These slides used by Robert Lucas in 19 May his Milliman Lecture at the University of Washington make for an interesting way to spend half an hour.
It is not Lucas’s topic, however I was reminded of Tyler Cowen’s Great Stagnation Thesis when reading his notes.
Basically, Cowen’s thesis is that we are in a structural slump because the easy growth available from free land, cheap labour and new technology is gone. He claims that:
during the last forty years, the low-hanging fruit started disappearing, and we started pretending it was still there. We have failed to recognize that we are at a technological plateau. The fruit trees are barer than we want to believe.
What Lucas points out is that the US / leader economies have been growing real income per capita at about 2% per annum for over one hundred years. Looking at these charts, it’s hard to make a case that there’s been a trend break in the last forty years – unless you’re a follower economy like Europe, and have done the bulk of your catchup / copycat growth.
The Great Stagnation Thesis seems like an “end of science” argument to me. I understand that these “end of science” arguments show up every twenty years or so – there is an old story about a nineteenth-century patent clerk that recommend plans be made to close the office, as there would soon be nothing left to invent!
The most recent end of science book was (somewhat ironically) published in 1996 by John Horgan … read mathematician David Hoffman’s review for an account of the book’s many problems.
In rebutting Horgan’s argument, Nobel laureate (Physics) Philip Anderson described the process of science — “The reason that Horgan’s pessimism is so wrong lies in the nature of science itself. Whenever a question receives an answer, science moves on and asks a new kind of question, of which there seem to be an endless supply”.
Science isn’t out of questions, and we’re not out of scientists, so I doubt we’re out of technical progress. It seems much more likely to me that we’ll keep discovering new stuff, and that therefore the production possibility frontier will keep growing at about 2% real per year.
It feels bad now, but my guess is that epoch-changing R&D is currently going on some place in the USA. The double dip recession of the 1980s gave us the R&D and venture capital that delivered the internet.
I have no idea what the 2030 boom is going to be, but my guess is that there will be one. And my guess is that when we look back we’ll see that real incomes continued to grow at ~2% real per annum.
I don’t have data on this (if anyone does, please email me: email@example.com), but I suspect that new ideas are counter-cyclical. It makes sense that the opportunity cost of education and disruptive R&D is lowest when the economy is weak.
Also, we know that large firms are bad at disruptive change, and it’s when the economy is weak that there are the spare resources available for an innovative new firm to grow easily. Additionally, hard economic times make households and firms more receptive to technical change (typically for cost cutting reasons).