Tyler Cowen: missing the point
Influential economist Tyler Cowen hits the nail on the head in today’s New York Times column when he points out that
When it comes to understanding our macroeconomic predicament, we often seem to be missing the point.
Mr. Cowen then proceeds to self-referentially prove it by utterly missing the point.
He begins by noting that median income has not been growing as fast as in the past.
The income numbers for Americans reflect this slowdown in growth. From 1947 to 1973 — a period of just 26 years — inflation-adjusted median income in the United States more than doubled. But in the 31 years from 1973 to 2004, it rose only 22 percent. And, over the last decade, it actually declined.
This, however, misleadingly understates the problem since the 22% growth since 1973 is in median family income and not individual income. Family income rose because of the emergence of the two income household and not at all from higher pay. While women’s real wages increased, census data shows that full time wages for men declined an incredible 9.5% during this period. But regardless of which data we use, Cowen extracts from the first of the links in the above quote and states:
If pre-1973 growth rates had continued, for example, median family income in the United States would now be more than $90,000, as opposed to its current range of around $50,000.
That median wages are almost half what they apparently should be is a damning indictment of our system. But according to Cowen, the system’s not to blame; the problem is our “reaching of a technological plateau”. This is so counter to the evidence and conclusion presented in the linked article that it makes one question what game Cowen is playing. The article, a blog post by Lane Kenworthy, clearly shows that the growth of median family income has drastically fallen short of actual per capita GDP growth since the mid 1970’s and if median income had kept up, would now be nearly twice what it actually is. Kenworthy’s rather understated conclusion is that
“In the past several decades much of the economy’s growth has gone to those at the top of the income distribution.”
Cowen completely ignores this, however, and somehow decides to blame it all on a “technological plateau”. But how can we make sense of such an argument? As far as technological productivity, we’ve made enormous strides in recent decades. Manufacturing productivity is over twice what it was in 1987 and there can be little doubt of the efficiencies being gained in computer based automation and the internet. Is it not very probable that Jeremy Rifkin is right and we’re approaching what he calls The End of Work? But none of this for Cowen; despite the fact we can produce things almost at will and are at the highest point by far in the history of human technological achievement, our problem is a “plateau of technology” that’s causing us to live in an era of “scarcity”. And,
Instead of facing up to this scarcity, politicians promote tax cuts and income redistribution policies to benefit favored constituencies. Yet these are one-off adjustments and, over time, they cannot undo the slower rate of growth in average living standards.
(Note as an aside that he criticizes income redistribution as only benefitting “favored constituencies”, as if the bottom 80% of the population, having just 7% of financial wealth, are a mere constituency.)
Cowen demonstrates a fundamental misunderstanding of money by talking in terms of “affording” government spending, living within our means, and the need for fiscal balance.
It’s unclear whether Americans have the temperament to make a smooth transition to a more stagnant economy. After all, we’ve long thought of our country as the land of unlimited opportunity. In practice, this optimism has meant that we continue to increase government spending, whether or not we can afford it.
the political problem will be in learning to live within our means.
Because neither major party seems to support a plausible path to fiscal balance, or to acknowledge how little control politicians actually have over future income growth, we unscientifically keep living in an age of denial.
Cowen couldn’t be more wrong. Our means are determined by our technology and are not at all limited by the restrictions of a particular monetary system. The human race has never had such technological prowess and has more than enough technological knowledge and capacity for everyone to live well. The problem is not technology but the mal-distribution of wealth coupled with a monetary system that consistently fails to match the level of our purchasing power with our technological capabilities. It’s not a technological problem, it’s purely political. And Cowen is at his most political when he declares in his final missed point:
“… the solution to the stagnation of median income will not be a political one.”