The Great Stagnation ends but for whom?

USA has been stagnating since 1971 said Tyler Cowen. Meanwhile, the world has been catching up. Things are about to change. This is the first post of a two-part series

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In his 2011 book, Tyler Cowen argued that the rapid growth and development the US had experienced earlier ground to a halt in 1970s. Now, “America is in disarray and our economy is failing us” he says. Brief bouts of resurgence since were illusory. Specifically, the false prosperity of the early 2000s was built on factors such as debt, inflated home prices, and economic illusions. These were unsustainable and led to the financial crisis that came at the end of the decade.

Neither political party has a clue according to him. He wrote this in 2011:

The Democratic Party seeks to expand government spending even when the middle class feels squeezed, the public sector doesn’t always perform well, and we have no good plan for paying for forthcoming entitlement spending. To the extent Republicans have a platform, it consists of unrealistic claims about how tax cuts will raise revenue and stimulate economic growth. The Republicans, when they hold power, are often a bigger fiscal disaster than the Democrats.

Americans always see the whole world through the US lens and assume the rest of the world follows what happens in US in due time. Cowen is no exception and he posed Great Stagnation as a global phenomenon. I do not agree with him. The Great Stagnation mainly applies to the United States and its close Western allies. I believe so because, while the US was stagnating, the rest of the world, especially the developing countries, were busily catching up. Some of the developing countries, e.g. China, has been spectacularly successful in their pursuit.

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We are now entering a new era of unprecedented technological and economic development. This is not going to occur uniformly and only the countries that understand the rules of the new game will prosper. I hope US comes out of the present funk and be part of this. Otherwise, a troubled period awaits us. The US probably cannot prevent this Global Renaissance (that is what I call it¹) but can hurt it by using its military power.

This is the first of a two-post series. In the first part, I will summarise Tyler Cowen’s narrative and explain the causes for his Great Stagnation. Next week, I will argue why I believe the world is now entering a new age and also what the implications are for Australia and Turkey.

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Low-Hanging Fruit

Cowen’s main argument is that the United States benefited from "low-hanging fruit" through most of the 19th and 20th centuries. The “low-hanging fruit” Cowen is referring to are free land, technological breaktroughs, and smart uneducated kids.

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Free Land

The European peasants immigrating to US suddenly was immediately able to own fertile land and start enjoying a standard of living much higher than what they left behind. It is true that most of this land was stolen from Native Americans but, nevertheless, it served as one major boost for the new US nation. I do not think Proudhon was universally correct when he said “Property is Theft” but in this instance he is.

The above image was a vignette on map of the State of Kentucky, 1818. This allegorical view offered a Euro-American interpretation of property. Surveyors with their tools measured and divided the land for settlement as the Indian inhabitants left their homeland. Overlooking the scene, the figure of justice sanctioned the activities (Smithsonian Archives).

Stolen or otherwise, this low-hanging fruit is now gone. There is no more free land to grab.

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Technological Breakthroughs

The period from 1880 to 1940 brought numerous major technological advances:

… electricity, electric lights, powerful motors, automobiles, airplanes, household appliances, the telephone, indoor plumbing, pharmaceuticals, mass production, the typewriter, the tape recorder, the phonograph, and radio, to name just a few, with television coming at the end of that period. The railroad and fast international ships were not completely new, but they expanded rapidly during this period, tying together the world economy (Cowen, Tyler. The Great Stagnation, Kindle Edition)

Compared to the sixty years I lived through, 1960 to 2020, the pace of technological change in 1880 through 1940 was unbelievable. I do not think there is much in 2020 that would be unrecognisable by 1960’s Halim, who was a small kid at that time. But if you take someone from 1880 and insert him into the world of 1940, they would struggle to recognise most devices.

The above chart plots the rate of innovation since the end of the Dark Ages. The y-axis is the number of annual innovations per 1 billion people. Points are averages over 10 years with the last point covering the period from 1990 to 1999 (Huebner, 2005).

The low-hanging fruit was making use of these technological changes. This required resources (which is the number one low-hanging fruit I have just covered in the previous section, free land and free resources); and educated people, which I will cover in the next section.

The scientific progress did not stop in 1971. But the rate of technology transfer from the university laboratories to the markets slowed down. There have indeed been new developments in this period like internet and genetics. But they did not make a large impact on the productive technologies the same way electrical motor or mass production did.

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Smart, Uneducated Kids

The third low-hanging fruit for America was its human potential. At the beginning of the 20th century, 95% of the American youth did not finish high school. While this is a social deficit, it also meant that the nation had access to a huge brain pool if these youths could be educated. The US managed to get its uneducated youth not only graduate from high school but attend university too.. In 1900, only one in four hundred Americans went to college, but in 2009, 40 percent of 18-24-year-olds were enrolled in college. Tyler Cowen argues that “We won’t be able to replicate that kind of gain over the next century, and on college completion rates, we are moving backward in some important regards.”

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The Great Stagnation

America ate all of its low-hanging fruit and there was no encore. It has been stagnating since then. Cowen reckons this Great Stagnation started around the seventies. When you run out of the fuel in the tank, the momentum still gets the car going a bit more. This made it harder for the US to realise the new situation.

The Great Stagnation started in 1970s mainly in the USA. As I noted earlier, the rest of the world did not stop when US stopped. The rest of the world had low-hanging fruit of another kind, the technologies developed and commercially proven in USA. Accessing these technologies through legal and non-legal means helped bringing the rest of the world, at least part of it, to near the same level as the USA.

While US was virtually standing still, Korean, Chinese, Vietnameseö even India and many other nations experienced rapid growth. In fact, it is partly because of this successful levelling of the playing ground that I am predicting the end of the Great Stagnation and the onset of the Global Renaissance. I will continue next week.

References

Cowen, Tyler. The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better: A Penguin eSpecial from Dutton . Penguin Publishing Group. Kindle Edition.

Huebner, J. (2005). A possible declining trend for worldwide innovation. Technological Forecasting & Social Change, 72(8), 980–986. https://doi.org/10.1016/j.techfore.2005.01.003..

Short Takes

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The name of dish, ABC News, 13 Sep 2023

The story goes that, when Queen Margherita visited Naples in 1889, a local pizza-maker presented the Queen with a new kind of pizza representing the colours of Italy's flag. Queen Margherita loved the combination of green basil, red tomato and white mozzarella so much that the pizza to was named after her. And so the margherita pizza that we know today was born. In reality, the first real mention of margherita pizza wasn't until the 1930s. The idea of a national pizza was probably "convenient for the unification of Italy" at that time.

The origin of the ramen we enjoy as an iconic Japanese dish is Chinese noodles. “Ramen” is the Japanese pronunciation of lamian 拉面 .

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Asia is for Asians, Sinocism, 12 Sep 2023

China’s top diplomat Wang Yi asked the Japanese, Koreans, and Chinese to stick together in a Trilateral Conference in Qingdao, China, in July.

He said:

Americans take all visitors from China, South Korea, and Japan as Asians. They cannot tell the differences and it’s the same in Europe. No matter how yellow you dye your hair, or how sharp you make your nose, you’ll never turn into a European or American, you’ll never turn into a Westerner. One needs to know where the root is. China, Japan, Korea — if we can join hands and cooperate, it would not only suit the interests of our three countries but also the wishes of our peoples, and together we can prosper, revitalize East Asia, and enrich the world. (Associated Press)

I summarise this as “Asia is for Asians”. It is an interesting talk and an apt send-off to the Monroe Doctrine while we approach the 200th anniversary of Monroe’s address to the US Congress when Monroe proclaimed “America was for Americans”.

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You Tube

Before the Nokia, I used to have a Huawei phone. Its camera was not as good as my wife’s iPhone but otherwise it was adequate. I was curious about the future of Huawei after the US sanctions on China. In Turkish there is a saying that “a bad neighbor makes you a homeowner”. The US sanctions had a similar effect on the Chinese electronic industry. New Huawei uses a 7-nm chip build by Shanghai-based SMIC. Not many people predicted that the Chinese had this capability. It means the Chinese chipmakers are only one generation behind the western counterparts. The industry watchers say the biggest loser out of this is Qualcomm based in San Diego, California. Before the sanctions, Huawei bought its chips from Qualcomm.

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Pascal - Hagi

Pascal and Hagi wanted to have a bit of playtime on the curtain rail before retiring inside their cage that night. The outside light is on and their outdoors playground is visible through the translucent curtain. We had to take out the original cloth curtains.

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Diary

Last week I chaired a PhD oral examination.

In our university, up until a few years ago, the PhD theses used to be reviewed off-line. Copies of the Thesis were sent to the Examiners; they would take about eight weeks to review it and offered their assessment in writing. The student’s rebuttal if required would also be in writing. This was a procedure dictated by the small pool of non-conflicted examiners in Australia and the difficulty of bringing overseas examiners to Brisbane.

With the ready availability of video call technology on every electronic device, a few years ago the university switched to oral examinations. The student now submits her Thesis to the Graduate School; the Graduate School sends copies of the Thesis to the nominated External Examiners; the Examiners read the Thesis and submit their feedback on-line; the student reads the feedback; and an oral examination is scheduled, usually through video, during which the student responds to the criticism and comments and defends her Thesis.

I started the video conference this time and was waiting for others join in. A US examiner joined in early. While waiting for the others, we chatted about how cosmopolitan the science had become. He was Polish, I was Turkish, the second examiner who had not yet joined in, also from US, was of Russian origin, the student was a young Indonesian woman and her two supervisors (not participating in the Review) were Lithuanian and Chinese.

We take such internationalisation of science for granted these days but it should be celebrated. I am hoping that this is not a fleeting moment in human history but a harbinger of better days to come involving more collaboration and cooperation between the nations of the world.

What was the outcome of the review? The student was not intimidated at all by the three old men scrutinising her work and she defended her Thesis very well.

1. Global in contrast to the first Renaissance that was a European phenomenon