Secular stagnation: we are trimming down

Economists worry that we have entered in a secular stagnation called the Great Stagnation. To summarize: whereas industrial productivity grew steadily for most of the XXth century, it started to flatten out in the 1970s. We have now entered an era where, on paper, we are not getting very much richer.

Houses are getting a bit larger. We can afford a few more clothes. But the gains from year to year are modest. Viewed from this angle, the stagnation looks evident.

Why is this happening? Economists have various explanations. Some believe that government regulations are to blame. Others point out that we have taken all the good ideas, and that the problems that remain are too hard to solve. Others yet blame inequality.

But there is another explanation that feels a lot more satisfying. We have entered the post-industrial era. We care less and less about producing “more stuff” and we are in a process of trimming down.

Young people today are less likely to own a car. Instead, they pay a few dozen dollars a month for a smartphone. They are not paying for the smartphone itself, they are paying for what it gives them access to.

Let us imagine the future, in 10, 20 or 30 years. What I imagine is that we are going to trim down, in every sense. People will own less stuff. Their houses won’t be much larger. They may even choose not to own cars anymore. They may choose to fly less often. If we are lucky, people will eat less. They may be less likely to be sick, and when sickness strikes, the remedy might be cheaper. They will use less power.

We are moving to a more abstract world. It is a world where it becomes harder to think about “productivity”, a concept that was invented to measure the output of factories. What is the “productivity” of a given Google engineer? The question is much less meaningful than if you had asked about the productivity of the average factory worker from 1950.

Suppose that, tomorrow, scientists discover that they have a cure for cancer. Just eat some kale daily and it will cure any cancer you have (say). This knowledge would greatly improve our lives… we would all be substantially richer. Yet how would economists see this gain? These scientists have just made a discovery that is almost without price… they have produced something of a very great value… how is it reflected in the GDP? Would you see a huge bump? You would not. In fact, you might see a net decrease in the GDP!

We won’t cure cancer next year, at least not by eating kale… but our lives are made better year after year by thousands of small innovations of this sort. In many cases, these cannot be measured by economists. And that’s increasingly what progress will look like.

Measuring progress in a post-industrial world is going to get tricky.

Tweet about this on TwitterShare on Facebook28Share on Google+7Share on Reddit0Email this to someone

12 thoughts on “Secular stagnation: we are trimming down”

  1. I know that there is a non-trivial amount of work in this direction, but I think the rich world desperately needs something vaguely like Bhutan’s Gross National Happiness. In other words, a broad index that includes (hopefully uncontroversial) things like health, education, basic physical security. I don’t imagine such an index directly capturing the output of most “knowledge workers”, but if those products don’t have a indirect effect on people’s wellbeing, maybe they weren’t so valuable after all.

    1. “In other words, a broad index that includes (hopefully uncontroversial) things like health, education, basic physical security.”

      Unfortunately it will be politicized in under a nanosecond, so any country that doesn’t hew to fashionable opinions on the issue of the day will get defined as less happy. (Don’t have socialized medicine or government-subsidized college education or hate speech laws? Then your country is “less happy,” and never mind actual outcomes in health or education or societal cohesion.) At least GNP existed before the current trend of hyper-politicization and is harder to distort or weaponize in this fashion.

  2. Coming up with new measures may be worthwhile, but one must be careful not to fall into the intellectual trap of redefining and/or discarding old measures to get the desired answer.

    1. There was a time when how many farm animals you owned was a good proxy for your wealth. These people would view a society where hardly anyone can afford to own a cow as a very bad thing. In the industrial era, GDP was a good proxy for how well we were doing. Correspondingly, people in the 1950s would have viewed a society where kids own fewer cars than their parent as a step backward…

      1. Sure, but the measures still need to be quantifiable. Otherwise this just becomes a subjective exercise where for every measure of increasing progress, one can easily find another measure of decreasing progress, for example decreased disposable incoming after subtracting out the costs of housing, education, and health care.

        Rather than just condemning the measure as no longer valid, why not just admit that we need to find ways to be content in spite of the reality that the at least partially valid measure represents?

        I would agree with your car ownership example if kids these days truly don’t need a car to get to their job, and also if the choice to forgo car ownership is not due to economic hardship but instead is a lifestyle choice.

        1. “Sure, but the measures still need to be quantifiable.”

          I agree.

          “Rather than just condemning the measure as no longer valid, why not just admit that we need to find ways to be content in spite of the reality (…)”

          Right.

          Things were nicer in the 1970s: strong middle class, little “inequality”. Wasn’t it great?

          I don’t think so.

          Feel free to go back to 1970 if you want to. No Internet. No organ transplant. Leaded gas. Most college graduates being men.

          1. We had tremendous growth in GDP since 1970, about 3x in the U.S. Certainly a chunk of that GDP growth is due to the internet. Advances in clean air also and medicine also correlate somewhat with productivity. And of course more women being educated leads to more GDP, due to the increase of people in the workforce.

            So if GDP at least correlates nicely with these advances, what is wrong with the measure?

            Now, I think we are partly arguing past each other, and I agree that GDP will under measure the value of things like equal access to education. There is certainly more to quality of life than increased productivity. But it may be tricky to quantify quality of life with a new measure that is widely agreed upon.

            Anyway, if you care to comment one more time, feel free, and I’ll read your comment and leave it there. Thanks!

Leave a Reply

Your email address will not be published. Required fields are marked *