in France for years, did my PhD there.

    Internet et al. We’re not quite there yet. Those living in the US easily forget that much of the rest of the world isn’t even allowed to buy Kindle content, or download music. In Singapore, I can’t download any music from Amazon, emusic, iTunes… Of course I can’t buy Tyler’s book either. I can’t even see a lot of otherwise free music on Youtube (content from Vevo, Sony etc) that others can see! All the above come out “Content blocked in your country”. So before the services and entertainment sector in the US comes out of its stagnation and frankly, demented regression, they better come to their senses and agree to actually *sell* their stuff. Right now I can get pathetically little content here – CD stores are empty, downloads are not offered in my country. It has to be seen to be believed – it’s not stagnating, it’s much worse than it was 10 years ago. Then at least, I could buy CDs locally. Now, if I’m lucky I can buy a physical CD from Amazon for USD20-25 if I include the shipping.

  20. Gravatar of dtoh dtoh
    28. January 2011 at 01:57

    We already had this exact same discussion in 1830. “Oh my god, we’ve already cleared all the good arable land. Agricultural production is going to stagnate. What’s going to happen to the 90% of the population who are farmers. There won’t be enough jobs. They can’t all go to work in the textile mills. The golden age is over.”

    Lo and behold, U.S. agricultural production skyrocketed. The agricultural work force dropped to 2% of the population. People found new jobs as economists, book keepers, computer programmers, railway engineers, astronauts, dog masseuses, and avatar artists.

    If all the products we currently produce and consume suddenly became available virtually for free, I sure wouldn’t be worried and complaining, and I sure wouldn’t have a hard time finding something new, exciting, and lucrative to do in the whole new universe of vocations that was blossoming before my awe struck eyes.

  21. Gravatar of Ryan Ryan
    28. January 2011 at 04:38

    Prof. Sumner, there is much that you wrote with which I disagree, but one paragraph stood out in particular:

    “That means we need more construction workers, and granite miners (quarriers?) We need more cooks and waiters. We need more hotel receptionists and maids. More people to work on Carnival cruise ships. I think our workforce is skilled enough to fill those jobs. It’s very lucky that the high tech companies that will provide all sorts of wonderful services do not need many workers. We aren’t Singapore, and would have trouble supplying them.”

    You have basically just described the economy of the Dominican Republic. No, worse: You have described the economy of the Dominican Republic minus the sugar cane, tobacco, and rum.

    A 3rd-world country with no cash crops, a plummeting currency value, increasing tax rates, and a shrinking interest in education.

    Welcome to the new Dark Ages.

  22. Gravatar of mbk mbk
    28. January 2011 at 05:29

    Ryan’s comment – which makes a very good point IMO – brought me to another point which I forgot:

    Scott,
    “It’s very lucky that the high tech companies that will provide all sorts of wonderful services do not need many workers. We aren’t Singapore, and would have trouble supplying them.”
    Singapore does import plenty of labor, both skilled (“foreign talent”: managers, bankers, scientists…) and unskilled (construction, domestic helpers mainly). Population grew about 25% over the last decade and that was not from the 1.23 children/woman birth rate. According to what we hear from the media here this foreign talent is needed for economic growth. So, same difference.

    The US of course also imports plenty of scientists, especially grad students and postdocs are heavily overweight in foreigners in the US (I vaguely remember a number of 40% for postdocs in nat sci). That is presumably so because Americans have more lucrative opportunities than those science jobs that are always on a grant that’s running out, and that don’t exactly pay well.

    In the West as a rule, scientists are in oversupply, badly paid, and almost never in decision making positions (which is frustrating on a personal level). Engineers have it slightly better I imagine except for the decision making part. Decisions are made by entrepreneurs, owners, and professional managers (MBAs). Some decisions are made by politicians. None by working scientists. Scientists are usually some kind of super-techs slaving away in some lab in darkness (or you can use the fashionable “knowledge worker”). In the US I’d say scientists have a much higher social status than their actual working and pay conditions would imply or warrant. Don’t ask me how I know.

  23. Gravatar of q q
    28. January 2011 at 05:50

    Lorenzo from Oz: How are minimum parking requirements, which are limits on density, not limits on supply?

  24. Gravatar of Indy Indy
    28. January 2011 at 06:08

    @mbk: The “raise the social status” part was clearly the weakest part of the book, or the most implausible, infeasible, and unexpostulated suggestion. I was surprised to see it come from a Libertarian like Cowen without any real detail as to why it’s really needed or how we are to bring something like that about, or where the current “social status” function comes from. Is the government supposed to engineer some kind of American cultural revolution, or, what exactly?

    Think of the implications. Whenever society wants individuals to make different choices than they are making now (because that would produce some public-good gains), instead of compensating or paying or subsidizing those people, we’ll just promise to perpetually manipulate culture and public opinion to give them a kind of non-monetary “fringe benefit” of enhanced respect of their fellows – and that’s going to be enough of a nudging incentive to get them to change their minds in our favor for what is “costless” to us.

    If it doesn’t work at first, that just means you’re not manipulating the culture *enough*, and you need more propaganda, early-education indoctrination, and more coercive laws. Maybe some discriminatory hiring preferences to ensure these people end up in elite, influential positions so they feel more adequately respected, and other people look up to them because of their power, etc.

    I’ve often heard this “status” claim for all kinds of professions we’d like to have more talented people (and especially new college graduates) do for less, or choose instead of more lucrative options in the private sector, often with a “That’s how they think in country X! Why not here?”. Teachers, Soldiers, Police, Community Organizers, Legal Aid Lawyers, and so forth.

    It seems to be very confused and misguided thinking to me. Maybe there’s a good case, but I’d like to see Cowen hash out the details and implications instead of just throwing it out there as if it’s perfectly doable and uncontroversial.

  25. Gravatar of StatsGuy StatsGuy
    28. January 2011 at 07:16

    ssumner:

    “Second, with a reasonably comprehensive research regime, progress in finding a cure for cancer may require a certain set of interconnected discoveries in biochemistry that simply can’t be rushed by throwing more money and people at the problem.:”

    Yes, and no. I suppose it depends on what you define as “reasonably comprehensive”. In essence, you are saying there are decreasing marginal returns to research investment. Uh, sure. The question is where’s the kink in the curve, and are we there yet?

    Regarding “where people spend money”, I disagree with you – that’s where people were spending money in 2005 and 2006. Some of that will persist, but the data I’ve seen on consumer priorities (mostly not public) suggests we’ll see a modest shift toward fresh/higher quality/more diverse diets (among upper middle class at least), and health care (defined broadly, to include “wellness” etc.). Hopefully a preference shift toward savings/investment, as well, which really means additional consumption in other parts of the world assuming they run their policies appropriately.

    Also, you asked for the recent happiness/prosperity index data. It’s here:

    http://www.prosperity.com/rankings.aspx

    Separately, Geithner (at Davos) appropriately raised an interesting point – he responded to criticism about US exporting dollar inflation (North African food riots, etc.), he said developing countries should de-link their currencies from the dollar and let them appreciate. Finally.

  26. Gravatar of davver davver
    28. January 2011 at 07:17

    1. A bigger and nicer house, with granite counter-tops.

    2. More restaurant meals.

    3. More fun vacations.

    You are aware consuming those things in fun, producing them is miserable.

  27. Gravatar of Justin Dailey Justin Dailey
    28. January 2011 at 07:53

    “Education vouchers. It won’t improve tests scores, but it will save boatloads of money.”

    I’m with you here – saving boatloads of money for the same product is always a good idea.

    There is an article over at Mises which tries to make the case that Americans/Britons were very well educated prior to universal education. I can’t speak to the accuracy of the claims in the article but if true, it suggests:

    - Vouchers will have a larger impact on the quality of education than we think
    - Vouchers might not even be necessary

    http://mises.org/daily/1425

    This next item is sort of off topic, but nominal final sales of GDP grew from $14,605.5 billion to $14,865.2 billion in Q4, a 7.3% annualized gain. Real final sales increased at a 7.1% annual pace.

  28. Gravatar of Erich Erich
    28. January 2011 at 08:17

    TheMoneyIllusion
    Raising the relative status of NGDP

  29. Gravatar of Benjamin Cole Benjamin Cole
    28. January 2011 at 09:31

    Yes, I do not agree with premise of book. I think we are in a tech boom, and it will only get better.

    The commercialization of the PHEV, which GM may be on the cusp of doing (and if not them, someone else), strikes me as remarkable.

    If you have certain kinds of cancers, they are now treatable–people with those cancers would regard the last 50 years as revolutionary.

    I expect more and more good news–the venture capital fund a generation ago was a sideshow, armed with tens of millions of dollars. Today there is no shortage of venture capital, globally. Some funds have billions.

    In the field of energy. no good idea, and many mediocre ideas get funded. By some accounts, there may be a ceiling on liquid fuels at $4 a gallon, due to biofuels, and liquid fuels derived from natural gas (now abundant, thanks to advances in shale gas drilling).

    Advances in yields of all types of farm crops are here and more are coming, thanks to all sorts of high-tech research (and old-fashioned selection).

    We have gone from filthy air to usually clean air in Los Angeles in a generation. On environmental matters, there has been a revolution, and again, it keeps getting better.

    The Internet was and is huge–the instant transfer globally of technical papers. A generation or two ago, researchers used to comb old libraries, looking for published works.

    Lastly, without the Internet, would the whole discussion of QE, and the fame of Scott Sumner, ever happened? Or would Sumner have published an academic piece somewhere, perhaps after the fact? In a democracy, the Internet is properly leveling some playing fields.

  30. Gravatar of OGT OGT
    28. January 2011 at 09:36

    I am pretty dubious at the claims of technological entropy, it was supposedly President McKinley who said at a 1899 science fair that he didn’t know what they could show since, “everything that could possibly be invented has already been invented.”

    How did that pan out?

  31. Gravatar of OGT OGT
    28. January 2011 at 09:43

    On the other hand, I do have a hypothesis that emerging market catch up growth has uncomfortable medium term implications for growth for those at the edge of the tech. frontier. As this VoxEu article argues, in essence the original industrial revolution was largely fueled by expensive labor and cheap capital in the Netherlands and England, in comparison the equally advanced Chinese were cursed with too much cheap labor so that capital replacement of labor had a higher bar to clear.

    http://www.voxeu.org/index.php?q=node/6051

    The implication for advanced countries is that as 2.5 billion laborers are integrated into our economic system the payoff from new technological development is reduced compared to utilizing the new source of cheap labor.

    Even though economists often complain about the low US savings rate, it seems odd that could live besides such low interest rates unless there was an underlying weakness in investment demand. In the context of the recession, that is probably uncontroversial but real interest rates have been falling for twenty years in the US.

    However, as other supply bottle necks in commodities and labor absorbtion slows and consumer demand increasesin India and China investment returns to new technology could increase.

  32. Gravatar of tonyv tonyv
    28. January 2011 at 09:49

    Your obsession with NGDP is charming.

  33. Gravatar of Adam Adam
    28. January 2011 at 10:07

    You’re communicating, interactively if you want, with people from around the world on this blog and yet the only technological innovation of your lifetime is home computer revolution?

    Anyway, I’ll have to read the book, but I’m very skeptical that innovation has slowed. It may have moved into areas that are less apparent to the casual observer, but there have been ongoing revolutions in our ability to access and analyze data that seem far from trivial.

  34. Gravatar of Floccina Floccina
    28. January 2011 at 10:12

    Education vouchers. It won’t improve tests scores, but it will save boatloads of money.

    I am glad to someone other me saying I have been saying that for years. An even better idea IMHO is to start directly charging full cost tuition the rich and middle class in Government schools. Vouchers discriminate against home schoolers and could lead to unwanted Gov. interference in religious schools. It makes no sense to tax people to then subsidize the same people.

  35. Gravatar of W. Peden W. Peden
    28. January 2011 at 10:40

    Floccina,

    Couldn’t parents who choose to homeschool their pupils be given a sort of stipend, i.e. if they take time off work to teach to school their children and meet standards, then they get given money equal to the average cost of educating that pupil. That would level the playing field between homeschooled and non-homeschooled families, while still maintaining the idea that vouchers should be used to increase the possible choices of low-income families.

    One education reform I considered of late was this: adopt a system similar to Friedman’s “University Bonds” scheme, but for high schools.

    So all high schools would essentially be privatised (with very limited subsidies in exceptionally problematic areas) but their funding would be based on the future income of their pupils: the more the pupils earn in future, the more money the school gets in future.

    Obviously, there would be occasional tricky cases (pupils moving schools, school districts changing etc.) but the basic principle would be that schools and pupils would be engaging in a long-term contract, with a minimal role for the state as a middle-man.

  36. Gravatar of Roger Sweeny Roger Sweeny
    28. January 2011 at 10:46

    “The fact that we can feed and produce everything we wanted with only 10% of population”

    You have obviously never been in a nursing home. When people can’t even go to the toilet by themselves, we need a good proportion of the population just to keep the old and infirm in civilian clothes.

    As long as the children of our aging population can find someone to pay for keeping their parents up and alive, we will need more and more (relatively unskilled) labor.

    (To the extent that young people “need help,” there are jobs aplenty there, too.)

  37. Gravatar of Dirk Dirk
    28. January 2011 at 10:53

    Great post. I like your prescriptions much better than Tyler’s.

  38. Gravatar of Lord Lord
    28. January 2011 at 11:15

    I would say the problem with jobs is from a national perspective. A very few highly skilled and rewarded workers in export industries supporting a very large large population of mostly low skilled and low rewarded workers in non-import competing industries won’t do much for the median worker. A service economy is not a wealthy economy unless those services are exportable and such a highly unequal society is hard to maintain since it faces many needs but too narrow a tax base, the temptation to tax being met with the temptation to flee and the temptation to power being met with the temptation to popularity.

  39. Gravatar of Brett Brett
    28. January 2011 at 11:37

    You have obviously never been in a nursing home. When people can’t even go to the toilet by themselves, we need a good proportion of the population just to keep the old and infirm in civilian clothes.

    That’s a good point. With a heavily aging population (and rising elderly population in absolute terms), an increasingly large part of the workforce will be shifting into stuff like this in particular, and health care related work in general.

    Which makes me wish I’d gone into a health-related field.

  40. Gravatar of Mike Sandifer Mike Sandifer
    28. January 2011 at 13:50

    Scott,

    I’m from freewheelin’ Houston and the lack of zoning laws is exciting in a way, but the traffic situation there is a nightmare.

    With respect to the former, I literally used to see an oil well being pumped right next to a public school. Also, there are sorts of mini downtown areas, such as that with the Transco Tower, that seem bizarre, especially having lived in other cities since. Tall buildings seem to just pop up out of nowhere.

    All of this might be fine. I seem to remember liking the variety in buildings, housing, and businesses I saw in so many areas of town. I imagine there are some benefits to this freer market approach.

    However, have you ever sat in traffic there? The road system is a nightmare and public transportation is virtually nonexistent, or at least it was when I was last there.

    Getting to sports stadiums was such a mess that it significantly reduced our enthusiasm for attending professional sporting events. Maybe that’s a big reason why Houston’s a small market city for pro sports.

    Yes, I understand that some zoned cities also have traffic nightmares, but then there are those like Portland where they seem to create a nice transportation system for both drivers and those wishing to use the public transportation.

    My brother lived there until recently, and he liked their highly regulated system much better than the urban sprawl here in Jacksonville to which he returned(He came back because he prefers southern culture).

    I haven’t studied the issue and lack the economic analytical skills to do so anyway, but my guess is that it highly depends and that what might benefit some of the city’s certain local areas, may be bad for it overall.

    Houston is a vibrant city, but I can’t imagine going back to that traffic.

  41. Gravatar of Mike Sandifer Mike Sandifer
    28. January 2011 at 14:00

    Oh, and I realize homes are often cheaper in Houston. This was especially true after the “bubble” burst in the mid-to-late 80s that left a real estate market that make those I’ve seen today seem healthy.

    My father, for example, bought a 1000 or so square foot duplex for $16,000 in the late 80s in the Bear Creek area, in an average suburban neighborhood. The attaching home was vacant for years, so the privacy was nice.

    On the other hand, my maternal grandfather was more than wiped out during the bust, and spent about 15 years getting out of debt. He was a residential real estate developer.

    I don’t know where to come down on balance, but I was always told that the Houston economy and real estate development, by extension, depended upon oil prices. What happens to Houston as the world starts to turn away from oil?

    I don’t know, but again, I don’t want to face that traffic.

  42. Gravatar of StatsGuy StatsGuy
    28. January 2011 at 15:09

    OGT:

    “The implication for advanced countries is that as 2.5 billion laborers are integrated into our economic system the payoff from new technological development is reduced compared to utilizing the new source of cheap labor.”

    Um, that assumes the marginal productivity of labor is always positive. If it’s not, then you can have bifurcating economies – one in which high tech is largely divorced from low tech. The net effect could be to shift technological innovation into areas where the the marginal substitutability of labor is low.

  43. Gravatar of Mark A. Sadowski Mark A. Sadowski
    28. January 2011 at 16:04

    My own personal situation is the following:

    1. A huge, sprawling (5 bedrooms, 3 baths), and much less than nice house, with broken gutters, colllapsing fascia, on a giant property (1.5 acres) located 20 minutes from anywhere and no chance of public transportation, with a big hole in the kitchen ceiling so I can access the ancient and corroded plumbing as pipes inevitably bust or clog.

    2. Dollar menu sandwiches at McDonalds when I don’t have the time to cook at home.

    3. Vacations? I haven’t had one since 2008.

    And Cowen’s pessimism reminded me of the open of Soylent Green:

    http://www.youtube.com/watch?v=StoSRQOvMyI&feature=player_embedded

    But I’m not quite there yet. I don’t share his pessimism. But that’s because I’m an American.

  44. Gravatar of John Papola John Papola
    28. January 2011 at 16:10

    “But by assumption RGDP has doubled, meaning the price level has fallen in half.  In that case why shouldn’t we double NGDP, allowing people to repay their debts?”

    Too much aggregation. Which people? The firms who drove innovation and pushed down prices through productivity didn’t need to cut wages. The buyers of those specific lower priced goods now have more money left over to pay their debts. There is no reason to double the price level in keeping with growth based on this stylized story. Printing more money in the face of this supply increase will, on the other hand, likely set off an Austrian boom and bust.

    Re-read Less Than Zero, Scott.

  45. Gravatar of Bababooey Bababooey
    28. January 2011 at 16:49

    The government employs many of our scientists & engineers directly and underwrites their employments in universities and with government contractors. All those jobs reward seniority, get-along behavior (orthodoxy or silence), publishing, grant writing, committees, and other non-productive behavior. Scientists, like nearly all of us, are conservative types and prefer safe, solid-paying jobs offered via government funding.

    The entrepreneur offers speculative equity-compensation (no pensions and high chance of losing your job) and exploits the hell out of their productivity, but is crowded out of the hiring-scientists market. Then, because its still moving, the government ruins that market further by limiting immigration of really smart people in favor of blood relatives.

  46. Gravatar of Bababooey Bababooey
    28. January 2011 at 16:57

    I literally used to see an oil well being pumped right next to a public school.

    Beverly Hills High School has 2 oil wells. Los Angeles has the largest urban oil field in America. Our traffic sneers at your traffic. Our zoning doesn’t solve Houston’s problems, but it (with rent control) still delivers ridiculous housing prices and stupid redevelopment mandates.

  47. Gravatar of Morgan Warstler Morgan Warstler
    28. January 2011 at 17:05

    NOTE: Tyler’s work could be sub-titled… “What happens when you have lots of government?”

  48. Gravatar of scott sumner scott sumner
    28. January 2011 at 17:19

    Indy, Sounds interesting, but I’m inclined to believe that there will be another growth spurt at some point, triggered by progress in biology/medicine.

    Mark, Yes, I like “Being There” too. If NGDP is targeted the economy should bloom in the spring.

    James, I meant actual RGDP, not measured RGDP. You are technically right, but clearly what matters for the economy is actual RGDP.

    cassander, Judge people by how they treat each other, not their politics.

    John, Thanks for that info, but it can’t possible be as bad as Boston. Here it takes 20 years to put up a commercial building in an empty parking lot that looks like a wasteland.

    David, You said;

    “Back when I was arguing with you over Singapore, you once said that once one compounds US federal and state and county and city etc. laws, the resulting regulatory environment is as extensive as, or even greater, than Singapore’s. Perhaps, but never mind that; I am curious about a tangentially related issue. Loosely speaking – I don’t have a handy rubric in mind – of the current regulatory environment in the US, of regulations which you oppose, do you think federal restrictions are “worse” or state+regional restrictions are “worse”?”

    Regarding Singapore, that was the claim of the Heritage Foundation and the Fraser Institute. I think I said it was quite plausible, but I can’t know for sure.

    The second question is a good one, and I don’t have a simple answer. For taxes the Feds are far worse. By far the worst regulatory policy is the war on drugs. Many states have allowed medical marijuana, or decriminalized, and the Feds oppose this. The INS is very bad.

    But states have lots of occupational licensing laws and zoning laws.

    I suppose I’d say the Feds are worse, mainly because of the war on drug-using Americans.

    Brett, Maybe, I don’t know enough about cancer research to comment. All I know is that Nixon launched the war around 1970 with high expectations, and it’s been 40 years.

    Mark, Your comments increasing resemble the scene in 2001 where Hal9000 is disassembled. :)

    Joseph, You said;

    “Scott, I guess you have not counted Chinese people. So – do you think this arrangement is forever?”

    Actually, I read an article a few years back saying manufacturing employment is falling faster in China than here–I don’t recall the time period. Our auto industry must have shed 75% of its workers, but output has been stable for 40 years. The main cause of manufacturing job loss in America is technology, not imports.

    Morgan, Most people aren’t like you. Getting TV shows and not having to go outside at night to an outhouse when it is 20 below zero is a bigger deal than the internet.

    Brian, Interesting quote, I guess I lean more toward Hayek’s view.

    Liberal Roman, I agree.

    Mbk, Tyler Cowen said that, not me.

    I’m surprised to hear that the internet is so primitive in Singapore. I had the impression it was trying to be a high tech hub.

    dtoh, Yes, this had been said before. I think it’s one of those half full/half empty things. Even if we grew at 1%, we’d still be vastly richer in 100 years.

    Ryan, No, because the DR can’t produce all those high tech goodies, and it can’t even produce the houses and services nearly as well as we can. Carnival is an American company, not a DR company.

    mbk, I think Singapore imports far more highly skilled workers than us on a per capita basis, and thus has far more.

    statsguy, I agree on medical research and diminishing returns, I don’t think that conflicts with what I said.

    It would be a disaster to spend more on health care, we already spend way too much (as someone else is usually picking up the tab.) Still it may happen. More fresh foods? Yes, but that’s not a big factor in the economy.

    Interesting index. As with the happiness index, the US beats all big European countries. Denmark is #2, and would be number one except for health. They have short life expectancies, presumably due to all the fatty foods.

    Yes, it’s absurd to blame the US for foreign inflation.

    davver, I much rather work in the service sector, or construction, than stand on an assembly line 40 hours a week putting one wheel on after another.

    more to come . . .

  49. Gravatar of Mark A. Sadowski Mark A. Sadowski
    28. January 2011 at 17:23

    Scott wrote:
    “Mark, Your comments increasing resemble the scene in 2001 where Hal9000 is disassembled.”

    I probably should be disassembled. But needlesss to say I’ll probably resist that.

  50. Gravatar of Bababooey Bababooey
    28. January 2011 at 17:28

    They found this carved by some big-headed Neolithic wise man:

    “We’ve invented all the cool stuff, jars so we can safely store food for lean times, axes to build real shelters and cave in the skulls of Mesolithics, and fences to trap fauna instead of following them around like dumb Paleolithics. Hell we made plants grow where we wanted them to grow and mills so we could eat it instead of scavenging. What else is there?

    Those stupid kids aren’t going to amount to anything, they just waste time thinking up newfangled laws (I need Hammurabi like I need a lateen sail), wasting valuable mud on dumb stories (16 tablets for that piker Enkidu?), dressing in crap made from PLANTS!?, wasting perfectly good fishing boats on trips half-way across the world to, what?, GIVE away oil & wine for chunks of rocks? You can’t find rocks here?”

    I am telling you, unless these kids start doing what I tell ‘em to, the world is going to hell in an amphora “

  51. Gravatar of Morgan Warstler Morgan Warstler
    28. January 2011 at 18:34

    “Morgan, Most people aren’t like you. Getting TV shows and not having to go outside at night to an outhouse when it is 20 below zero is a bigger deal than the internet.”

    This perfectly encapsulates the problem with utilitarianism.

    What matters is what a few people get out of the next thing, because that sets the path for everyone else down the line.

    We have three massively inefficient systems – Tyler discusses all three:

    1. public employees
    2. education
    3. healthcare

    Stealing from Superfreakonomics – the horse shit problem

    Imagine that nest week we figure out how to manage the EXACT SAME level of government service (cash transfers, taxes, even robots as soldiers), but do it for 70% less.

    This is a HUGE invention… except it is already here, it is simply unrealized.

    Imagine that we can fire 90% of the teachers… and heads toward 95% fired – this is a huge invention… except it is already here, it is simply unrealized.

    Scott, you are wrong – shitting outside is meaningless compared to the web. IF you judge it more important than the Internet – it simply means:

    1. are far too fascinated with shitting.
    2. don’t know how to use the Internet.
    3. get paid in job that the Internet will destroy.

    The Internet means, that for ANY mental task, you will eventually be able to find the cheapest best deal out of 9BILLION humans to hire them.

    The productivity gain is UNIMAGINABLE.

    Tyler truly is screaming we’ll drown in horse shit.

  52. Gravatar of Mark A. Sadowski Mark A. Sadowski
    28. January 2011 at 18:34

    BTW I’m not whining. Anyone would be lucky to have saved up the assets I have. I just wish I had more income.

  53. Gravatar of JoeChevy JoeChevy
    28. January 2011 at 19:09

    Morgan, obviously, has never had to use an outhouse – in the cold night or otherwise. An appreciation of indoor plumbing doesn’t necessarily mean that one is “far too fascinated with shitting”, it likely mean that one appreciates not having to get dressed, get a light, stumble outside, sit on a wooden bench above a hole in the ground in an old wooden shack that smells of, you guessed it – shit. And, of course, the outhouse represents progress in an of itself. But how could Morgan possibly know this?

  54. Gravatar of StatsGuy StatsGuy
    28. January 2011 at 20:38

    ssumner:

    “More fresh foods? Yes, but that’s not a big factor in the economy.”

    That was true in 2004, but it’s changing. Note the downtrend through 2004…

    http://www.ilfb2.org/fff06/51.pdf

    Part of this is increasing efficiency in the ag sector, part was worsening of diet quality, and part was growth in other areas of the economy. We’re seeing some changes, however. Prior to this year, we were seeing divergence between fresh food prices and prices for govt. subsidized high calorie foods (corn, wheat), but past 6 months we’re seeing inflation in the staples. While you may think fresh food is a not a serious factor, I submit that we spend more on fresh food than granite countertops by some orders of magnitude. Also, the proportion of US households requiring food stamp support (now at modern day records) begs to differ with you too.

    Finally, there is considerable truth to popular stories about downsizing and how the BLS measures price changes. For instance, ice cream quantities have changes (Breyers dropped 1/2 gallon to a quart), but made “packaging improvements” that BLS considers to counterbalance the reduction in product quantity. This is prolific in the cereal category. Recently in coffee, orange juice, many other places. Most of the world, meanwhile, spends 20%+ of household budgets on food, and many households in the US are beginning to prioritize healthy/fresh food over trips to disney land or cruise packages.

    In any case, although this is not part of the same data set, it suggests that from 2004 to 2010 the average household budget has seen an increase from 9.4% to 12.4% on food. At the same time, the average household budget for granite countertops… eh, I’m guessing it went down, but I can’t track those numbers.

    http://www.visualeconomics.com/how-the-average-us-consumer-spends-their-paycheck/

  55. Gravatar of StatsGuy StatsGuy
    28. January 2011 at 20:39

    ssumner:

    “More fresh foods? Yes, but that’s not a big factor in the economy.”

    That was true in 2004, but it’s changing. Note the downtrend through 2004…

    http://www.ilfb2.org/fff06/51.pdf

    Part of this is increasing efficiency in the ag sector, part was worsening of diet quality, and part was growth in other areas of the economy. We’re seeing some changes, however. Prior to this year, we were seeing divergence between fresh food prices and prices for govt. subsidized high calorie foods (corn, wheat), but past 6 months we’re seeing inflation in the staples. While you may think fresh food is a not a serious factor, I submit that we spend more on fresh food than granite countertops by some orders of magnitude. Also, the proportion of US households requiring food stamp support (now at modern day records) begs to differ with you too.

    Finally, there is considerable truth to popular stories about downsizing and how the BLS measures price changes. For instance, ice cream quantities have changes (Breyers dropped 1/2 gallon to a quart), but made “packaging improvements” that BLS considers to counterbalance the reduction in product quantity. This is prolific in the cereal category. Recently in coffee, orange juice, many other places. Most of the world, meanwhile, spends 20%+ of household budgets on food, and many households in the US are beginning to prioritize healthy/fresh food over trips to disney land or cruise packages.

  56. Gravatar of StatsGuy StatsGuy
    28. January 2011 at 20:39

    [split, because posting 2 links triggers moderator review]

    In any case, although this is not part of the same data set, it suggests that from 2004 to 2010 the average household budget has seen an increase from 9.4% to 12.4% on food. At the same time, the average household budget for granite countertops… eh, I’m guessing it went down, but I can’t track those numbers.

    http://www.visualeconomics.com/how-the-average-us-consumer-spends-their-paycheck/

  57. Gravatar of Joseph Joseph
    29. January 2011 at 02:26

    Scott,
    I am sorry but your reply shows what is wrong with economics :-) Just kidding, don’t mind me.
    Really, have you actually looked at how much of what car IS is manufactured in the US nowadays? Yes, you can assemble the same number of cars and need fewer people, but what if the reason for it is just shedding producuction of parts of these cars to – surprise – China or Germany or Japan? Have you actually ever checked? From what I can find quickly there is a significant import of parts (up to 100bn/year) – and that is just something that is registered as car parts. There are items that might have previously been manufactured by car industry – like metal, f.e. and which are now “outsourced” to other industries in or outside of the US. Do you know how much was US car parts export 40 years ago? Has it declined or grown? Anyway, all that to ask – are you sure you can claim new manufacturing jobs will not be required in the future?
    Have you seen the data showing how Iphones production is distributed between countries in terms of GDP? That may be really useful. I read blog posts from guys working in corporate finance explaining that economists operate meaningless numbers way too often, although of course these guys may be wrong.

  58. Gravatar of Ryan Ryan
    29. January 2011 at 05:22

    Ryan, No, because the DR can’t produce all those high tech goodies, and it can’t even produce the houses and services nearly as well as we can. Carnival is an American company, not a DR company.

    Prof. Sumner,

    1. How long will the USA remain a tech-savvy economy if we start pouring more of labor force into the low-skill services sector?

    2. Higher US productivity is a result of our superior capital stock. The DR is an island that will never have a superior capital stock. India and Pakistan, on the other hand, are rapidly converging on the USA. I’d suggest we need more and better technology, not more hamburger stands.

    3. Carnival is a US company, but Iberostar and Riu Hotels are not. Last time I was in the DR, the only US company I saw was the Hard Rock Cafe.

    The USA is declining in all the important ways (capital, technology, regulatory environment, worker productivity). How long before the “developing” world is no longer “developing?” I’d suggest we need a more highly skilled and innovative workforce, not a nation of waiters.

  59. Gravatar of mbk mbk
    29. January 2011 at 05:52

    Scott,
    “I’m surprised to hear that the internet is so primitive in Singapore.”
    That is not what’s happening. The internet is just fine here. It is US publishers preventing US distributors to distribute their products electronically outside the US except for a few select countries. They detect your IP address origin, and if this is circumvented through proxy servers, they detect the origin of your credit card and if this too is US origin but billed abroad, they detect that too. One of the few remaining US economic sectors, publishing services and IP, attempts to commit suicide by refusing to sell legally outside the glorious 5% of the world population which are US residents. Example, I have an US issue credit card, and still an US bank account – maintained at cost just to provide me with that sweet “scent of US” that used to make my online purchases easier. But somehow these days all systems now detect me as non US resident and I am being blocked from access to downloads, *by the US website*. I can still buy books – but often, no electronics products either, mind you – at grotesque shipping prices (usually 50-100% of product value). Btw IIRC Europe also had to wait years after the US before the politicking found a resolution and iTunes became accessible there.

    Yes, Singapore imports lots of high skilled workers, no question.

    Morgan, the internet is very entertaining and has taught me a lot, but I would not say it has increased my productivity all that much.

  60. Gravatar of OGT OGT
    29. January 2011 at 06:26

    Statsguy you said: “Um, that assumes the marginal productivity of labor is always positive. If it’s not, then you can have bifurcating economies – one in which high tech is largely divorced from low tech. The net effect could be to shift technological innovation into areas where the the marginal substitutability of labor is low.”

    I am not sure that completely contradicts my working hypothesis. I wouldn’t expect all sectors to see an equal diminishment in innovation returns, but if significant portions of the economy saw slower returns to innovation (or there was a sectoral shift towards lower productivity service sectors) I would expect to see slower overall growth and innovation. In other words I would be skeptical that the increases in low labor substitution sectors would completely offset the drag in the other areas.

    See Dani Rodrick here on sectoral shifts:

    http://rodrik.typepad.com/dani_rodriks_weblog/2010/09/growth-reducing-structural-change.html

  61. Gravatar of Where will all the jobs come from? — Mutual Information Where will all the jobs come from? — Mutual Information
    29. January 2011 at 06:31

    [...] great Scott Sumner: Here’s how I think about jobs. First, what do we want? If those things can be provided with very [...]

  62. Gravatar of OGT OGT
    29. January 2011 at 06:43

    Also, in a similar vein, here’s an interesting paper on the economic effects of low skilled immigration. They find that it increases productivity by increasing labor specialization, however, find evidence that it reduces capital investment and adoption.

    From the paper by Giovanni Perri:

    We find no evidence that immigrants crowded-out employment and hours worked by natives. At the same time we find robust evidence that they increased total factor productivity, on the one hand, while they decreased capital intensity and the skill-bias of production technologies, on the other.

    http://www.nber.org/papers/w15507

    I believe that one could substitute emerging markets for immigrants and be fairly safe when talking about global growth in the statements above.

  63. Gravatar of scott sumner scott sumner
    29. January 2011 at 06:59

    Thanks Tonyv.

    Erich, Yes, I am a bit obsessed with NGDP. :)

    Justin, Yes, I noticed the final sales gain, but NGDP only rose 3.4%. So I am taking a wait and see attitude. If the final sales numbers are more accurate, NGDP should rise fast in the current quarter. James Hamilton doesn’t seem to think the final sales numbers are very relevant, and he knows more than I about GDP. On the other hand, so does Woolsey, and he prefers final sales.

    I do think vouchers will raise the price adjusted quality of education, just not the test scores.

    Benjamin, I think you make some good points. You said;

    “Lastly, without the Internet, would the whole discussion of QE, and the fame of Scott Sumner, ever happened?”

    That’s the best argument yet!

    OGT, Keep in mind that the claim is that progress has already slowed since 1969.

    I think you are probably right about India and China.

    Adam, I consider the internet as part of the home computer revolution. Look around the average American home. The computer is new since the 1950s, but most other appliances, cars, electric lights, phones, indoor plumbing, etc were added in the previous 60 years. I do consider the internet a very big deal, but not as big as all that other stuff.

    Floccina, That’s a good idea.

    W. Peden, That idea is interesting, but might be hard to implement.

    Thanks Dirk,

    Lord, I don’t follow your logic. If we are 5 times as productive as today, we will be 5 times richer, regardless of whether we export. I do think we will continue to export, but I see no reason why service jobs would pay far less than exports jobs. If technology improves fastest in making “things” then that fact will drive down the price of those things, making wages in export industries no higher than services.

    Mike, You said;

    “I’m from freewheelin’ Houston and the lack of zoning laws is exciting in a way, but the traffic situation there is a nightmare.”

    That’s interesting, as when I visited last year the traffic seemed better than Boston. But it was a short visit. I was impressed that they had 20 lanes of freeway going out to Katy Texas (including 6 lanes of frontage road) and then as if that wasn’t enough, they had a parallel private tollway you could use if you wanted to save time.

    I do think the government should play a road in building roads, so my zoning argument isn’t really related to the traffic argument. And another blogger pointed out that they have rules against density, which is what I am basically complaining about.

    I like the idea of an oil well next to a school. Expose kids to the real world early!

    Regarding your second comment, I don’t think the Texas boom is driven by oil (which is an increasingly small share of the Texas economy.) The fact that lots of people move to Texas shows their model is preferred to other states (at least by lower income workers, the rich often prefer NY and California.)

    John Papola, I actually agree, I was just pointing out that option. Stable NGDP growth is best.

    Bababooey, Good points about both scientists and LA.

    Morgan and Joechevy, I agree with Joe. I’m old enough to remember when a few outhouses were still around.

    Statsguy, There is a difference between qualifying for food stamps and requiring food stamp support. I probably could have qualified when I was young and poor, but didn’t bother applying.

    You said;

    “Finally, there is considerable truth to popular stories about downsizing and how the BLS measures price changes. For instance, ice cream quantities have changes (Breyers dropped 1/2 gallon to a quart), but made “packaging improvements” that BLS considers to counterbalance the reduction in product quantity. This is prolific in the cereal category. Recently in coffee, orange juice, many other places. Most of the world, meanwhile, spends 20%+ of household budgets on food, and many households in the US are beginning to prioritize healthy/fresh food over trips to disney land or cruise packages.”

    I completely agree, I don’t trust price indices. I also don’t trust your share of budget on food numbers, but am too busy to research the point.

    Joseph, You didn’t do your homework. You also need data on export of car parts, which is large. US made cars are heavily US value-added, I recall around 75%. And we export lots of parts. In any case, regardless of the precise numbers, the biggest factor is technology, that’s even true in countries like Germany, where fewer and fewer workers are in manufacturing, despite a huge trade surplus. Indeed it’s true worldwide.

    Ryan, According to Tyler Cowen, forever, as we need very few workers to produce the high tech goodies. We are number one in tech right now, with a far less well educated workforce than Japan. And Japan seems to be going nowhere.

    You said;

    “I’d suggest we need more and better technology, not more hamburger stands.”

    Yes, we need better technology, but we can get that with less than 10% of our workers. The rest can flip hamburgers.

    You said;

    “How long before the “developing” world is no longer “developing?” I’d suggest we need a more highly skilled and innovative workforce, not a nation of waiters.”

    I said we need both types of workers, the key point is that we need far more unskilled workers than skilled workers. Workers used to need to know math to operate a cash register. Now they just need to know how to push the button with the picture of a big mac on it. Technology allows us to be dumber. In the old days only mechanics could operate cars, now almost anyone can.

  64. Gravatar of Russ Anderson Russ Anderson
    29. January 2011 at 07:47

    Scott wrote about cancer: “All I know is that Nixon launched the war around 1970 with high expectations, and it’s been 40 years.”

    There have been incredible improvements in cancer treatment in the last 40 years. For example, my step-Dad had kidney cancer in the mid-1980′s. At that time they removed a kidney but said that type cancer usually returns in about a decade and that he better hope they come up with a treatment by them. Like clockwork the cancer came back in the mid-1990′s but this time was so advanced it was inoperable. With no other alternative, they tried a test drug called interferon. It shrunk the cancer to the point that he is still cancer free to this day. Truly amazing.

    I personally know several people that have survived various forms of cancer that would have died 40 years ago. There are many types of cancer that have gone from almost always fatal to almost always curable. Dramatic improvement.

    How much of this can be traced back to Nixon or any other policies is debatable, but what is clear are the incredible advances in cancer treatment.

  65. Gravatar of Roger Sweeny Roger Sweeny
    29. January 2011 at 07:48

    “Imagine that we can fire 90% of the teachers… and heads toward 95% fired – this is a huge invention… except it is already here, it is simply unrealized.”

    Oh, you silly, silly man. School is mostly day care and day care is labor intensive.

    (If you think school is mostly about acquiring knowledge, ask yourself how many finals you could take and pass today from courses you took. I’m guessing one hand would suffice to count them.)

  66. Gravatar of Mike Sandifer Mike Sandifer
    29. January 2011 at 09:36

    Well Scott,

    I don’t expect you to be interested in this, but in case you are, here’re some live traffic scenes on various roads in Houston:

    http://traffic.houstontranstar.org/cctv/transtar/

    Rush hour is obviously the time to look.

    And with this google search, “worst traffic in the us”, Houston is top 5 in nearly every publication, being #6 in one of them.

    Of course, that also means that a small handful of what may presumably be more highly zoned cities have worse traffic problems, and anyway, the worst tend to be the largest cities, of which it is also top 5. And who knows if these opinions mean anything?

    So, in other words, the traffic may be horrific, but may have little to do with a lack of zoning.

  67. Gravatar of scott sumner scott sumner
    29. January 2011 at 10:44

    mbk, Thanks for that info.

    Russ, I read that the average cancer victim only lives a few months longer with new treatments. But some certainly live much longer.

    Mike, I’ll take your word for it on traffic, since you live there.

  68. Gravatar of Some Links Some Links
    29. January 2011 at 10:57

    [...] Foundation’s Brink Lindsey reviews Tyler’s new e-book, The Great Stagnation.  As does Scott Sumner.  And as does Arnold [...]

  69. Gravatar of Mark A. Sadowski Mark A. Sadowski
    29. January 2011 at 11:01

    Scott,
    Off topic but you really should do a post on the preliminary fourth quarter GDP results.

    NGDP was dissapointing of course but final sales of domestic product (FSDP is Bill Woolsey’s preferred measure) was up by an astonishing 7.3% at an annual rate (since the recovery began it has never exceeded 3.0%). In real terms the increase was 7.1%, the most in 26 years. I think this shows a number of things:

    1) QE2 worked
    2) Expectations matter (Bernanke’s Jackson Hole speech probably did more than the actual implementation)
    3) There are no lags to monetary policy.

    Needless to say an explicit target would help much more than an arbitrary asset purchase figure. But first more people need to be convinced that 1) printing money has real effects in the short run, and that 2) something needs to be done.

  70. Gravatar of Some Links | Daily Libertarian Some Links | Daily Libertarian
    29. January 2011 at 11:22

    [...] Foundation’s Brink Lindsey reviews Tyler’s new e-book, The Great Stagnation.  As does Scott Sumner.  And as does Arnold [...]

  71. Gravatar of Mark A. Sadowski Mark A. Sadowski
    29. January 2011 at 11:54

    Scott,
    Incidentally, there are posts related to the nominal 4th quarter results at Bill Woolsey, David Beckworth and Marcus Nunes’ websites. I don’t think you’ll mind me plugging them as you’ll probably do it anyway. After all it’s one big happy Quasi-Monetarist family.

  72. Gravatar of Lorenzo from Oz Lorenzo from Oz
    29. January 2011 at 16:51

    q: I doubt that minimum parking requirements are much of a limit on the supply of housing. Some, for apartments, but not much.

  73. Gravatar of Lorenzo from Oz Lorenzo from Oz
    29. January 2011 at 17:03

    Mike S: I was going to respond to the point about traffic, but you already made the point I was going to make, and better.

    When one sees congestion, I suspect one has a pricing problem. For if the key operating price is inconvenience (i.e. time taken), then increasing supply will only increase the demand up to the equilibrating level of inconvenience/time taken. If you don’t like the effects of pricing by inconvenience/time taken, then congestion charges look like a good idea.

  74. Gravatar of Russ Anderson Russ Anderson
    29. January 2011 at 22:32

    FWIW, the 5 year survival rate for all cancers in 1974-76 was 49.3%. In 1999-2006 it was 66.0%.

  75. Gravatar of mbk mbk
    29. January 2011 at 23:09

    Lorenzo,

    “If you don’t like the effects of pricing by inconvenience/time taken, then congestion charges look like a good idea.”

    We have a lot of that in Singapore. I assume it does have some effect but if you think about it, people’s transport needs are very inelastic, especially when going to work. Rush hour pricing assumes that somehow people have a choice in time or mode of transportation. In the short and even medium run, often, they don’t. Moving closer to work is slow and costly and if work changes, it’s all for naught.

    So, in spite of very high car VAT (100%) road taxes (incl. the certificate of entitlement for registration, currently ca. USD 30,000 for a 10 year period and average car), rush hour usage charges, and let’s not forget a very good alternative, the excellent public transport system, air conditioned and all, Singapore road traffic keeps going up and is now starting to look congested like in an ordinary Western City.

    You can’t do much more than Singapore has done in promoting public transport and making private cars expensive, and people still drive. This tells me that demand for car usage is very inelastic. Of course even higher prices would eventually choke it off but that will have dead weight loss effects. Without a car there’s a lot of things you won’t do at all. In other words, at that point you have to look beyond pricing into density vs. infrastructure, transportation models (hub systems), maybe hierarchical clustering of towns etc. – but that’s a kind of zoning then.

  76. Gravatar of Lorenzo from Oz Lorenzo from Oz
    30. January 2011 at 00:07

    mbk: Congestion charges work better if there are choices between modes of transport but it is likely one runs into demand inelasticities.

    The problem with zoning solutions is that they do not work. Worse, they are counterproductive since the price effects of quantity controls decrease the incentive to provide infrastructure (since the quantity controls provide easier revenue increases from higher land prices than does increased land values from infrastructure — the reason to have government provide infrastructure in the first place, since it benefits from increased land values via taxes, unlike a private provider), increases the cost of providing infrastructure (by making the land more expensive) and increases the resistance to providing infrastructure (by increasing resident activism to protect capital gains; there being a difference between being serviced by a freeway or railroad and being next to it). There is a reason land-controlled California gave us BANANA (build absolutely nothing anywhere near anyone): i.e. NIMBY (not-in-my-backyard) on steroids.

    I am currently finishing a commissioned piece on the interaction between housing/land use policy, infrastructure provision and social dynamics in Sydney and Melbourne, so the issues are front and centre for me at the moment.

  77. Gravatar of Lorenzo from Oz Lorenzo from Oz
    30. January 2011 at 00:14

    and will continue to be disappointing for the foreseeable future. Scott, here you are a supporter of EMH and you are predicting future discoveries! Information about information that is not yet information. If, however, you are making a historical claim about the pattern in recent decades, fine.

  78. Gravatar of mbk mbk
    30. January 2011 at 00:35

    Lorenzo,
    very interesting issues and project. I wanted to say pretty much the same thing in a different context, i.e. that there are no easy answers. Singapore e.g. has extensive zoning and land use policies, all land use and infrastructure is essentially state supplied or controlled, and it also has excellent alternative modes of transport. And yet in the end for reasons of spontaneity and for reasons of inelasticities people still want to use cars whenever they can, often because of “real” problems of getting to work vs. “gratuitous” car usage, although I don’t like such distinctions at all – who’s to say that my reasons to drive are worse than yours etc.

    So – I didn’t mean to say extant historical zoning approaches are so great, but the problem of structuring a city and its flows remains the same. And the examples of developing country cities with weak authorities make me doubt how well an absence of planning works, as much as I’d love to see more “spontaneous orders”.

    In terms of structuring I was thinking along the lines of the “linear cities” ideas, or the hierarchical structuring ideas say in C. Alexander’s “A pattern language” (although his open ended exposition in “A city is not a tree” goes more to the core, with the issue of overlapping goals). I say this as a layman, I have no idea if all this is realistic. But whatever it is, top down structuring would end up being coercive. Then again, all planning is. It’s also coercive if developers buy whole sections of town and you get stuck with whatever infrastructure they thought fit. It’s private, and still planned, within the development. At heart I have no sympathy for zoning, yet I suspect it’s better to improve it and make it less rigid, rather than doing away with it completely.

  79. Gravatar of scott sumner scott sumner
    30. January 2011 at 07:15

    Mark, OK, I’ll try to do something.

    Russ, Isn’t part of that improvement due to earlier detection of tumors? Thus people are surviving longer from the point of discovery of the tumor to death, but maybe not from the point the tumor actually starts growing to death. Of course I’m not expert, so you may be right.

    Lorenzo, You said;

    “Scott, here you are a supporter of EMH and you are predicting future discoveries! Information about information that is not yet information. If, however, you are making a historical claim about the pattern in recent decades, fine.”

    Discoveries are not completely unforeseen. There are fundamental discoveries (electric power and internal combustion engine) that led to many products in the 20th century. Right now the fundamentals are the computer chip and genetic engineering. We have some sense of how this will play out, just as someone in 1900 had some sense that electricity power would continue to lead to more useful appliances over time. Consider my observation an educated guess that takes into account recent trends in invention, and doesn’t go out more than a few decades into the future. Beyond that it’s anyone’s guess, so I don’t really disagree.

  80. Gravatar of Full Employment Hawk Full Employment Hawk
    30. January 2011 at 08:58

    On the basis of your review, Cowen’s thesis appears to be a conservative reworking of the stagnation hypothsis held by a significant part of the post World War II American Keynesians, such as Alvin Hansen. This thesis seems to pop up whenever the U.S. economy is seriously depressed below potential output. The temporary effects caused by inadequate NGDP growth get condused as long-term effects.

  81. Gravatar of Full Employment Hawk Full Employment Hawk
    30. January 2011 at 09:10

    Cowen’s main problem seems to be that he is not thinking like an economist.

    As is taught at the very beginning of the Econ Principles course in college, one of the fundamental assumptions of economics is that people’s wants are unliminteed so that the central economic problem is how to best fulfill these unlimited wants in the light of the fact that the resources with which to fulfill them are limited. While this proposition does not always hold in the short run, since during recessions there can be idle resources, it is supposed to ALWAYS hold in the long run. If certain economic activities require little labor, they will be inexpensive, leaving income available for activities that do require a good deal of labor.

  82. Gravatar of scott sumner scott sumner
    30. January 2011 at 09:24

    Mark, Over at Econbrowser I don’t see that anyone has answered “rootless’s” comment that the final sales of domestic goods number is flawed. It seems to include the change in final sales of imports from inventory.

    My hunch is that even a true final sales of domestic product number would show a nice increase, but I don’t see any evidence that the government actually provides such a number.

    Alternatively, it makes no sense that consumption rose strongly, but imports were stable. The slowdown in imports added to GDP, and the resulting slowdown in inventory build up subtracted a nearly equal amount from GDP. Is the final sales number believable?

    Again, I’m not trying to argue it isn’t good news, it’s just that it may not be as accurate as we’d like.

  83. Gravatar of scott sumner scott sumner
    30. January 2011 at 09:26

    FEH, Yes, I was surprised that Cowen was worried that high tech industries wouldn’t require many workers.

  84. Gravatar of Mark A. Sadowski Mark A. Sadowski
    30. January 2011 at 10:51

    Scott,
    Spying on me eh.

    Preliminary statistical investigation reveals that you (and rootless) are right to be skeptical. The correlation between the imported goods and inventory contribution to GDP is reasonably high and I estimate the elasticity to be about -1. If so a more accurate FSDP result would be about 5%.

    So, yes the BEA FSDP figure appears to be flawed. (Sigh.)

  85. Gravatar of ssumner ssumner
    30. January 2011 at 12:31

    Mark, It’s too bad we don’t have the right data, I wonder if David and Bill know about this.

    I wonder if the data even exists–I’d guess that Walmart doesn’t break out sales by import and domestic. On the other hand does Walmart sell anything domestic?

    (Just kidding, I know they do.)

  86. Gravatar of Things are so good they’re bad – Economics - Things are so good they're bad - Economics -
    31. January 2011 at 13:04

    [...] to attract a lot of attention from bloggers. Many of the responses are interesting, but I found Scott Sumner's the most intriguing:Tyler Cowen argues that the internet might produce all sorts of neat [...]

  87. Gravatar of Adam Adam
    31. January 2011 at 14:27

    I wouldn’t necessarily posit my home as “average,” but if I look around there are more than a few technologies from the last decade or so: Tive/DVR, iPhone, ipod, on demand and streaming video content (both from the “internet” and not), wifi, blu-ray. Which is not even to mention the improvements that have been made in the older technologies, and doesn’t even begin to touch on all of the medtech advances that have been made (e.g., if you can get into the right trial or you live in Europe you can now have a heart valve replaced without surgery).

    Obviously this is all highly anecdotal, but I tend to look around me and see all kinds of places where technology has either just been invented that will improve a process, or is soon going to reach there (think things like Google Books or, for a slightly older example, the handheld devices car rental companies have used for the last several years).

    Working in a knowledge-based field (law for me, but I would think economics too), the last decade or so has brought a huge change in the availability of data and the ability to manipulate it.

    Obviously, I’ve said too much, as I haven’t even read Tyler’s book, and ultimately maybe all the things I’m talking about are merely marginal improvements rather than game changers, but they don’t really feel all that marginal.

  88. Gravatar of Shorting Human Ingenuity, When You Buy Commodities – The Source – WSJ | leroygardner.com Shorting Human Ingenuity, When You Buy Commodities – The Source – WSJ | leroygardner.com
    31. January 2011 at 17:21

    [...] Mason University Professor Tyler Cowen’s ebook, The Great Stagnation, captures some of the thinking. I haven’t read the book yet, but the precis I’ve seen from [...]

  89. Gravatar of ssumner ssumner
    1. February 2011 at 16:49

    Adam, Lots of people are making similar arguments, and I see why. Compared to most periods of human history the last 40 years have been incredible. But I still say that the period from roughly 1900 to 1969 was completely unparalleled. Horse and buggy to moon rockets in one lifetime. A total change in peoples’ way of living. People don’t think about stuff like electric lights, they take them for granted. Candles are really almost worthless, as people find out when their lights go out for an hour. In the winter, it was 16 hours of darkness and cold.

  90. Gravatar of Ajay Ajay
    6. February 2011 at 14:33

    You not only saw the computer revolution, you are seeing the internet revolution now. They are two distinct phenomena, the result of stringing fiber optic cables to network all those computers. The internet is leading to extreme fragmentation of businesses, as the costs from the Coasean analysis of the firm are dropping to nil. Moore’s law hasn’t been the bottleneck for a while now, rather it’s been our weakness at forming good processes to create and innovate with software, an organizational issue that we still have a long way towards getting right and which has no physical bottleneck. The reason it matters if the internet generates revenue is that it’s obviously the next big field but will be underinvested in as long as businesses and content creators can’t make much money from it. That’s why bloggers mostly do it for fun like you and don’t get paid. The solution is micropayments, but the techies are too economically ignorant to implement it.

    The reason you shouldn’t double NGDP is that you are essentially remedying this technological bottleneck by stealing from savers and giving it to borrowers, with all the concomitant dislocations that causes. A lot of new jobs will be created in information work. For example, one Katie Couric or Charlie Sheen making millions on TV will be replaced by thousands of news readers or actors making $50-100k (note that this will be a big blow to income inequality, rendering all the hand-wringing about it silly). Nothing’s changed since you were in school, I suspect your daughter’s school is highly unusual in stimulating her. However, I bet even her curriculum is largely useless, as most K-12/college curricula today are antiquated and worthless. For example, most math beyond simple counting is useless for 99.99% of the populace when all your shopping bills are calculated by computerized registers and every smartphone has a calculator. Reading A Tale of Two Cities has always been a dumb way to teach reading comprehension and the ability to write. Online learning will destroy the university and schools in the next decade precisely because education today is so backwards.

  91. Gravatar of ssumner ssumner
    7. February 2011 at 16:55

    Ajay, I like the idea of micropayments. If I could get a penny a click I’d be a happy man.

    I am skeptical about computers replacing schools. I’ve heard that prediction for a long time, and nothing ever seems to come of it. I think vouchers could make schools much more efficient.

  92. Gravatar of The Great Stagnation, das Internet, Arbeitsplätze und Bütthard | isonomie The Great Stagnation, das Internet, Arbeitsplätze und Bütthard | isonomie
    8. February 2011 at 03:03

    [...] will Cowen jetzt nicht des Luddismus bezichtigen, aber verwundert bin ich schon, genauso wie Scott Sumner: He mentions that the new high tech firms like Facebook can get the job done with an extremely low [...]

  93. Gravatar of The Great Stagnation | Morton and George The Great Stagnation | Morton and George
    23. March 2011 at 07:40

    [...] of scientists, to encourage the best and brightest to go that way. But as Scott Sumner says, there may be diminishing returns to scientists, and there’s plenty of more direct steps we should be [...]

  94. Gravatar of VABALOG › Tyler Cowen’i “Suur Stagnatsioon” VABALOG › Tyler Cowen’i “Suur Stagnatsioon”
    11. May 2011 at 10:35

    [...] Review of The Great Stagnation – Scott Sumner [...]

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