Tyler Cowen's Great Stagnation: Needs Work (Especially On Immigration) But Shows Improvement

Tyler Cowen [Email him] is an economist at George Mason University, a New York Times columnist, the author of countless books, and, most influentially, the main man at the popular Marginal Revolution blog. He's a bright, tireless guy. So for years I've been pointing out to him the lack of realism in many of his assumptions about how the world works.

This hasn't made him terribly happy. Thus, for example, Cowen's 2009 post Why Steve Sailer is wrong—where he took a terrible drubbing in his comments from those better informed than himself. Nevertheless, losing a lot of arguments has slowly pushed Cowen toward a somewhat more pragmatic, more Sailerian perspective—exemplified by his newest and most-talked about book, The Great Stagnation.

(To be precise, The Great Stagflation an electronic file somewhere in length between a magazine article and a real book. It's available from Amazon for the Kindle or the PC for $4.)

Cowen writes:

"Median wages have risen only slowly since the 1970s, and this multi-decade stagnation is not yet over. Typical individuals in earlier generations reaped much greater gains than ours, as their living standards doubled every few decades. … A lot of the prosperity of the 'noughties' was built on debt, inflated home prices, and economic illusions."

This slowdown in growth since 1973 for the typical family has been hugely costly. Median income is currently around $54,000, but, Cowen says, "… if median income had continued to grow at its earlier postwar rate, the median family income today would be over $90,000."

The economist offers three main reasons for this stagnation, all three of which I've been discussing for years. Cowen sums them up in a single concept:

"All of these problems have a single, little noticed root cause: We have been living off low-hanging fruit for at least 300 years. Yet during the last forty years, that low-hanging fruit started disappearing, and we started pretending it was still there."

According to Cowen, America has benefited historically from three main kinds of "low-hanging fruit":  

Cowen's first explanation for America's traditional well-being—"Up through the end of the nineteenth century, free and fertile American land was plentiful and there for the taking"—is a rewrite of Benjamin Franklin's 1751 argument for limiting immigration, On the Increase of Mankind.

Moreover, improvements in transportation, especially the automobile, continued to make a huge amount of suburban land conveniently accessible in the 20th Century. The last year of the long postwar boom was 1973 in large part because the energy crisis that began then made the half-century old American economic model of spreading out further across the suburban landscape less of a sure thing.

Cowen's second contention is that technological progress, outside of electronics, has slowed dramatically from its peak in roughly 1880-1940, which saw the introduction of electricity and automobiles.

This one is harder to measure, but I've been arguing much the same for about 15 years. The founding fathers of science fiction, Jules Verne, H.G. Wells, and Robert A. Heinlein, envisioned human progress as a continuation of the trend that began with the development of the steamboat around 1807: going faster. The faster we go, the more land per person is conveniently usable. Thus, Heinlein, who began publishing science fiction in 1939, extrapolated to a future of flying cars and outer space settlement.

The future ain't what it used to be. Dude, where's my flying car? (By the way, my father's first job was designing one piece of a flying car. The concept was that you drove it out to a straight stretch of highway in the country, bolted the wings on to the roof and the propeller onto the crankshaft, and up, up and away you went. Only a small number of these flying cars were built before the government declared it unsafe.)

Lately, though, people have actually been going slower. No human being has gone the 25,000 mph it takes to get to the moon in almost 40 years. You can't even fly to Europe supersonically on the Concorde anymore. As Cowen notes: "It would make my life a lot better to have a teleportation machine. It makes my life only slightly better to have a larger refrigerator that makes ice in cubed or crushed form."

Granted, developments in electronics have greatly reduced the cost of amusing ourselves. But, the Internet hasn't directly created a lot of good-paying jobs the way the car business once did. Facebook and Twitter are world famous, but Ford and General Motors they aren't: they only employ a couple of thousand people between them. According to Cowen, "… a lot of the internet's biggest benefits are distributed in proportion to our cognitive abilities to exploit them."

And that brings us to his third low-hanging fruit that doesn't seem to be around much anymore:

"Smart, Uneducated Kids"

Cowen writes:

"In 1900, only 6.4 percent of Americans of the appropriate age group graduated from high school. … This rate peaked at about 80 percent in the late 1960s and since then has fallen by about six percentage points. [Link added.]

Sure, we have plenty of "uneducated kids". In fact, in recent decades, we've been bringing them in from South of the Border in vast numbers. Yet, apparently, we don't have many "smart, uneducated kids". Cowen writes:

"… there is no evidence of convergence of minority-majority graduation rates over the last thirty-five years, once you include incarcerated populations in the totals."

This public university professor notes:

"In contrast to earlier in the twentieth century, who today is the marginal student thrown into the college environment? It is someone who cannot write a clear English sentence, perhaps cannot read well, and cannot perform all the functions of basic arithmetic."

Cowen goes on to point out:

"We're facing a fundamental skills mismatch, and the U.S. labor market is increasingly divided into a group that can keep up with technical work and a group that can't."

This is much like that line from the great management guru Peter Drucker that I quote:

"But the immigrants have a mismatch of skills: They are qualified for yesterday's jobs, which are the kinds of jobs that are going away"

Unfortunately, there are a few points where Tyler's thinking, while improving, still needs more sophistication.

Cowen focuses a little too much on wages adjusted for inflation. He misses the bigger picture: the relation of income to the true cost of middle class living. The Consumer Price Index tends to systematically underestimate this by not adequately counting the full impact of homeownership and higher education.

It's crucial to remember that the cost of living isn't just the cost of entertaining yourself. Much of this debate gets sidetracked into unproductive comparisons of imponderables: Is the median person really better off today than in 1965 because now he has YouTube?

There's no question that endless electronic entertainment has gotten cheaper. Unfortunately, the Consumer Price Index underestimates the rise in key elements of the cost of living egregiously.

The big issue from the fundamental point of view: the cost of sustaining your family into future generations. That's the cost of middle class respectability. That word "respectability" sounds trivial and old-fashioned. But it means something very important and enduring: the ability to marry. In America, the cost of marriage and children is, typically, the price of a house with a yard in a satisfactory school district.

You'll notice that one of the chief complaints of the young men protesting in the streets of Egypt is that they can't afford to get married. Well, that's a big deal here, too.

Allow me to reminisce about how just how remarkably affordable family formation was during this halcyon postwar period of rapidly improving standard of living. I was born in the San Fernando Valley in northwestern Los Angeles in the latter half of the Baby Boom. My father, a junior college graduate, was a mid-level engineer at Lockheed Aircraft Company in Burbank. My mother, a high school graduate, had been a secretary at Lockheed during WWII. After marrying my father, she kept house and engaged in charitable work.

In 1951, my parents bought a new house on a culdesac carved out of a beanfield for $17,000. As freeways were built, their house became effectively closer to destinations such as downtown and LAX.

In the latter 1960s, local public schools were fine, but my Catholic parochial school was absurdly cheap at something like $15 per month.

I don't recall exactly the tuition at the Catholic high school I attended from 1972-1976, but $600 per year sticks in my head. Tuition today is $11,200, but the school is much harder to get into because of the decline of the public schools in the Valley. In the mid-1970s, I recall being shocked to learn that our archrivals in debate, Harvard-Westlake, the most exclusive prep school in Los Angeles, charged an exorbitant $1,800 per year. Today, tuition at Harvard-Westlake is $29,200.

Nearby UCLA was fairly easy to get into in the 1970s, but I went to private Rice University in Houston. I remember that the cost for 1976-77 was $2,300. (I assume that was just for tuition, but, who knows, it might have included room and board as well.)

I then earned an MBA at UCLA. The tuition was so nugatory that I have no recollection of the amount, other than that at our graduation, the class speaker asked for a round of applause for the taxpayers of California for footing the bill.

As you may have noticed, life is different today. Americans tend to marry later, have fewer children, and live more stressed out lives because they need both parents to work to afford a house in a "good" school district (a "good" school district is the kind with "smart children").

What role does mass immigration play in this? A fair amount, especially in driving up home costs in the remaining good school districts.

And why shouldn't all our technical progress make the cost of generational sustainability easier?

From an economist's point of view, the question ought to be the opportunity costs of mass immigration. Does mass immigration make the median American citizen better or worse off, all else being equal? The economic concept of ceteris paribus allows you to leave Facebook out of the equation. (Like most things, Facebook wasn't invented by an illegal immigrant.) Framed correctly, the question is obviously much less of a slam dunk than the typical economist assumes.

I write a lot about immigration for a simple reason: it is the policy factor that American politicians have the most control over.

We don't know how to "fix the schools"

We don't know how to pass laws to create more innovative technology.

But we do know how to curb mass immigration. It ain't that complicated. Elites just haven't wanted to fix this problem—because it's not their problem; it's the average American's problem.

Cowen shies away from mentioning immigration much in his book. But, overall, he's making progress. I give him a C+.

[Steve Sailer (email him) is movie critic for The American Conservative. His website www.iSteve.blogspot.com features his daily blog. His new book, AMERICA'S HALF-BLOOD PRINCE: BARACK OBAMA'S "STORY OF RACE AND INHERITANCE", is available here.]