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Customer Review

on February 7, 2011
I highly recommend Tyler Cowen's new e-book "The Great Stagnation"; it could end up spurring a debate and having long-term policy implications enough to make it one of the more important economic writings of the last decade or so. While naive in some ways, especially with regards to how technology typically emerges, I'd argue that the conclusion is essentially sound. The impact of such stagnation for an industry dependent on activity choice for leisure time and discretionary spending are quite obvious. It's short and a relatively quick read (perhaps 60 to 90 minutes). It's Kindle only right now, but Kindle software is available for nearly everything. I'm expecting that it'll be expanding into a full conventional book shortly.

Cowen's thesis is that growth of real income in the US has stagnated primarily due to a decline in technological innovation, but secondarily due to new technologies no longer resulting in real income growth for the majority. For an example of the latter, consider the internet. While leading to new innovations and an increase in the quality of life, it has arguably not resulted in the creation of very many new jobs. Furthermore, nearly all of these new jobs require specialized skills that most people don't have.

For failure of innovation he focuses on the great promised lands of robotics, nanotechnology and artificial intelligence. These also happen to be three of the areas of technology where the long-term implications are the least clear; scenarios from a perfect paradise to the extermination of our species have been envisioned for all three (nanotechnology: writings of Kim Drexler; artificial intelligence: writings of Stanislaw Lem; robotics: classic 1951 film "The White Suit"). Robert Merton's cautionary note regarding unintended consequences and Frederic Bastiat's parable of the broken window have relevance for all three areas.

While Cowen's arguments and conclusions can be attacked in many areas, stagnation does appear to be happening. Whether or not this is the case, and if so what can be done about it, are still in the early stages of discussion. Additional areas I'd like to see addressed as part of this debate for me would be the three areas of growth in true costs for health care, higher education and housing. The costs for all three have outstripped inflation without a corresponding impact on either real income growth or quality of life, and consequently there are implications for real income growth.
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