Tyler Cowen on Economic Stagnation, the Internet, and Canada's Dangerous Complacency
Tyler Cowen is an economist, author, and academic. His most recent book, The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better, explores the root causes of America's current economic woes. Cowen argues that the financial crisis is a symptom of a much larger problem for the U.S. economy: a lack of "low-hanging fruit". The U.S. has run out of the fuel that used to power its economy: abundant natural resources, education for the masses, and new technologies. And as a result, the economy has slowed to a crawl.OpenCanada talked to Professor Cowen about economic stagnation and what role the internet can play in pulling the country out of it.
Is the great stagnation the final frontier for the U.S. economy in that the country is done growing and now can only hope to develop at a rate that doesn’t squeeze the middle class right out of the picture? Or could the great stagnation become the great equilibrium, in the sense that the U.S. will find a way to live with its current level of wealth in a way that works for the majority of its citizens?
I would say that it’s a temporary plateau. Right now, the number of dynamic sectors is relatively small. But overall, the stagnancy of the median income shows that our innovativeness and the gains are smaller than we thought. But there’s no reason to think those future gains are gone forever. There’s a lot of science going on, a lot of advances – it’s just not all translated into concrete products just yet. I’m cautiously optimistic looking forward. Economic growth is far from over. But it’s uneven. It comes in bursts.
Do you have any sense of how long this plateau will last?
My current forecast is we will see a turning point, say, across a 10-year time horizon. It may be a funny kind of economic growth relative to what people expect, because I think in some ways it will be job-destroying form of economic growth, through artificial intelligence. So, it still might feel to a lot of people like we’re in a great stagnation, but in terms of the actual march of progress, I think there’s another large burst coming up.
Some of your critics have argued that you understate the internet’s potential to drive new gains in productivity. Do you think we have yet to harness much of the internet’s power?
Exactly. In my view, the internet isn’t that huge yet. You add it on to a lot of activities that you’re otherwise already doing. But it will become really important when it’s the centre of a lot of commercial and educational activity. I think that’s a breakthrough that is coming. I would say that people have overrated the internet up until now and we’re underrating its future.
Do you have a sense of how big the internet could be in the future?
It depends on the area. If you think of, say, the box stores, I think a lot of them will go away. Look what the internet has done for the music industry. It’s been great for music listeners. But it’s destroyed a lot of fairly new models. And you don’t see big music stores anymore selling a lot of CDs. You probably never will again. Education will be revolutionized by the internet. Up until now it has not, but I think that’s yet to come. That’s a big and important sector. Health care is trickier, but I think at least some parts of health care will be, like diagnosis. Treatment is different of course – you need to go somewhere. But imagine having the Watson machine do medical diagnosis on you, basically taking into account all known human information. It seems to me this is not more than 10 years away. And once this stuff is in place it becomes cheap fairly quickly.
You note that Canadian students surpass American students coming out of K-12 education. What are we doing right and can it be imported by the US..?
It’s hard to import an education model from one country to another. I think right now Canada has had a lot of good fortune from high and rising resource prices and favourable terms of trade. And when that’s the case almost everything seems to work. But I think the problem in the U.S. is at the level of the parents and the family, and too many of them don’t care, and you cannot fix that by policy alone.
So you need cultural change.
That’s correct. And those are gradual and they’re harder to manage. They’re not impossible. In the U.S., its course in education really has changed. I think there’s much less siding with the teachers’ unions than there used to be. And that’s mostly a good thing. So people view this as a problem to be solved. And I think there’s a will to innovate that we didn’t have before.
How do you bring about cultural change? Can you do it top-down?
Well I’m not sure that top-down is the key. You have individual cultural entrepreneurs, with new ideas, new ways of educating, say take home schooling, take the Kahn Academy online. Those are all innovators. They offer new products, but they’re also changing the culture. They make education more exciting, and sexier, and more vibrant, more dynamic. And that has longer-term changes. And I think the notion that if you want your kids to share in the American Dream, you cannot take the middle-class lifestyle for granted. Maybe in some ways that’s unfortunate, but it is stirring more people to be interested in education again. And I think in the longer run it will have a pay off. Some of their complacency is gone.
You mentioned earlier Canada’s resource wealth. Does that incubate us to a certain extent from the stagnation that we’re seeing in America?
Absolutely. The crash here was the cold you caught from the United States, not your own crash. A lot of it has gotten better here than in the U.S., in relative terms. But I ascribe most of that to resources. So I think there’s a complacency here. There’s a complacency because things are so very good. But it’s also a dangerous complacency.
In your book, you write that the ‘US economy is failing us,’ and so join a still-growing group of authors that have sounded similar warnings. How would you situate your book in relation to the most recent wave of ‘declinist’ analyses?
I see my book as less political, and more about fundamentals. Seeing the problem as deeply rooted. It’s not a good guys vs. bad guys story. It’s a sense that we’re not as innovative as we like to think. And that we’ve been borrowing and spending money as if we’re going to grow at 3 per cent when in fact we’re not. It’s a kind of mix of complacency, and psychological error, and excess confidence, which I think is rife in the United States. It’s part of our strength as a culture, but also one of our weaknesses.
Would another financial crisis finally undermine America’s belief that it’s richer than it really is?
I’m not sure we’ll ever give up on that belief. But I do think we’ll have another financial crisis. Probably not any time soon. People, for now, are scared enough to play it safer, but I don’t think we fixed the basic problems with our banking system, for instance. I think we still worship home ownership as an ideal too much. So we haven’t gotten past the mistakes we made last time. But to see it happen again soon, I don’t see any reason to expect that.
In the short term, do you see the government – either an Obama government or a Romney government – taking these issues on?
Congress is the problem, not the president. If Congress wanted to do things, either individuals could get them done. They’re both smart and able people. I expect more gridlock, but not from the side of the president.
Is that just the nature of Congress?
It’s the nature of Congress now. We’ve always had gridlock in the U.S. but the problem is the things we need to do now are somewhat painful and they involve the admission of defeat or an earlier mistake, and that’s hard for Congress to do. The incentive is to over promise and be complacent. When two parties get together and overpromise together, that’s very popular. Gridlock vanishes, you’d be amazed how quickly. But when you need tell people that taxes need to be higher and spending needs to be lower, it’s a tough sell.
I know you’re working on a new online project. Can you tell me more about it?
It’s called MRUniversity.com. The first class will start October 1. And the goal of the site is to create free, readily available, online economics education for the world. The first class will be in development economics. So people can go to the site, view the videos, which are in short, easy to consume bits, and get what we think is better than a typical class in development economics. We think it’s important to make this available to the world for free. We also have a Wikipedia-like angle to our model where users are invited to submit content, and we will generate content from many different places, not just from the two people who created the site.
Who is involved?
Myself and Alex Tabarrok, who by the way is Canadian. Alex and I created all the material, but in the longer run we expect the crowd and other research scholars to be creating more of the material than we are right now. There’s been a lot done in online education, but no one has done economics yet. Stanford, Harvard, MIT, they have not done it. And we think it should be there. It’s an area a lot of people are passionate about, and it’s an area we think teaching it works well with an online median. You can use data, and to some extent charts and graphs and also photographs, and we’ve created these fairly short videos which in building block fashion, teach topics by explaining them bit by bit.
What kind of reach do you expect?
We don’t know. We know other people who’ve offered online classes, they can get a few hundred thousand registrations. We don’t necessarily expect that much. And we know that no everyone who starts finishes. But I view it this way, even under quite a modest projection, I’ll be teaching this fall, combined, more people than I’ve taught in my entire life put together. It’ll be interesting to see how much interest there is. But think of all the people, often in poorer countries, who can’t access a good education in economics. This is a low-bandwidth site. It’s mobile friendly. It’ll give people a place to start. We are not at all against the idea of face-to-face instruction. Our ideal is that a person takes this class combined with face-to-face tutoring, group study, a professor, whatever. But in a lot of parts of the world that’s not possible. So we offer at least a minimum for many people.
What are you hoping your students will get out if it ultimately?
The desire to learn more. It’s very important. What we teach, we don’t present it as the last word. It’s not 2+2=4. It’s a starting point. Our motto on the site is “Learn, Teach, Share.” So the students learn themselves, the teachers, in the longer run content creators. And we want to imbue them with the passion for learning more. No class in an area like economics should be the final word.
How do you see this kind of innovation fitting in with your thesis about the future of the online economy?
It’s one way in which the internet remains underexploited, but the tide is turning. I think when it comes to education, less than 10 years from now, the online products will be quite splendid. It’s not for everyone. And again, you may need to combine them in different ways and that’s not always easy. But I see this as a big breakthrough, basically happening now. And this is my personal answer to the great stagnation, just not to yak on and on and on about it, which is fine, but to actually try to do some thing as an innovator.
This interview has been edited for style and length
Photo courtesy of Reuters