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Some good points, but many blank spots
on June 8, 2011
Tyler Cowen: The Great Stagnation
This nice little book is worth reading. Tyler Cohen has correctly identified several almost unique circumstances that helped America become great and powerful. Some low hanging fruit like free land, innovation, millions of immigrants seeking work (and ready to work for pennies), millions of young people wanting to get education; scientific progress and technical innovation.
The book contains very sharp observations. For instance, the author notices that innovation has moved lately in the wrong direction:
"If one sentence were to sum up the mechanism driving the Great Stagnation, it is this: Recent and current innovation is more geared to private goods that to public goods. That simple observation ties together the three major macroeconomic events of our time: growing income inequality, stagnant median income, and, as we will see in chapter five, the financial crisis.:
Not only this. Cowen points out that "Top American earners are increasingly concentrated in the financial sector of the economy."
The booklet is easy to read, the style is lively and intellectually entertaining. When I reached the end, however, I said: Oops, was that all? Too many blank spots left!
Here is a major blank spot: The dollar. Talking about low hanging fruit, the author somehow missed the dollar. By becoming the world reserve currency after WW2, the dollar gave this country an enormous financial advantage. It became not only a low hanging fruit, but a ready fruit on the table. The benefits of this fruit only increased when it was freed from gold in 1971 and when OPEC agreed to trade oil only in dollars in 1974. What is the future of the dollar? What are the perspectives to enjoy it free on the table? The author should have addressed these questions.
Tyler Cowen understands very well the importance of technical innovation as the engine of general prosperity. Close to the end he says something good about science and scientists - raise the social status of scientists!
This is very nice, indeed, but seems to be just wishful thinking. The decline of science has a long history. Hollywood movies and popular media have generated and confirmed a very negative image of the man of science. He is usually weird, a loner, with grey standing up hair, and very often with mental of physical problems. The scientist is definitely not a role model. How can one change this? May be by government financing?
Remember the Texas Superconducting Supercollider? In 1993, after investing more then $2 billion into this project, President Clinton and Congress cancelled it entirely. The Supercollider would have been a great boost for science. This 1993 decision reveals something important about the priorities of the establishment.
Tyler Cowen's comments and suggestions for fighting the recession, unfortunately, are almost naïve. There is nothing written in the book about the problems and expenses of health care, social security and defense spending. Talking about scientific and technological innovation, one should consider the general industrial picture. A country cannot successfully develop scientific innovation without the underlying foundation of industry and manufacturing. When manufacturing is outsourced, science follows too. Toyota's hybrid car Prius, for instance, was not born in an ivory tower; it was the culmination of a long sequence of engineering efforts. Such innovation can only be born in the womb of a vibrant manufacturing industry. But manufacturing is not vibrant now in America. Vibrant is the financial industry, attracting the best and the brightest, and producing derivatives, credit swaps and speculative bubbles. All this is very profitable for a small group of people, but detrimental for the whole society.
I still recommend the book. The good points are many and the omissions have the potential to provoke a healthy dialog with the author.