Tyler Cowen’s column in the New York Times today takes up the disturbing problem of productivity that seems not just to be growing more slowly, but actually weakening:
The overlooked piece of news came this month from the Bureau of Labor Statistics. In the second quarter this year, it reported, nonfarm business labor productivity fell by 0.3 percent, the second quarterly drop in a row. And it turns out that it rose only 0.8 percent from the second quarter of 2010. Over the last year, hourly wages have risen more quickly than productivity.
Why worry? Well, as the column points out, productivity gains are what produce long run increases in the standard of living. “Our society is wealthy,” Cowen says, “precisely because it can churn out products like automobiles, flush toilets and Google search algorithms at relatively low cost. Productivity slowdowns mean erosion of living standards over the long haul, and they also can lead to short-term crises.” The column then goes on to explore several of the considerable difficulties in measuring productivity, but concludes that if anything, taking account of those difficulties suggests that weaker productivity is understated in the American economy.
These themes are at the heart of Cowen’s recent short book ($3.99 on Kindle), the splendidly robust and readable essay, The Great Stagnation. The essay argues that there has been a long-term historical slowdown in productivity and innovation gains since the first great strides of the Industrial Revolution. I’ve now read it twice. Each time, on finishing it, I’ve wondered what role an aging population in the United States means, for innovation, productivity, and economic recovery. Many of the discussions of economic recovery, trying to draw lessons from past downturns, seem to be premised implicitly on a static demography – or at least, even they accept the higher costs of care associated with a sharp upturn in the number of non-productive elderly, do not go to the further questions of what it means to have a society and, in an important sense, culture, that is dominated by the old and their concerns both material and spiritual? Is it impossible that cultural shifts occasioned by demography have an impact, for example, on Keynes’ “animal spirits”? Risk-taking? Innovation?
One hears many economists comparing today to 1980, for example, whether to ask what is similar or what is different. But isn’t one relevant difference simply that in the early 1980s, the recovery tapped into a Baby Boom generation just hitting its prime years in terms of energy, risk-taking, innovation, etc.? Today we Baby Boomers are spent as an intellectual, innovating force; it’s not just that old people cost a lot to take care of, we also don’t innovate and come up with new sources of wealth. Our risk taking days in pursuit of outsize gains through enterprise creation are mostly done; to the extent we aren’t already tapped out, we can be rentier capitalists, I suppose, but that’s not quite the same thing, and anyway current interest rates don’t suggest much for that. We might easily use the handles of a gigantic generational demographic to seize social gains for ourselves, as we have done at every phase of our lives, from youth to death – but collectively we aren’t likely to come up with a lot of new breakthroughs in science, technology, or anything other than new ways to push our memoirs of the sixties and seventies.
I sometimes wonder if this isn’t the subtext beneath the two parties, and the upcoming presidential race. The Democrats basically think the American idea is over with the Baby Boomers – we Boomers spent everything else, why not the American Ideal, too? – and that the task is to simply see the boomers through to their cremations, and then, well, the future generations won’t have anything to inherit besides unpayable debts to other people, if they haven’t yet inflated them away. If that’s the case, however, then the spending on the Baby Boomers’ exit has already been exhausted, and most of us are not even there yet: there won’t be enough ice floes to go around for us Very Old Ones.
The Republicans believe that a return to the policies of Ronald Reagan will bring about a new morning in America. But that optimism doesn’t take into account that morning in America in the 1980s took place when I was in my twenties, energetic and hopeful and full of new ideas and innovation – not my fifties or sixties, sour and distempered. What makes the Obama administration special, on this view, is not that it contemplates the Baby Boom eating the next two generation’s seed corn – but, rather, that it is already nearly finished chewing through it, even before boomers like me have reached retirement.
That’s not very cheery and none of this Baby Boomer stuff is in Cowen’s column; he would likely dissent from it, as overly pessimistic. His book is titled, “How we picked the low hanging fruit,” after all, not “How we ate our seed corn.” But Cowen’s column adds a little fillip, which is to say – if America does not fill the innovation and productivity gap, don’t expect that anyone else will, either, including China:
While the Chinese economy is wonderful for cutting costs and improving manufacturing methods, it will not soon be taking the lead in creating breakthrough products. For all the money spent on R.& D. in China, Chinese scientific papers are not cited much abroad and Chinese patents are filed at a low rate internationally, suggesting that they are less than revolutionary … In other words, the next wave of major innovation will probably rely on the world’s current scientific leaders, many of whom are based in the United States. Recently, though, Americans have not been getting the job done.
All this naturally made me think of that marvelous hymn to American Baby Boomer self-centeredness – still one of my favorite albums – Blows Against the Empire, and this track from Grace Slick.