Tyler Cowen:

"The Great Stagnation" (2010)

(Copyright © 2011 Piero Scaruffi | Legal restrictions - Termini d'uso )
Cowen starts by looking at the steadily declining growth rates of the Western world, and blames them on a decline of creativity. Basically, there are two main ways to grow: use cheap labor to use other people's ideas to "steal" the economies of scale that those people created (what developing countries are doing to the West) or create new ideas that open new economies of scale (what the West, and the USA in particular, needs to do).

The USA has been the main driver of new ideas for at least half a century. The reason that the USA has created so many new ideas is not genetic (they have the same genes as their ancestors in Europe, Africa, Latin America and Asia) but related to "growing" minds: the USA posted spectacular improvements in education from generation to generation, the USA almost forced large numbers of women to shift from household chores to office chores, the USA attracted large numbers of highly educated immigrants. These three factors translated into a rapid increase in skills, that translated into an avalanche of new ideas. Cowen points out that factors like these have reached a limit of growth. The USA is not improving significantly in any of those directions. This alone would explain the decline in innovation.

However, Cowen points to an additional factor. The 20th century was largely a century of technological refinement: the later decades were mostly spent refining what one can do with plastic, electricity, transportation and machines, that had invented much earlier. Hence all the new appliances, the new materials, the new vehicles, etc But only the computer has been conceptually new (and even that was invented way back in 1943). Now the West has reached the point at which it is difficult to find new variations on those old inventions. There has been very little innovation. And the one big innovation, namely the Internet, is mostly free, so it doesn't really contribute to the wealth of the nation, except for the few startup founders and the middlemen of advertising. (The real innovation in the Western world, I would surmise, has been in financial speculation).

The section about the Internet is interesting because a hidden assumption of the book is that there is a direct relationship between innovation and prosperity: each innovation is supposed to contribute to increase prosperity. However, the net effect of the Internet has been to kill millions of businesses (from bookstores to post offices) for the main benefit of the dotcom elite, which is often a one-man company.

Cowen thinks that we need new ideas that are not only refinements of old ideas like electricity and plastic. But one could argue that it depends: new ideas don't necessarily bring prosperity to the whole nation. They almost always cost jobs, and there might be cases in which the new jobs are not enough to compensate for the lost jobs. Factory and business automation worked as long as the nation could shift blue-collar jobs displaced by machines towards white-collar jobs, but it is not clear what nations will do with the unemployed white-collar workers who are being displaced by the free Internet-based services (as Noah Kennedy's "The Industrialization of Intelligence" predicted in 1990).

Cowen calls for more innovation to increase prosperity, but maybe it's precisely innovation that is causing the decline in prosperity.

See also: