The American economy, never coming back?
Source Louis Proyect
Date 11/02/23/07:57
Don't Worry, Be Unhappy
Tyler Cowen says the good times are over. Where have we heard this

By Timothy Noah

The Wall Street Journal's Bob Davis and David Wessel are perhaps
the two best business reporters working in newspapers today. In
1998 they published a book that Paul Krugman praised as "the best
… I've ever read about how a changing economy affects the lives
and work of real people." Its unblinkered reportage, sweeping
historical research, and lucid analysis of previous economic
trends make the book a compelling and informative read 13 years
later. But when I tell you the title, you'll wince: Prosperity:
The Coming 20-Year Boom and What It Means to You. Davis and Wessel
argued that productivity gains from computers combined with rising
enrollment in community colleges were poised to rescue the middle
class from a quarter-century of economic stagnation. It didn't
happen. You can buy Prosperity today for a penny.

I thought of Prosperity while reading The Great Stagnation: How
America Ate All The Low-Hanging Fruit of Modern History, Got Sick,
and Will (Eventually) Feel Better, an essay that George Mason
University economist (and prolific blogger) Tyler Cowen recently
published as an e-book. Cowen is a libertarian who is sufficiently
non-doctrinaire to have won a respectful mainstream following, and
David Brooks recently did Cowen the great favor of declaring The
Great Stagnation "the most debated nonfiction book published this
year." That's an exaggeration (the most debated nonfiction book
published this year, for better or worse, is Amy Chua's Battle
Hymn of the Tiger Mother), but Cowen's book has stirred much
discussion. Though shorter and less deeply researched than
Prosperity, The Great Stagnation covers a lot of the same ground.
Cowen's book is similarly compelling and lucid in its
interpretation of past economic trends. But like Prosperity, The
Great Stagnation makes an ambitious argument whose chief present
advantage (and greatest eventual liability) is that it's
impossible to assess in real time.

The same puzzle lies at the heart of both books. Median family
income, which more than doubled between 1947 and 1973, increased
by less than one-quarter between 1973 and 2004. (Whatever gains
have been made since then have been wiped out by the economic
downturn in 2008.) Davis and Wessel argued, in effect, that
America was catching its breath. American ingenuity in technology
(computers, the Web) and education (community colleges that train
workers for 21st-century jobs) would revive the economic fortunes
of America's middle class. Cowen believes the opposite. As
recently as the 1960s, the economy lifted the American middle
class, but that stopped because a limit was finally reached. "We
have been living off low-hanging fruit for at least three hundred
years," Cowen writes. "We have built social and economic
institutions on the expectation of a lot of low-hanging fruit, but
that fruit is mostly gone."

The low-hanging fruit, Cowen says, falls into three categories.

Free land. This became unavailable after the closing of the
American frontier at the end of the 19th century.

Technological breakthroughs. Obviously these still occur, but none
can compare to those of the late 19th and early 20th centuries:
electricity, telephones, automobiles, airplanes, radio, TV, etc.
Cowen reproduces a zany chart devised by a Pentagon physicist
named Jonathan Huebner showing the per-person rate of innovation
from the 15th century to the present; it peaked in 1873. In the
U.S., the number of patents issued per capita fell for most of the
20th century. Innovations still occur, but they are no longer the
kind that benefit society as a whole. They make Wall Street
financiers rich. Or they make Steve Jobs or Mark Zuckerberg rich
without creating much employment. The iPod has created fewer than
14,000 jobs in the U.S.; Facebook employs fewer than 2,000 people;
Twitter, fewer than 300. More than one-quarter of Gross Domestic
Product is spent on "government consumption" (i.e., what
government does exclusive of entitlement spending); education; and
health care. These economic sectors are at worst failing to
contribute meaningfully to economic growth and at best are
contributing to an extent that can't be measured.

Smart, uneducated kids. At the start of the 20th century, almost
no young Americans—a mere 6.4 percent—graduated from high school,
and well under 1 percent went to college. Today, three-quarters
graduate from high school, and about 40 percent enroll in college.
The high-school graduation rate peaked in the late 1960s, dropped
a few percentage points in the 1970s, and has been stuck at the
same level ever since. If you don't finish high school, you can't
go to college.

Cowen's first piece of fruit—the American frontier—is pretty
clearly gone, unless you want to talk about the distant
possibility of space colonization. But it's not clear its
disappearance is the brake on middle-class prosperity that he
claims. After all, for most of the frontier-less 20th century,
economic growth was both brisk and widely shared: Inequality
either declined or failed to increase between the 1930s and the 1970s.

Cowen's second piece of fruit—technological innovation—may or may
not resume delivering broad-based prosperity. Davis and Wessel
were wrong to predict that computer technology was on the verge of
boosting middle-class incomes, but Cowen seems equally wrong to
suggest that computer technology is not on the verge of doing so.
Indeed, Cowen eventually concedes that the Internet, by
facilitating the spread of scientific learning, "may do more for
revenue generation in the future than it has done to date." It's
hard to know how to assess Cowen's views about the possible
uselessness, economically, of existing spending on government
consumption, health care, and education, because they're pretty vague.

Cowen's third piece of fruit—the possibility of large educational
gains in the future—is the hardest to feel optimistic about,
because we have been struggling for nearly half a century to
improve educational outcomes, with little success. Cowen
eventually tempers his pessimism on this point by noting that
President Obama is getting tough on teachers unions. But I have my
doubts that weakening teachers unions, whatever the merits of
doing so, will do much to increase educational performance in the
United States. My skepticism rests on two observations:

* Teachers unions, under siege for three decades, have
yielded again and again (not always willingly) to reforms such as
merit-based pay and increased benchmarking of students through
standardized testing. These reforms have produced strikingly
little in the way of improved educational outcomes.
* The degree to which other nations leave the United States
well behind in educational achievement bears no apparent relation
to how much teachers in those nations get pampered by
labor-friendly government policies. In 2003, American 15-year-olds
were ranked in the middle third of member countries in the
Organization for Economic Cooperation and Development, most of
whose members are advanced industrial democracies, and in 2006,
American 15-year-olds were ranked in the bottom fourth of the
OECD. If harassing unions is the answer, why are more
labor-friendly nations like Canada, Germany, France, Sweden, and
Austria kicking our asses in math? (I'd be tempted to argue that
labor-friendly policies improve educational outcomes if it weren't
also true that China, Russia, the Czech Republic, and assorted
former Soviet republics are similarly besting U.S. performance in

The data on international educational rankings are so dismal for
the United States that they may provide a perverse basis for
greater optimism. The wealthiest country in the world is doing
such a poor job, relative to other countries, that there should be
ample room for improvement. When, how, or whether that improvement
actually comes is anybody's guess, though, as Davis and Wessel's
educational predictions should serve to remind us. In 1998, they
derived much of their optimism about the middle class's economic
prospects from observing that college attendance by recent
high-school graduates rose from 51 percent in 1982 to 67 percent
in 1997, an increase they credited to the expansion of community
colleges. But college attendance didn't rise after 1997, and the
proportion of kids entering college who receive a degree has been
declining. Only about 30 percent of first-time, full-time college
students who enroll in community college acquire their two-year
associate's degree within three years. Though for-profit colleges,
which have arisen as an alternative to community college since
Davis and Wessel published Prosperity, have more than doubled
their enrollment, they have an even lower completion rate of about
22 percent.

Cowen ends his e-book with a few policy prescriptions, but they're
absurdly halfhearted. Encourage free trade so Americans can "free
up a lot of our time and energy for innovation." Confer higher
status on scientists. (Cowen is outraged that few Americans have
ever heard of the late Norman Borlaug, whose "Green Revolution"
prevented famine throughout the Third World.) "Have realistic
expectations." And remember all the ways Hitler, Stalin, and Mao
turned the technological advances of the 20th century into
"vehicles for oppression and mass murder." Cowen's core message
is: Get used to economic stagnation, or what he calls "the new
normal." It's a weird conservative echo of liberalism's
era-of-limits gospel from the 1970s, articulated by the Club of
Rome and other groups, the chief difference being that liberals
used economic pessimism to sell wise environmental stewardship
while Cowen is using it to sell complacency about the fate of the
middle class. (In a recent essay in The American Interest, Cowen
expressed indifference toward income inequality except insofar as
it reflects perverted financial incentives on Wall Street.)

The phrase "era of limits" sounds quaint today because so many of
the assumptions behind it proved false. The energy crisis, for
instance, though judged more or less permanent as late as 1979,
gave way to dropping oil prices and an eventual oil glut. The
lesson is that when addressing the problems of the world, it makes
sense to keep your eyes on the present rather than blur the
picture with inevitably unreliable extrapolations to the future.
Maybe the prosperity that Davis and Wessel predicted will come of
its own accord (a few years behind schedule), but don't rely on
it. Maybe the economic stagnation that Cowen says is our lot in
life will persist, but don't resign yourself to it. If the middle
class is suffering economically today—and it is—then the practical
solution is to ease that suffering today. A crystal ball only gets
in the way.

Timothy Noah is a senior writer at Slate. He can be reached at

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