When man first landed on the moon in 1969 it was widely believed that the event heralded an era of scientific and technological advancement. But we have become less ambitious and more pessimistic, writes Daniel Ben-Ami.
However, there are at least as many problems with Stiglitz’s arguments as there are with Cowen’s. For instance, why should higher productivity necessarily mean there are fewer jobs available? This may be true in agriculture, where there is a fixed area of land, but it does not necessarily apply to manufacturing. Why not raise productivity and maintain a large manufacturing base at the same time?
Nor is it clear why wages and consumer spending should be the main driver of economic growth. Arguably it works the other way round with a dynamic economy making it possible to employ more people and allowing them to spend more. In contrast an atrophied productive base tends to lead to more unemployment and declining incomes.
Before coming to a conclusion it is worth noting one final reaction, or perhaps non-reaction, coming from those who identify themselves as on the left. That is to argue that the key trend is not the slowing of growth from the 1970s but the widening of inequality. In other words the focus should be on a great divergence rather than a great stagnation.
Even if it is conceded that inequality is a key problem the counter-position does not hold up. From the perspective of individual living standards both the overall level of output and distribution play a part. In any case the main focus of Cowen’s argument is to explain why the slowdown has occurred. His thesis first of all needs to be considered on that level: whether it really does account for America’s current economic plight.
The Great Stagnation should be welcomed overall because it shifts the economic debate from a narrow obsession with banks. As a result it opens the way for a sensible discussion of the fundamental causes of the crisis. This is an important step as it helps create the basis for an informed debate about how to escape from the morass. Banking reform, however necessary it may be, will not rejuvenate the economy as a whole.
The weakness of Cowen’s book is precisely in what most commentators consider its strength: the idea of “low hanging fruit”. It is not clear why some sets of technologies should be inherently so much easier to develop than others.
From today’s perspective an iPhone might seem like a much more challenging piece of technology than, say, a car, or electricity. But that is with the benefit of hindsight. It took a huge amount of science and engineering to develop all of those technologies. Cars, for instance, may seem straightforward now but an immense effort was needed to invent them in the first place. They did not appear like low hanging fruit to many earlier generations.
”Why should higher productivity necessarily mean there are fewer jobs available?”
In many respects all inventions can be seen as the result of thousands of years of cumulative human endeavour. Humans have existed as a species for tens of thousands of years while much technology we take for granted has only existed for a fraction of that time.
Cowen makes things even murkier when he says that some fruit can become low hanging. “It is just not low hanging yet,” he says (original emphasis). This concession undermines Cowen’s entire analogy. Either technology is intrinsically low hanging or it is not. If the ability to pick fruit, to use his metaphor, depends on other factors then those are the variables that need to be examined.
It would be far better if the focus was social – in the broadest sense of the term – rather than technological. The key driver needed to explain the great stagnation is low capital investment rather than intrinsic technical limits. Insufficient investment had meant there has not been a basis for new rounds of durable growth.
Politicians and government officials can take much, although not all, of the blame for this predicament. Rather than encourage economic restructuring they have simply prevaricated. They have extended credit to give a temporary boost to consumption rather than focusing on the productive side of the economy.
Paradoxically though the focus on investment provides a more upbeat assessment of possibilities than Cowen’s technological determinism. If the intrinsic character of technology is the key constraint on growth there is not much that can be done about it. If, in contrast, the key is to increase investment there are many positive measures that can be taken.
The challenge is to develop a culture that is less fearful of taking risks and more open to experimentation.
Daniel Ben-Ami is a writer on economics and finance. His personal website can be found at www.danielbenami.com.