Are we in a great stagnation?

myp · Jan 10, 2012

Tyler Cowen of GMU is a prominent economist who wrote a book titled, the Great Stagnation, which basically suggests that the United States benefited greatly from a lot of low-hanging fruit in the past due to abundant resources, growing population, etc. but that the current increase in unemployment is a natural result of using up all the low-hanging fruit and was only seen so sharply because the recent bubbles somewhat masked its progressive growth. The theory is really an interesting one and somewhat goes in line with the idea that a lot of the manufacturing jobs being lost world-wide will be lost forever due to technology such as robotics. Cowen (and his colleague Alex Tabarrok among others) argue that innovation will only move us forward and get us out of this slowdown as new technologies, etc. will create new sectors and new jobs.

It is a very interesting idea and personally I believe it does hold a lot of water. What do you guys think?

DodgeFB · Jan 10, 2012

I agree we are in a "stagnation". I am just not sure how we push through it.

myp · Jan 10, 2012

DodgeFB said:
I agree we are in a "stagnation". I am just not sure how we push through it.

Tabarrok recently put out a Kindle ebook (which I haven't had the chance to read yet) in which he points out hindrances to innovation that we should try to better. I really think that would be a good place to start- especially with patent reform as the patent wars are basically counterproductive in increasing innovation. That and closing tax loopholes while paving the way for most sustainable and predictable public policy.

Tibbs · Jan 10, 2012

I refuse to believe that the economy has a "natural lifespan." It's not like it's a person.

There will always be a demand for new and better goods; the main limiting factor in economic performance is people's willingness to do work. So for as long as people are willing to do the work to create wealth, wealth will always exist.

I don't think we have to worry too much about robots putting us out of business. I mean, people have always worried about it, but have they ever actually put us out of business? People of old used to work pretty much exclusively in agriculture and textiles, and those jobs are among the most heavily automated there are. And yet, most people are still employed.

No, the problem we have today is simply too much debt.

myp · Jan 10, 2012

Tibbs said:
I refuse to believe that the economy has a "natural lifespan." It's not like it's a person.

That is not what is being suggested here. It is that we are moving to a new phase in the economy. I explain more below in response to the rest of your post:

Tibbs said:
I don't think we have to worry too much about robots putting us out of business. I mean, people have always worried about it, but have they ever actually put us out of business? People of old used to work pretty much exclusively in agriculture and textiles, and those jobs are among the most heavily automated there are. And yet, most people are still employed.

In that transformation from mostly agricultural jobs to industrial/manufacturing jobs, there was a great boost in new technology through innovation that led to factories, etc. What Tabarrok argues is we are in a similar position right now where the manufacturing sector no longer needs much manual labor (essentially the same position agriculture after the development of greater automation) and a new sector will need to grow or emerge where more jobs will be needed. Just as there was great innovation and new tech from agriculture to manufacturing, Tabarrok believes that we need that now and the reason why the employment rate is high right now might because we are in the phase from manufacturing to something else and the innovation is either still emerging or hasn't been there yet, hence the high unemployment. He supports more pro-innovation policy and reforming current innovation policy that is often counterproductive and arguably does not further innovation.

Tibbs said:
No, the problem we have today is simply too much debt.

I strongly disagree. When we can borrow at 2% for ten years (which is near all-time lows for the US), we have some breathing room. I do think spending needs to be cut tremendously, but it is not the source of unemployment or the weak economy.

Patrick · Jan 10, 2012

myp said:
Tyler Cowen of GMU is a prominent economist who wrote a book titled, the Great Stagnation, which basically suggests that the United States benefited greatly from a lot of low-hanging fruit in the past due to abundant resources, growing population, etc. but that the current increase in unemployment is a natural result of using up all the low-hanging fruit and was only seen so sharply because the recent bubbles somewhat masked its progressive growth. The theory is really an interesting one and somewhat goes in line with the idea that a lot of the manufacturing jobs being lost world-wide will be lost forever due to technology such as robotics. Cowen (and his colleague Alex Tabarrok among others) argue that innovation will only move us forward and get us out of this slowdown as new technologies, etc. will create new sectors and new jobs.

It is a very interesting idea and personally I believe it does hold a lot of water. What do you guys think?

The last part is what I've said for a few years - the U.S. should be the innovator for new products and new technologies. This requires a workforce that is highly educated and highly trained. The new technologies should be those which emerge from market forces, with no repetition of such as the obamanista "green jobs" debacle that showed once again that the leftwing elite don't know what they're doing. The new products will follow the predictable pattern and eventually be made in cheap labor countries, but by then we are working on something newer.

But this scenario is completely blocked by leftwing policies and institutions: failed government schools, massive illegal immigration of the lowest quality immigrants, "affirmative action" which holds back the best and brightest, ecofascism, an anti-business attitude fostered by the leftwing among the public to create a scapegoat for their failings, a limitless greed for ever more taxes and ever more regulation, ever more national debt.

myp · Jan 11, 2012

Patrick said:
But this scenario is completely blocked by leftwing policies and institutions: failed government schools, massive illegal immigration of the lowest quality immigrants, "affirmative action" which holds back the best and brightest, ecofascism, an anti-business attitude fostered by the leftwing among the public to create a scapegoat for their failings, a limitless greed for ever more taxes and ever more regulation, ever more national debt.

Too many wrong conclusions drawn here mostly because they are overly broad and have little support behind them.

This has little to do with left and right wing and more to do with policy. No one has really suggested substantial intellectual property right reform (left, right, or even whatever you consider a "real" conservative to be) and made a serious push for it.

Also there is a distinct difference between anti-free market and anti-business.

Patrick · Jan 11, 2012

myp said:
Too many wrong conclusions drawn here mostly because they are overly broad and have little support behind them.

This has little to do with left and right wing and more to do with policy. No one has really suggested substantial intellectual property right reform (left, right, or even whatever you consider a "real" conservative to be) and made a serious push for it.

When you say "nobody", you appear to be referring to current politicians. For the last 24 years, national politics has been controlled by liberals and RINOs, and now, leftwingers and RINOs - of course none of THOSE people suggest real reform.

Also there is a distinct difference between anti-free market and anti-business.

Of course there's a difference. The anti-free market people are often precisely the people who are pro-business, for example with the obamanistas, they're pro-business for "crony capitalists" like Jeff Imelt who will do their bidding. They're pro-business for companies like GM who employ their labor union political constituencies. Further, many business people are anti-free market - larger companies often support regulation in their industry as a means of raising difficult barriers for potential upstart competition.

Your comment that it has little to do with leftwing and rightwing is uninformed.

myp · Jan 11, 2012

Patrick said:
When you say "nobody", you appear to be referring to current politicians. For the last 24 years, national politics has been controlled by liberals and RINOs, and now, leftwingers and RINOs - of course none of THOSE people suggest real reform.

You think everyone is a "RINO" or leftwing. You refuse to listen to real policy debates and real economic debates because of this, even when the people are pro-free market and pro freedom because for you those people are still too "left" (by your definition of "left"). Is there anyone you support and if so, who?

Patrick said:
Your comment that it has little to do with leftwing and rightwing is uninformed.

It is not. Monikers don't matter, policies do. That and right and left wing can be defined differently as you and I do.

myp · Jan 11, 2012

myp said:
I strongly disagree. When we can borrow at 2% for ten years (which is near all-time lows for the US), we have some breathing room. I do think spending needs to be cut tremendously, but it is not the source of unemployment or the weak economy.

Let me correct myself- we hit a new record low today 1.9% http://www.politicalfray.com/showthread.php?t=2667

Tibbs · Jan 11, 2012

myp said:
That is not what is being suggested here. It is that we are moving to a new phase in the economy.

And I would say that there are no "phases" of the type you describe. Certain products may go through phases, where they are invented, prototyped, produced, outsourced, and finally obsoleted . . . but the economy is made up of so many different products, each in a different phase, that this all smooths out when you're talking about the big picture.

If it did not, we should be seeing wild fluctuations in employment rates throughout history, and this is not the case.

myp said:
I strongly disagree. When we can borrow at 2% for ten years (which is near all-time lows for the US), we have some breathing room. I do think spending needs to be cut tremendously, but it is not the source of unemployment or the weak economy.

It doesn't matter what the going rate is. If people cannot pay off the debt they already have, they will never sign up for more debt, even if it's loaned out practically free. It would increase the total amount of money they are on the hook for, and thus increase their probability of running into trouble. We have no breathing room because people are already mortgaged to the hilt.

Patrick · Jan 11, 2012

myp said:
You think everyone is a "RINO" or leftwing. You refuse to listen to real policy debates and real economic debates because of this, even when the people are pro-free market and pro freedom because for you those people are still too "left" (by your definition of "left"). Is there anyone you support and if so, who?

OK, other than Ron Paul who will not be elected, give me your list of national politicians who support free markets.

myp · Jan 11, 2012

Tibbs said:
And I would say that there are no "phases" of the type you describe. Certain products may go through phases, where they are invented, prototyped, produced, outsourced, and finally obsoleted . . . but the economy is made up of so many different products, each in a different phase, that this all smooths out when you're talking about the big picture.

I think we are getting a bit off-topic here considering the phases I am talking about are big-picture, almost historical changes (are you refuting growth phases like hunting and gathering based economies to agricultural centered economies to manufacturing/industry based economies? To say everything on a macro level was always the same does not make sense. Time periods like the industrial revolution, etc.?

That aside, even if each product goes through phases (which generally I agree with), adding up all those micro phases can result in a macro conclusion. In terms of growth we see this with business cycles- recessions, depressions, growth, bubbles, etc. In terms of tech we see this with the general progression of the market and how much marketshare different sectors occupy.

Tibbs said:
If it did not, we should be seeing wild fluctuations in employment rates throughout history, and this is not the case.

Well there are business cycles and we do see cyclical changes in employment over time. Either way, if you agree that products can phase out, then clearly new products need to come out at the same time if you think unemployment is always somewhat constant in this regard (which it is not). This means you need innovation- new products don't magically come out- and that is what Cowen argues we might have a shortage of here.

Tibbs said:
It doesn't matter what the going rate is. If people cannot pay off the debt they already have, they will never sign up for more debt, even if it's loaned out practically free.

People will take on debt if they are given it in the right circumstances

But forget that, I think I am misunderstanding what you are trying to say. Are you claiming that private debt is the problem (I had assumed you were talking about public debt)? Why do you think it is a problem and how is it causing our current unemployment?

I will agree that I believe private saving needs to go up and it naturally is in this downturn, but I think that does not really account for the unemployment.

Tibbs · Jan 11, 2012

myp said:
I think we are getting a bit off-topic here considering the phases I am talking about are big-picture, almost historical changes (are you refuting growth phases like hunting and gathering based economies to agricultural centered economies to manufacturing/industry based economies? To say everything on a macro level was always the same does not make sense. Time periods like the industrial revolution, etc.?

I'm not saying that everything has always been the same. Clearly, large and historic changes have occurred. What I am saying is that these are not necessarily disruptive to employment. Huge industries have been automated, and yet unemployment has been between 4 to 6 or 7% for pretty much all of recorded history with a few exceptions. Even today, it is only 9-10%.

That kind of stability in rates would suggest to me that the huge changes our economy has undergone do not affect unemployment: there is always work to be done, and as long as people are willing to do it, we will have an economy.

myp said:
That aside, even if each product goes through phases (which generally I agree with), adding up all those micro phases can result in a macro conclusion. In terms of growth we see this with business cycles- recessions, depressions, growth, bubbles, etc. In terms of tech we see this with the general progression of the market and how much marketshare different sectors occupy.

Well, I am an economist of the Austrian persuasion, so I believe that the business cycle has more to do with the credit cycle than anything else. We borrow too much money, can't pay it all back, and our businesses thusly fail.

myp said:
People will take on debt if they are given it in the right circumstances But forget that, I think I am misunderstanding what you are trying to say. Are you claiming that private debt is the problem (I had assumed you were talking about public debt)? Why do you think it is a problem and how is it causing our current unemployment?

I will agree that I believe private saving needs to go up and it naturally is in this downturn, but I think that does not really account for the unemployment.

I was talking about the total sum of debt out there. If we can't pay it off, how do we stay in business? And if we can't even stay in business, how the heck are we supposed to start new businesses?

myp · Jan 11, 2012

Tibbs said:
I'm not saying that everything has always been the same. Clearly, large and historic changes have occurred. What I am saying is that these are not necessarily disruptive to employment. Huge industries have been automated, and yet unemployment has been between 4 to 6 or 7% for pretty much all of recorded history with a few exceptions. Even today, it is only 9-10%.

That kind of stability in rates would suggest to me that the huge changes our economy has undergone do not affect unemployment: there is always work to be done, and as long as people are willing to do it, we will have an economy.

A lot of that depends on how you define unemployment, but even officially the Great Depression saw upwards of 25% unemployment. Other countries have seen even greater.

Tibbs said:
Well, I am an economist of the Austrian persuasion, so I believe that the business cycle has more to do with the credit cycle than anything else. We borrow too much money, can't pay it all back, and our businesses thusly fail.

I don't believe in one school perfectly and don't classify myself as a supporter of any one school, but I think the Austrian school has some decent points. That being said, I am surprised you don't know of Cowen and Tabarrok (or do you?) as they are over at GMU, which has a strong Austrian econ presence. That being said, Tabarrok's theory is not necessarily at odds with Austrian theory despite the business cycle.

Tibbs said:
I was talking about the total sum of debt out there. If we can't pay it off, how do we stay in business? And if we can't even stay in business, how the heck are we supposed to start new businesses?

When the government can borrow at 1.9% on a ten year bond, we CAN still pay it back though. Private debt is more arguable I suppose, but I am not sure why it alone would be responsible for so much unemployment right now.

Tibbs · Jan 12, 2012

myp said:
A lot of that depends on how you define unemployment, but even officially the Great Depression saw upwards of 25% unemployment. Other countries have seen even greater.

Well, it doesn't matter what definition you use, as long as you use the same one consistently. We're looking for fluctuations in employment levels to support this thesis, and those should be readily apparent whatever definition you use.

myp said:
I don't believe in one school perfectly and don't classify myself as a supporter of any one school, but I think the Austrian school has some decent points. That being said, I am surprised you don't know of Cowen and Tabarrok (or do you?) as they are over at GMU, which has a strong Austrian econ presence. That being said, Tabarrok's theory is not necessarily at odds with Austrian theory despite the business cycle.

No, I did have to look him up. (and now them, thankssssss

)

I'm not denying that technological cycles exist, or that they impact the larger business cycle, I'm saying that I believe the credit cycle is far and away the bigger determinant. Products go obsolete all the time, but the two times in American history that we had huge credit booms, they were followed fairly immediately by collapses.

For Cowen's thesis to have any credibility, we would have to find that a large class of products is going obsolete, and there is nothing new to take its place. And I just don't think you can support that with all the exciting new technology that is being discovered today. It's just too expensive for it to be widely consumed at this point . . . which would suggest to me that the problem is with financing it, and that brings us back to our credit concerns.

myp · Jan 12, 2012

Tibbs said:
Well, it doesn't matter what definition you use, as long as you use the same one consistently. We're looking for fluctuations in employment levels to support this thesis, and those should be readily apparent whatever definition you use.

Even then, pre-depression levels to depression levels and to modern levels have been a fluctuation peaking at above 25%.

Tibbs said:
For Cowen's thesis to have any credibility, we would have to find that a large class of products is going obsolete, and there is nothing new to take its place.

In the context of employment, manufacturing labor is going obsolete and no new field needs that much unskilled labor to take its place.

In terms of pure innovation, it is highly arguable that we are somewhat in a stagnation. In medicine, look at the last time a major anti-biotic or even major widespread drug was introduced. Pfizer and others are in a bind as big name brand name patents like Lipitor expire. In terms of other things it is more subjective, but the revolutions that television or refrigeration or the internet brought are arguably a lot larger than what we are seeing now- sure you have a few big things like iphones, etc. but is the innovation as grand as it once was? It is very subjective, but arguable.

But again, if the context is employment, it is undeniable that many current uses for unskilled labor are becoming obsolete and there is nothing to replace it right now.

Tibbs · Jan 12, 2012

myp said:
Even then, pre-depression levels to depression levels and to modern levels have been a fluctuation peaking at above 25%.

Yes, fluctuation. Mostly from between 4 to 7%, excepting the great depression, which was the consequence of a credit bubble and collapse.

myp said:
In the context of employment, manufacturing labor is going obsolete and no new field needs that much unskilled labor to take its place.

In terms of pure innovation, it is highly arguable that we are somewhat in a stagnation. In medicine, look at the last time a major anti-biotic or even major widespread drug was introduced. Pfizer and others are in a bind as big name brand name patents like Lipitor expire. In terms of other things it is more subjective, but the revolutions that television or refrigeration or the internet brought are arguably a lot larger than what we are seeing now- sure you have a few big things like iphones, etc. but is the innovation as grand as it once was? It is very subjective, but arguable.

But again, if the context is employment, it is undeniable that many current uses for unskilled labor are becoming obsolete and there is nothing to replace it right now.

Manufacturing is in no way becoming obsolete. It is simply being outsourced to lower-wage countries. The things we want to have will always have to be made, and that means people will have to make them.

And as far as medicine goes, the future is in genetics. Medicines built specifically for your DNA. This will be a huge field and we already have all basic tools for it. We simply need to get it deployed to the masses. The reason this hasn't happened yet, is because it is still a bit unaffordable. If you take away the crushing debt that many people have, it is no stretch to say that we would see these treatments in common use in 3-5 years.

myp · Jan 12, 2012

Tibbs said:
Yes, fluctuation. Mostly from between 4 to 7%, excepting the great depression, which was the consequence of a credit bubble and collapse.

Lol, so it fluctuates within a range, except when it doesn't?

Tibbs said:
Manufacturing is in no way becoming obsolete. It is simply being outsourced to lower-wage countries. The things we want to have will always have to be made, and that means people will have to make them.

I said manufacturing labor is becoming obsolete. Manufacturing itself is going strong, but labor is not. Robotics have replaced a lot of the jobs in the US and yes, even in China and will continue to do so as the robots get cheaper and cheaper and no longer justify paying people for.

Tibbs said:
And as far as medicine goes, the future is in genetics. Medicines built specifically for your DNA. This will be a huge field and we already have all basic tools for it. We simply need to get it deployed to the masses. The reason this hasn't happened yet, is because it is still a bit unaffordable. If you take away the crushing debt that many people have, it is no stretch to say that we would see these treatments in common use in 3-5 years.

Genetics is a big thing, but that does not say it can replace drug discovery which is still needed (even if you have someone's genome, it's not like you will specifically be able to do anything you want, especially when the problem is not related to genetics). Even then, the tech has a long way to go until we can make custom treatments for everyone. And it is absolutely a stretch. With all due respect, you are oversimplifying and exaggerating too much here. Either way, the fact still stands that when it comes to pharmaceuticals there is a big innovation problem right now.

And still, you might be able to argue it because of the subjectivity, but you cannot argue that manual labor is no longer needed as much as it used to and you really haven't addressed that yet.

Tibbs · Jan 12, 2012

myp said:
Lol, so it fluctuates within a range, except when it doesn't?

No. The unemployment rate is range-bound. Which would be evidence against Cowen's theory. There is one major exception: the Great Depression, which I submit was caused by a credit boom and bust, not a technological cycle.

Are we in a great stagnation?

Similar threads