Monday, February 7, 2011

Technological change and economic growth

Tyler Cowen (econ prof at George Mason) argues in a recently released e-book ("The Great Stagnation") that technological change has reached a plateau. As a result, he argues that economic growth and improvements in living standards will slow dramatically in the coming years.... unless we do something.

His basic thesis that we've consumed all the low-hanging fruit, especially with regard to innovation that results in public goods in the areas of health, education and infrastructure. The most recent "big idea" is of course the internet, which despite our expectation to the contrary, has failed to deliver much of anything in terms of real improvements in productivity and economic growth according to Cowen.

Here's an interview with Cowen at the NYT.

Here's an article at the WSJ.

The Atlantic has an interesting article discussing technological change in kitchens.

More good reading on the topic here from Forbes.

Here's a 30-minute interview with Cowen at The American Enterprise Institute.

What is Cowen's solution?

How can we frame this discussion in terms of the Solow model?

What are some criticisms of Cowen's thesis?

What are the big productivity-enhancing innovations in history, and when did they occur?


  1. In the NYT interview with Cowen he talks a lot about education. He talks about how graduation rates have dropped and he makes an interesting point about making it easier to fire bad teachers at the lower education levels so children can get a better education.
    The interviewer talks about the United States being a world leader in higher education. After reading this I became curious as to where we actually ranked in having the most top 500 universities in the world. After going to nationmaster I saw that we have the most top 500 universities but when you look at per capita top 500 universities and we only rank 16th in the world.

    -Stephen Lednum

  2. I am not sure how I feel about Tyler Cowen's opinion that the internet "mostly delivers “cheap fun” but very little revenue and very few jobs." The internet has made companies drastically more effective with their money, so there is more output from less inputs. There are many companies in the Fortune 1000 that would not operate without the internet such as Apple, Google, Facebook, HP, Ebay and Yahoo. Silicon Vally, which prospered through the rise of the internet, is one of the main centers of high tech innovation in America. Silicon Valley accounts for 1/3 of all of the venture capital investment in the United States according to Also, Silicon Valley sustains 225,300 high-tech jobs with an average salary of 145k, and that is just one city out of many regions that have grown due to the rise of the internet and Information Technology. It seems to me that the Internet and the increasing sophistication of IT systems made possible through the internet have created an incredible amount of revenue for the United States.

  3. Cowen's argument supports the Solow growth model, which slope increases at a decreasing rate and eventually plateaus. Cowen is saying that we have reached the area of plateau. To experience the GDP we are accustomed to, then we will need more inputs of technology, labor, and captial then was previously required.

    I wish Cowen provided more solutions then just to make Science sexy...

    Also interesting is that Buthan does not caclulate GDP, they calculate Gross National Happiness. This measure seems to be accounting for the things we discussed in class that are not factored into GDP.

  4. Although Tyler Cowen brings several debatable aspects into his thesis, I feel his reasoning may really be more rational than many readers are giving him credit for. He does not discern the internet as a nonprofitable industry, he simply argues that it isn't matching the human productivity possibilities that were enabled when innovations such as the railroad emerged. Skeptics of Cowen's argument believe that the internet has opened pathways for new companies and ideas which are the bread and butter for spurring growth. Even though it seems that internet-giant Google has helped to propel the economy with its accumulation of massive acquisitions across several industries, where is all of this money ending up?

    Where is the money that Facebook earns? This is the website that has literally linked so many individuals, businesses and ideas together all so quickly in the past half-decade. Socially productive? Definitely. Economically productive? Cowen doesn't think so. I don't blame him... Facebook is probably more distracting to individuals behind a computer monitor than productively helpful. The same can be said for most internet websites. They have unleashed infinite sources of information but very few of them provide opportunities for the common user to be productive and contribute to the global economy.

    Even though I do not disregard Cowen's idea that the internet is not reaching its economic potential, I would like to know that he has another solution in mind than incorporating scientists as prestigious figures in our current society. Although I don't honestly believe this will occur in my lifetime, something that I hope will occur is for science to become more popular to young students across all cultures. This is an achievable goal and could help to spur ideas and innovation that will help to raise technological inputs and progress the economy.

  5. I think that there are some flaws in Cowen’s thesis and with the solutions he discusses. It’s inaccurate to say that the “low hanging fruit” of education, health care, and infrastructure have been consumed. The United States' education system has substantial room for improvement, as does our health care system and much of our infrastructure. Also, I don't think most students do not become scientists because it's just not glamorous, it's more likely that it's a difficult job and the primary and secondary education most students receive doesn't prepare them for it.
    I agree that the internet is the big technological innovation of our era and that it's not meeting it's economic potential. To make the internet as economically valuable as innovations of the past like railroads and the green revolution, the whole economic model may need to change. How can entirely new technology, new means of production, and new means of "consumption" come about and be expected to fit into the same system as everything that it replaced?