Why is the economy growing so slowly? Is this a temporary phenomenon or a new normal? Chris Farrell and Steve Cecchetti had a nice discussion about these questions this morning on Minnesota Public Radio (MPR). Larry Summers first applied the term “secular stagnation” to these questions and there’s been much debate about the idea ever since. (VoxEU published an e-book on the subject that is quite good.)
I wrote a piece on this topic last November for MinnPost. In general, I’m an optimist. In particular, there are two issues we need to keep in mind when we think about current and future growth:
- There is a lot of new stuff that the statistics miss. Take a look at this video and you’ll see what I mean. (Thanks to Erik Brynjolfsson for the link.) Another example: I’m using Trello to organize my work and I don’t pay for it. When we do GDP accounting, the cost of Trello as an intermediate good is zero. That’s clearly undervaluing its contribution to economic growth.
- There is no evidence that technological progress is slowing down; in fact, it’s probably accelerating. Brynjolfsson and Andrew McAfee, in their book The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies, argue that “the outstanding features of the second machine age” are “sustained exponential improvements in most aspects of computing, extraordinarily large amounts of digital information, andrecombinant innovation.” (Italics mine.) They go on to say that “these three forces are yielding breakthroughs that convert science fiction into everyday reality, outstripping even our recent expectations and theories. What’s more, there’s no end in sight.”
None of this is to say that everything is rosy for everyone. We have to face questions of equity and fairness regarding these trends and think hard about making sure that the bounty they create is distributed in a way that doesn’t just increase GDP but that makes the world a better place.