The Great Stagnation is one of the most confused economic books I have ever read, bar none.
When reading the book, on page after page, I simply became amazed at the sloppy thinking. In that sense, it ultimately became a page turner, the big question being would the entire book be poorly argued? The answer turned out to be, for the most part, yes.
I am simply stunned at the positive reviews this book has received. In the book, written by George Mason University Professor Tyler Cowen, Cowen argues that as far as the economy is concerned we have "eaten all the low lying fruit." And thus his first great error.
A key concept in economics is that we do not have perfect knowledge. In other words, we do not know what we don't know. We don't know what in the future will be considered low lying fruit.
It can well be imagined that when man first learned how to control fire, that the Tyler Cowen of the day would have declared that our ancestors had "eaten all the low lying fruit." And certainly when the wheel was invented, another Cowen would have said that all the low lying fruit had been eaten. And before the dawn of agriculture, another Cowen could have easily said that our ancestors had (literally) eaten all the low lying peaches and apples. Where would the Cowens of the world ever stop their negative views on the advancement of civilization, with the invention of the steam engine, the radio, the television, the airplane, open heart surgery, the smart phone?
There is no smooth path from invention to invention, no smooth path from advancement to advancement, but it is simply absurd to declare, as Cowen does on page 7 of his book that:
We have failed to recognize that we are at a technological plateau and the trees are more bare than we would like to think. That's it. That is what has gone wrong.
One would think that a little bit of Friedrich Hayek would have seeped into Cowen's thinking, that there is no grand central planner that sees all. Does Cowen seriously believe he knows what every man is thinking, what designs sit on the table of some great thinker, what lab experiment is about to be launched that will perhaps change our view of the world in a profound way?
Does he seriously think that he knows there is no new Steve Jobs out there? Does he think technology will stop advancing with the smart phone?
Further, does he not understand that many advancements are made incrementally? That the automobile continues to advance since the days of the Model T?
How can this one man, Tyler Cowen, declare he knows we are at a technological plateau, apparently both with regard to small advances and great ones?
One answer Cowen has is that:
Life in broad material terms isn't so different from what it was in 1953. We still drive cars, use refrigerators and turn on the light switch, even if dimmers are more common these days.
This means, of course, that Cowen dismisses the microwave, the smartphone, color televisions, personal computers, lap tops, open heart surgery and breast implants as nothing. The absurdity of this argument is in the prices we pay for the products I have listed above. If these things didn't make a material difference in our lives, we wouldn't be spending a good portion of our waking days earning money to buy the things the all knowing Cowen dismisses as not so different from 1953.
Cowen then goes on to do a mixing of government activities with those of the private sector. He tells us, correctly, that the government trip to the moon resulted only in teflon and tang. Yet, nowhere does he point out this was a government project that no sane private sector operator would have taken on, at the time. Cowen declares that the trip to the moon wasn't like the development of the railroad or the automoblie. Well yeah, the railroad and automobile began as private sector ventures that met a consumer need.
He then tells us that one-third of college students will drop out, a marked rise since the 1960s. Again Cowen here is using a sector that is heavily dominated by the government.
But then, out of the blue, after declaring that all the low hanging fruit has been eaten. Cowen makes a 180-degree turn and writes:
The fact that we've enjoyed a number of forms of low-hanging fruit in the past-and not just one-suggests that we might be due for some more of it in some form. This makes me an optimist for the longer run.
Go figure. Then on page 22 he tells us:
If one sentence were to sum up the mechanism driving the Great Stagnation, it is this: Recent innovations are geared to private goods than to public goods.
What the hell is he talking about here? All the innovations that he said haven't occurred since 1953? Is he implying that the only important innovations are in public goods?
Apparently so, because he goes on to say, again, that nothing has significantly changed materially for him since he was a kid. But he then goes on to say (p.41)
In most sectors of the economy, if we spend a lot more money, we usually get something that is better.
Since we are spending more on microwaves and smartphones than when Cowen was a child, this contradicts his claim that things haven't changed for the better.
Cowen also discusses the internet in the book and tells us that (p. 47)
...the new low-hanging fruit is in our minds and not so much in the revenue-generating sector of the economy.
He seems to bemoan the little revenue generation from the internet, "relative to how much it shapes our lives." But so what? This is the like being sorry that water doesn't generate more revenue "relative to how much it shapes our lives." Where does it say that how important something is to us has to cost a lot? This is simply the paradox of value. The paradox exists because it appears there is contradiction, say, between
water which is on the whole more useful, in terms of survival, than diamonds, though diamonds command a higher price in the market.
The paradox is solved via the theory of marginal utility, which is based on the subjective theory of value, which says that the price at which an object trades in the market is determined neither by how much labor was exerted in its production, as in the labor theory of value, nor on how useful it is on a whole (total utility). Rather, its price is determined by its marginal utility.
Apparently, Cowen doesn't get this at some level. (It should be noted that Cowen writes at a blog named,
Marginal Revolution). As for his charge that there is little revenue from the internet, Silicon Valley is currently booming because of the many potential opportunities in the internet sector.
But Cowen insists that there is not much employment in the internet sector and thus suggests bizarrely that some of the current unemployment problem is the result of this (p 51):
This is one of the reasons we have been seeing a "jobless recovery"
He, thus, apparently doesn't think wage markets clear and thinks that there are causes of unemployment beyond minimum wage laws and unemployment payments, like the development of the internet!
The book is full of what I have outlined above, misunderstanding about facts, misunderstanding of basic economics and contradictions. Almost any point I have argued above in pointing out errors in the book could be argued from another direction that Cowen didn't mean such, since he often takes the opposite position only pages away (and sometimes he uses words in an odd manner, e. g. at points "private goods" seem to mean to him goods that the rich buy and "public goods" are middle class goods, wrap your head around that peculiar word use)
The only position he doesn't take is that the current economic crisis was caused by the Federal Reserve, though he blames just about everything else:
We thought we were richer than we thought...We were all, more or less, overconfident
Regulators should have done more to limit risk taking
Overconfidence can never fuel a boom if a central bank isn't there supporting it with money, and regulators may be able to redirect the flow of money, but if the Fed is printing it, the money will enter the economy somewhere. Thus, in Cowen's very pedestrian explanations of the crisis, he does a terrible thing in not identifying the Federal Reserve as the key culprit of the crisis.
And so, start to finish,
The Great Stagnation is a terrible book, filled with confusion, contradiction and a strong dose of slippery wording that gives Cowen the ability to argue any point from any position, in the future, based on this absurd book.
