• Cocktail and Dinner Party Economics
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  • Dinner Party Economics

We’re Up a Tree

We have failed to recognize that we are at a technological plateau and the trees are more bare than we would like to think. pg 7     The Great Stagnation:  How America Ate All the Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better by Tyler Cowen This book reads like a Talk rather than a typical non-fiction book.  The pace is fast and furious with lots of repetition of the major theme.  The theme is that the standard of living– as measured by median family income– has stagnated since 1973 because there are no more easy ways left to grow the economy.  He calls these easy ways  ‘the low hanging fruit’.  So what was so great about the past? 1) During the nineteenth century, America had free (or really cheap) fertile land  along with  relatively classless social freedoms.  This attracted the brightest immigrants from Europe who had a lot to work with and the wealth generation was almost instant. 2) From 1880 to the 1969 moon landing there was an explosion of new inventions, innovations and technologies. Much of the early inventions were invented by amateurs.  From the 70’s on, the rate of major technological innovations (with the exception of the internet) has slowed down and requires more money and knowledge to produce. 3) From 1900 til the late 60’s high school graduation rates of Americans have jumped from 6.4% to the all time high of 80%.  The current potential gains from education can’t beat this time period.  Furthermore in recent years a lot of the brightest and best have gone into finance or healthcare for the money and prestige.  Tyler argues that these sectors overstate the  productivity gains that were made because they may have bypassed the real economy or are subject to some measurement error.   Furthermore, the demand for these folks translated into higher incomes for them which only lead to more income inequality. The idea that struck me the most was Tyler’s view that the recent financial crisis has its roots in the technological crisis.  Americans have gotten use to ever-increasing standards of living and when the current income didn’t provide enough, they borrowed on their unrealistic expectations.  Furthermore, they used their houses as a line of credit.  Later when the future came to call it didn’t come bearing gifts for the average folks. This turn of events was unexpected and devastating. The story is grim for the US (and probably Canada as well)  but Tyler does offer some hope.  I will leave his solutions for you to read.  (No need to spoil the ending.) The book is worth reading and has created quite an intellectual buzz in the past year.

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