188 of 205 people found the following review helpful
Great essay, wish people would read it before reviewing it,
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This review is from: The Great Stagnation: How America Ate All the Low-Hanging Fruit of Modern History, Got Sick, and Will( Eventually) Feel Better (Hardcover)
Some reviewers have done a good job here, but some have utterly missed major points, if they have read the essay at all, which I doubt, so I will give potential readers an outline.
I. The low-hanging fruit we ate
..A. Examples in the United States
....1. Free land (Homestead Act, etc.)
....2. Technological breakthroughs (electricity, motor vehicles, telephone, radio, television, computers etc.)
....3. Smart, uneducated kids (who were made productive through excellent public education).
....4. This is a partial list; clearly other candidates can be proposed, e.g. cheap fossil fuels.
..B. Examples in other countries ("catch-up growth")
....1. Leveraging the technological breakthroughs of the West (e.g. China, India)
....2. Smart, uneducated kids (e.g. China, India)
..C. MEDIAN income growth in the U.S. has slowed notably since 1973.
....1. Decline in household size is not the cause.
....2. Unmeasured quality improvements (think electronic gadgetry) are not a counter (because there is
...... also unmeasured quality degradation, think traffic jams and AIDS)
..D. Rate of technical innovation has declined notably since 1873 and even more since 1955
....1. Innovation is getting harder; the low fruit has been picked.
....2. Recent innovations have slight marginal benefits
..E. Recent and current innovation is more geared to PRIVATE goods than to PUBLIC goods.
....**This is the driver of the Great Stagnation.
....1. Extracting resources from the government (subsidies for solar power, farm products, other junk;
.....useless construction; useless government employees; legal services, etc.) by lobbying.
....2. Extreme protections of intellectual property (e.g. by ridiculous patent laws that grant monopolies for
...... incandescently obvious ideas, enabled by our retarded judiciary)
....3. Recent financial innovations (CDO's, derivatives, etc.) that benefit Wall Street at public expense.
....4. THESE ALL RESULT IN INCREASED INCOME INEQUALITY.
II. Our New (not so productive) Economy
..A. Most recent productivity gains in the private sector have been achieved by cutting out dead wood
....("discovering who isn't doing much and firing them").
..B. GDP statistics are flawed because they value expenditure at cost; actual value of the expenditure is
.... unknown in sectors where market forces do not operate.
..C. Underperforming sectors where valuation at cost is a big problem:
......a. The marginal value of government, even if positive, falls as government grows larger.
........(1) Basic expenditures deliver high value. e.g. police, basic infrastructure, national security)
........(2) Ancillary expenditures deliver less value (e.g. bridges to nowhere, urban renewal boondoggles,
......... salaries for school administrators and federal drones
......b. Because government contribution to GDP is valued at cost, the larger the government grows,
........ the more GDP growth and living standards are overstated.
....2. Health care
......a. No bloody clue what things are actually worth; they are valued at cost.
......b. America currently spends 17% of GDP on health care, with outcomes worse than countries
....... that spend far less.
......c. Disproportionate spending on end care for the elderly.
......d. David Cutler's study: health care productivity growth 1995-2005 was negative.
......a. 6% of GDP at present.
......b. No improvements in student reading or math performance since mid 70's.
......c. But we are spending (constant dollars) twice a much now per student as we did then.
......d. High school graduation rate peaked at 80% in late 60's.
......e. Government claims of 88% graduation rate are nonsense.
......f. 20% of all new high school credentials each year come from passing equivalency tests.
..D. INNOVATION MUST OCCUR IN THESE UNDER-PERFORMING SECTORS
... This is where Cowan fails to state solutions clearly, which may disappoint readers, but his point is that
... these are areas where innovative thinking is required and good solutions need to be developed. My summary
... and suggestions:
....1. "If you can't measure it, you can't manage it." Use market approaches, intelligently ascertain value by
..... other means, and if measurement fails, arbitrarily force cuts in low-performing sectors (as a last resort).
....2. Government: 10% staff cuts. Strict spending limits pegged to per-capita government spending during a
.... benchmark period.
....3. Education: Standardized tests, charter schools, e-learning, vouchers (all of course resisted by the
..... education lobby).
....4. Health care: determine what works and pay only for that. Extending the life of an 90-year-old terminally
..... ill person for one month at a cost of $200,000 is not something that works.
III. Does the Internet Change Everything?
..A. Similar to early years of industrial revolution (advances made by amateurs)
..B. Hard to measure its productivity because its value lies largely in the mental dimension; most stuff on the
... internet is free.
....1. Traditional activity does occur (advertising, sale of goods). eBay, Amazon, Craigslist, ads on Google.
....2. While a public good, benefits of the Internet skewed to the intellectually curious.
....3. GDP is understated to extent it does not include the value of free internet pleasures.
..C. As an innovation, the internet has generated few jobs and revenue, compared to earlier innovations.
... (Example: Google employs 20,000, Twitter 300)
..D. Internet has also destroyed jobs in the music industry, book stores, and other forms of entertainment.
..E. So we're getting away from materialism, but it really hurts and people are yelping about it.
IV. The Government of Low-hanging Fruit
..A. Days of government largess are past; we can't slop the public trough like we used to.
..B. We won't be getting real income growth of 2% to 3%. We'll be lucky with 1%.
..C. Tax cuts without spending cuts (right wing approach) are untenable in the long term.
..D. Taking from the rich is also untenable in the long term; top 5% already pays for 43% of the federal
... government; top 1% for 27%.
..E. As real growth stagnates, demands from interest groups (corporations for tax breaks, K-12 teachers for job
... security, medical device makers for Medicare payments, public employees for pensions) will grow more
... strident. Expect more vociferous arguments about how to divide up the stagnant pie.
..F. Because government cannot continue to grow under current conditions, Liberals have become the new
... conservatives, supporting the status quo of handouts, bribes, and squandering.
V. Why did we have such a big financial crisis?
..A. Eight words: "WE THOUGHT WE WERE RICHER THAN WE WERE".
....1. We made plans expecting continued 3% productivity growth and the asset prices such growth would bring.
....2. We were lulled by successful handling of prior crises (e.g. the S&L bust and real estate bubble in the
..... 80's) into believing all risk could be managed effectively.
....3. Overconfidence was the problem. For everyone. Borrowers, investors, bankers, politicians, regulators.
..B. Markets and government failed miserably in estimating risk.
..C. Government encouraged risk by taking by overlooking accounting scandals (Freddie and Fannie) and promoting
... home ownership for everybody.
..D. Short-term response to stagnant incomes was to borrow against appreciated assets (home equity loans,
... mortgage refis), foolishly expecting continued asset appreciation. From 1993 through 2005,
... homeowners extracted equity equal to 11.5% of GDP.
..E. Fiscal stimulus in 2009 was inadequate, but a larger stimulus would not have helped. Problem is not lack of
... aggregate demand, but lack of revenue-generating innovation.
..F. Replacing private debt with public debt solves nothing. Sooner or later you have to pay the piper.
..G. The internet, by giving people much to do for free, may be exacerbating the current stagnation.
VI. Can we fix things?
..A. Promote favorable trends
....1. India and China
......a. Science and engineering interest in India and China: should yield innovations we can exploit.
......b. Offloading unskilled labor abroad gives us more time to pursue innovation (if we are smart enough).
......c. Consumers in China and India can offer a market for our innovations.
....2. Internet may do more for revenue generation in the future
......a. Promotes scientific learning and makes science more of a meritocracy; ideas rapidly shared and improved.
........ (Archaic intellectual property laws will need to change if we are to take advantage of this)
......b. Promotes self-education; a lot better than watching TV.
......c. These should all yield productivity gains.
....3. Improvements in K-12 education
......a. Majority of electorate no longer sides with education lobby.
......b. School choice, charter schools, incentives, better monitoring are now in favor.
....4. Raise the social status of scientists
......a. Science is what fuels economic growth, yet we reward law, medicine, and finance.
......b. [Aside: this is not the case in China and India, where engineers and scientists are more highly
....... esteemed, and occupy the highest offices in government. Here, we have poli sci graduates running things.]
......c. Culture of science is what drove the industrial revolution.
......d. We should not trust individual scientists uncritically, but we should respect science at the higher
....... level (a lot more than law or finance)
..B. Avoid unfavorable trends
....1. Cool the rhetoric, avoid useless strife.
....2. Stick to facts. Educate yourself. Don't demonize those you disagree with.
....3. A prolonged period of slow growth need not be bad -- Japan has tolerated it very well.
..C. Final Word
....1. The next low-hanging fruit may pose dangers. Be vigilant and quick to respond.
....2. Axis and Communist powers turned new technologies to destructive and oppressive ends.
....3. Balance of power can be upset.
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Showing 1-10 of 19 posts in this discussion
Initial post: Dec 23, 2011 4:01:49 PM PST
Geoff Miller says:
holy crap, should I read the book or your review?
In reply to an earlier post on Dec 24, 2011 10:43:36 AM PST
Last edited by the author on Dec 27, 2011 6:07:33 PM PST
Yeah, I agree, it's a bit excessive, but I was so irritated by the sloppiness of some reviews that I decided to do an outline. Take a look -- there are people who say Cowen says nothing about health care, that Cowen does not talk about "corporate greed" (as opposed to individual greed, which is apparently OK, I guess) and other silliness. I am firmly convinced that at least half of amazon.com reviews are written by people who have never read the books they are reviewing.
Posted on Jan 23, 2012 10:58:43 AM PST
Ron Wolf says:
Thank you for the time you put into the outline. That was a thoughtful and useful contribution.
Posted on Oct 15, 2012 1:22:49 PM PDT
I also thank you for the review and outline. From the outline, it seems to me the author is missing two key factors:
1. "MEDIAN income growth in the U.S. has slowed notably since 1973". Question: Does Cowan also discuss the growing maldistribution of wealth and income; share of wealth held by 99% has been shrinking since 1975. See, e.g., http://www2.ucsc.edu/whorulesamerica/powe
2. The summary of history of "technology breakthrough" part of the book (I.A.2. on your outline) is readable on Amazon. Many if not most of the significant technological advancements in the past two centuries were (and are) directly linked to readily available and relatively cheap fossil fuel for energy. Does Cowan ever discuss the limitations on further technological innovation in light of Peak Oil and externalities (e.g., global warming) that will severely constrain their implementation? Especially with a population past 7 billion and likely to hit 8 or 9 this century.
Here's a table I did on the last point, with Cowan's list of technologies and my evaluation of their linkage to/dependence on fossil fuels.
Period/technology (direct quote from Cowan) Dependence on fossil fuels (my subjective evaluation)
electricity Moderate to high (originally low, but hydro is now source of only 16% of global electricity)
electric lights Moderate to low (takes low amount)
powerful motors Moderate to high
household appliances Moderate to low
telephone Low (takes little to power, infrastructure might be moderate)
indoor plumbing Low (takes little to power, infrastructure might be moderate)
pharmaceuticals Low to moderate
mass production Moderate to high, depending on industry
typewriter Low, obsolete
tape recorder Low, obsolete
phonograph Low, obsolete
radio Low, Obsolete
television Low to moderate
Prior to 1880, but advanced a lot 1880-1940
fast international ships High
Mowing machine High
Highly effective fertilizers High
Powerful fossil fuels BINGO; Percentage could be replaced by biofuels, but not all; triage and prioritization will happen past Peak Oil
In reply to an earlier post on Oct 21, 2012 11:18:06 AM PDT
John Harllee says:
Toby, he addresses both fossil fuels and income inequality but almost in passing, not at the length I (and I would guess you) think they merit.
In reply to an earlier post on Nov 2, 2012 11:49:03 PM PDT
Answer to question #1 is yes; see Section I. E. in the outline.
Regarding question #2, certainly energy is necessary for any activity that increases order, though it is not clear that if fossil fuels had not been available, other alternatives would not have been used. Charcoal, for example, was the main fuel used for metallurgy until the 19th century, and in fact is a better fuel for this purpose than coke. I would say that iron was just as important as fossil fuels. Hard to imagine the industrial revolution without it.
In reply to an earlier post on Nov 3, 2012 10:37:52 AM PDT
Thanks for observation on point 1. I've just put a reserve on book at library so I can read for myself.
Point 2: Steel and liquid fuel are both essential; one for the manufacturing processes and products (and infrastructure itself), and one to move energy and raw material in and products out. It's hard to imagine the current global economy/civilization without both.
Posted on Jul 15, 2013 1:18:31 AM PDT
A. Driver says:
What time in history were Intellectual Property laws introduced? 1967? 1970s? Technological stagnation starts?
In reply to an earlier post on Jul 15, 2013 8:10:47 AM PDT
Both copyright and patent law are part of "intellectual property law." Both are centuries old; they started being developed at the same time as capitalism was arising at the end of the middle ages.
In reply to an earlier post on Aug 3, 2013 10:28:57 AM PDT
Last edited by the author on Aug 3, 2013 10:41:20 AM PDT
Agree, but the problem is that intellectual property law has not kept pace with the times. There are several reasons for this.
1. In the 18th century, any reasonably intelligent person could grasp the entire corpus of scientific knowledge then in existence. Physics and chemistry were about at the level taught in high schools today. Thus, judges had no problem understanding patents, which could be expressed in natural language terms. Fast forward to 2013, and the situation is radically different. Judges (typically with liberal arts backgrounds) have no real understanding of any of the subjects they are dealing with, and approach matters with silly, crude analogies. A baboon would understand these matters as well as they do. And then to make matters more ridiculous, technical problems easily and precisely expressed in mathematical or symbolic notation are reduced to natural language in patents, again so that they can be consumed by these robed boneheads, but of course with a huge loss in precision.
2. The constitutional rationale for patent protection (encouragement of the useful arts) is now irrelevant in nearly all cases. The notion that, with 50 million software developers in the world, patent protection is necessary to ensure innovation is utterly preposterous. This rationale still applies in a very few cases, for example the development of new pharmaceuticals where innovation will not occur unless recovery of the large investments necessary to develop new products is assured by patent protection. This obviously does not apply to software patents, which have essentially no development cost and are incandescently obvious to the millions of genius-IQ software developers in the world.
3. Formal statement of the argument. Let p (p>0) be the probability that a randomly selected software developer will come up with a given innovation, and N be the population of software developers. The expected number of software developers who will "invent" the innovation is i = p*N. Taking p at even a very small number, say .0001, with N=50 million, i is 5,000. Yet our idiot courts apply a test of "ordinary skill in the art", which means that things utterly and incandescently obvious to millions of practitioners of the art are given patent protection for 20 years. This is what happens when we populate the federal judiciary with innumerate drooling dufuses.