The Great Progressive Stagnation vs. Dynamism

In the US, the decades after WWII were marked by high growth and technological innovation. Rebound from recessions was quick, and reforms like the deregulations of the Carter era (trucking, railroads, airlines, interest rates on savings, and the breakup of the AT&T monopoly on phone service) and the tax simplifications of the Reagan administration lifted growth. Waves of labor-saving innovations grew productivity — computers first eliminated most manual record-keeping, then automated processes and streamlined production and logistics.

But each successive wave of recovery growth from recession has been weaker. This graph from the Center for Economic Policy Research charts the recoveries from the recessions of 1981, 1990, 2001, and 2007.


Recession Rebounds Compared - US Census Data

Recession Rebounds Compared – US Census Data

The weak growth for the quarter puts this recovery even further behind any prior recovery at the same stage. After eight and a quarter years, the economy is only 10.1 percent larger than its pre-recession level of output. A more typical recovery would have seen at least twice as much growth.[1]

Economist Tyler Cowen has coined the term “The Great Stagnation” for this gradual decline in growth and economic dynamism. His book The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better[2] was published in 2011, after the shaky recovery from the recession of 2007, but before we knew the stagnation would continue for many more years.

His major point was that the US post-WWII took advantage of one-time advantages and opportunities: most of the industrialized world had been crippled by war, and unskilled unionized workers could take advantage of their position to win seemingly stable, high-paying jobs while the technologies developed in the Depression and WWII decades were rapidly incorporated into production processes. When the rebuilt rest of the world began to catch up and compete directly, much of the easy profits for both US companies and workers were competed away, and technologies developed since have been adopted around the world quickly. The backlog of new technology waiting to be incorporated into production is gone, and meanwhile the overhead of law, regulation, and the web of intellectual property (patents, trademarks, and copyrights) has grown complex, to the point where innovation in products may be retarded by legal tangles.

Here’s the blurb for his book:

America is in disarray and our economy is failing us. We have been through the biggest financial crisis since the Great Depression, unemployment remains stubbornly high, and talk of a double-dip recession persists. Americans are not pulling the world economy out of its sluggish state — if anything we are looking to Asia to drive a recovery.Median wages have risen only slowly since the 1970s, and this multi-decade stagnation is not yet over. By contrast, the living standards of earlier generations would double every few decades. The Democratic Party seeks to expand government spending even when the middle class feels squeezed, the public sector doesn’t always perform well, and we have no good plan for paying for forthcoming entitlement spending. To the extent Republicans have a consistent platform, it consists of unrealistic claims about how tax cuts will raise revenue and stimulate economic growth. The Republicans, when they hold power, are often a bigger fiscal disaster than the Democrats. How did we get into this mess?Imagine a tropical island where the citrus and bananas hang from the trees. Low-hanging literal fruit — you don’t even have to cook the stuff.In a figurative sense, the American economy has enjoyed lots of low-hanging fruit since at least the seventeenth century: free land; immigrant labor; and powerful new technologies. Yet during the last forty years, that 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 and the trees are barer than we would like to think. That’s it. That is what has gone wrong.The problem won’t be solved overnight, but there are reasons to be optimistic. We simply have to recognize the underlying causes of our past prosperity—low hanging fruit—and how we will come upon more of it.

Cruft (a term from MIT hackers for useless, complicated leftover materials that have accumulated) has grown around our laws and practices, with vested interests blocking change through legal means and bureaucracy. New technologies continue to change our lives and speed up work, with the internet and web starting in the late 1980s and mobile apps and smartphones now connecting people on the go. Yet productivity does not appear to be increasing, and while there is a lot of improvement in living standards that doesn’t show up in GDP (no one enjoyed waiting in teller lines at the bank, for example!), all of that freed-up time is going somewhere else, and most people’s working hours aren’t shrinking, and their incomes aren’t rising much.

Occasionally a sector will be disrupted (the current buzzword for innovation that suddenly makes a stable sector of the economy unstable) and the efforts of the rent-seeking status quo defenders become more obvious, as with Uber and other ride-sharing services, which had cut into the business of cab companies in many cities before the taxi industry roused itself to try to outlaw them. Few understood the taxi system as it had been, with its taxi commissions, high-priced medallion licensing, and cabbies forced to rent cabs from medallion holders who made the lion’s share of the money. The taxi medallion system started in New York City in 1937 as another attempt to limit competition during the New Deal and spread elsewhere in following decades, originally justified as necessary to keep gypsy cabs and jitneys — low-priced, unregulated, and occasionally dangerous — from serving the needs of the poor and incidentally crowding the streets of Manhattan, where a free market in taxi services would have resulted in a tragedy of the commons in the form of continuous gridlock. Taxi commissions supposedly protected the safety of passengers, but they also restricted the market for local transportation, raising the price and reducing service. Medium-sized cities, low-income and low-density suburban areas adopting taxi regulations tended to end up underserved. In most places the benefits of Uber-like services were so apparent so quickly that politicians were forced to bow to Uber’s fait accompli, and the prices of taxi medallions giving the owner the right to operate a city-approved taxi fell dramatically:

To own a cab in New York, you need a medallion—a metal shield displayed on the vehicle’s hood—and there are a fixed number issued by the New York City Taxi & Limousine Commission (TLC). Until very recently, medallions were a good thing to have a lot of. In 1947, you could buy one for $2,500. In 2013, after a half-century of steady appreciation, including a near-exponential period in the 2000s, they were going for $1.32 million.

Then came Uber. Since the arrival of the car-by-app service… taxi ridership is down, daily receipts have declined, and drivers are idling—or going to work for Uber. Add it up, and desperate medallion sellers are trying to fob off their little tin ornaments for as little as $650,000.[3]

But that kind of disruption is rare and only happens when the public comes to understand the benefits of the innovative business before the vested interests can strangle it in the crib. More and more economic activities have come to be regulated and new entrants are kept out by the need for government approvals. Products and services from our most heavily-regulated industries — healthcare, education, energy utilities, cable and broadcast entertainment, housing, and finance — have seen outsized price increases without much increase in quality in recent decades, with government regulations either limiting competition or subsidizing consumption (or, as in the case of education and healthcare, both.) Routing around these government controls is starting to happen — household solar panels, Internet entertainment streaming, and homeschooling with online instruction from the likes of the Khan Academy[4] show what is possible when freed from monopoly providers. But breaking the grip of the vested interests in some of these sectors — like the NIMBY restrictions on new housing in the cities controlled by Progressive political machines, or the failed public K-12 schools in urban districts — will take more time and effort.

Virginia Postrel’s book, The Future and Its Enemies: The Growing Conflict Over Creativity, Enterprise, and Progress (1998)[5] set two opposing philosophies against each other: stasists, who prefer a regulated and controlled status quo offering predictability in a society mostly closed to new thinking, and dynamists, who accept instability, innovation, and change allowing higher growth and creative achievement. Her website has this blurb:

Postrel argues that these conflicting views of progress, rather than the traditional left and right, increasingly define our political and cultural debate. On one side, she identifies a collection of strange bedfellows: Pat Buchanan and Ralph Nader standing shoulder to shoulder against international trade; “right-wing” nativists and “left-wing” environmentalists opposing immigration; traditionalists and technocrats denouncing Wal-Mart, biotechnology, the Internet, and suburban “sprawl.” Some prefer a pre-industrial past, while others envision a bureaucratically engineered future, but all share a devotion to what she calls “stasis,” a controlled, uniform society that changes only with permission from some central authority.

On the other side is an emerging coalition in support of what Postrel calls “dynamism”: an open-ended society where creativity and enterprise, operating under predictable rules, generate progress in unpredictable ways. Dynamists are united not by a single political agenda but by an appreciation for such complex evolutionary processes as scientific inquiry, market competition, artistic development, and technological invention. Entrepreneurs and artists, scientists and legal theorists, cultural analysts and computer programmers, dynamists are, says Postrel, “the party of life.”[6]

Where are the jetpacks and the flying cars dreamed of in the 1960s? Disney’s Tomorrowland[7] suggested our shared pessimism had slowed progress and endangered the future, but it failed to address the source of the exhaustion and defeatism — the many regulations that now prevent an energetic entrepreneur from putting his or her new idea into practice in the world. People who tried to do something differently have found their way blocked, and their lives are often destroyed by vested interests using the legal system to delay their projects and drain them of energy and capital. Every effort to build something new becomes a political effort requiring that you not only interest customers, but pay off politicians and rent-seekers who see their interests threatened. The compliance overhead in growing from a small business to a large business is now so large that most people who might try are discouraged and stick with what already works for them. It’s far safer to work for a government or big corporation than to strike out on your own. The result for our economy is stagnation and declining growth.

The decline in new business formation and business dynamism from 1978 to 2011:[8]

Startups and Dynamism In Decline - US Census Data

Startups and Dynamism In Decline – US Census Data

It’s ironic that the free world outcompeted and ultimately broke the Communist central planning systems of the USSR and China, with both Russia and China now authoritarian mixed kleptocracies with at least some freedom for private industry, yet the US is now tied up by central-planning bureaucrats and regulations that are crippling growth and favoring larger corporations that support politicians through favor-trading and campaign contributions. Every small loss of economic freedom and increase in corruption has been accompanied by government-funded propaganda to explain how much it benefits The People. And The People have awakened to a hangover of enormous debts and poor job prospects, having been slipped a mickey of miseducation and dependency.

The French have a term to describe their tendency to let a centralizing state control business activity: dirigisme, “to direct.” Progressives have gradually molded the US population to more closely resemble the French in looking to the state to decide economic matters, and borrowed many of the ideas of the welfare state and public education from German models. The bureaucracies they spawned tend to grow, and those employed to write regulations will never run out of ideas for new and more detailed specifications of how everything should be done. Because Progressives believe wise rulers (themselves) can make better decisions on every choice less enlightened citizens might make — and it’s their duty to improve society by improving people, for their own good. As C. S. Lewis said:

My contention is that good men (not bad men) consistently acting upon that position would act as cruelly and unjustly as the greatest tyrants. They might in some respects act even worse. Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies. The robber baron’s cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience. They may be more likely to go to Heaven yet at the same time likelier to make a Hell of earth. This very kindness stings with intolerable insult. To be ‘cured’ against one’s will and cured of states which we may not regard as disease is to be put on a level of those who have not yet reached the age of reason or those who never will; to be classed with infants, imbeciles, and domestic animals.[9]

While this book will touch on overregulation and bureaucracies, there are already quite a few studies and books on each of the affected industries — books on the failures of public education alone number in the hundreds. This book is primarily about labor regulations and their costly and productivity-draining intrusion into hiring and employment practices. Employer fears of exposure to lawsuits led to extensive delegation of control over hiring and firing decisions to HR departments. Government-enforced unions, Civil Service rules, and increasing efforts to require equality of outcome while denigrating excellence are reducing growth now and may doom us to a second-rate future as other countries not so crippled outcompete us. The US can return to a high-growth, lower-inequality path, but only if these sectors are unlocked and allowed to innovate in both process and personnel. Freedom to work and trade as we choose — and not as Washington dictates — will keep us free, and give our children the future we dreamed of.


[1] “Falling Investment and Rising Trade Deficit Lead to Weak First Quarter” – Dean Baker, Center for Economic and Policy Research, April 28, 2016
[2] The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better, by Tyler Cowen. Dutton (January 25, 2011) http://amzn.to/1pTybdh
[3] “The Struggles of New York City’s Taxi King” — by Simon Van Zuylen-Wood, Bloomberg, Augist 27, 2015 http://www.bloomberg.com/features/2015-taxi-medallion-king/
[4] https://www.khanacademy.org/
[5] The Future and Its Enemies: The Growing Conflict Over Creativity, Enterprise, and Progress, Virginia Postrel, Simon and Schuster, 1998 http://amzn.to/1SFodo7
[6] From Virginia Postrel’s web site.
https://vpostrel.com/future-and-its-enemies
[7] https://substratewars.com/2015/10/30/tomorrowland-tragic-misfire/
[8] “The Rate of New Business Formation Has Fallen By Almost Half Since 1978: America’s declining ‘business dynamism’ has affected all 50 states and nearly every single metro area.” Richard Florida, Citylab, May 5, 2014
[9] From C.S. Lewis’s essay anthology “God in the Dock” (1948), viewed 4-28-2015 at http://www.wsj.com/articles/SB10001424052702304527504579170134126854254

If you have a good story or anecdote from your organization, please email it to jebkinnison@gmail.com. I can use a few good tales (anonymized, of course) to illustrate the problems.


Death by HR: How Affirmative Action Cripples OrganizationsDeath by HR: How Affirmative Action Cripples Organizations

[From Death by HR: How Affirmative Action Cripples Organizations,  available now in Kindle and trade paperback.]

The first review is in: by Elmer T. Jones, author of The Employment Game. Here’s the condensed version; view the entire review here.

Corporate HR Scrambles to Halt Publication of “Death by HR”

Nobody gets a job through HR. The purpose of HR is to protect their parent organization against lawsuits for running afoul of the government’s diversity extortion bureaus. HR kills companies by blanketing industry with onerous gender and race labor compliance rules and forcing companies to hire useless HR staff to process the associated paperwork… a tour de force… carefully explains to CEOs how HR poisons their companies and what steps they may take to marginalize this threat… It is time to turn the tide against this madness, and Death by HR is an important research tool… All CEOs should read this book. If you are a mere worker drone but care about your company, you should forward an anonymous copy to him.

 


More reading on other topics:

Jane Jacobs’ Monstrous Hybrids: Guardians vs Commerce
The Great Progressive Stagnation vs. Dynamism
Death by HR: How Affirmative Action is Crippling America
Death by HR: The End of Merit in Civil Service
Corrupt Feedback Loops: Public Employee Unions
Death by HR: History and Practice of Affirmative Action and the EEOC
Civil Service: Woodrow Wilson’s Progressive Dream
Bootleggers and Baptists
Corrupt Feedback Loops: Justice Dept. Extortion
Corrupt Feedback Loops, Goldman Sachs: More Justice Dept. Extortion
Death by HR: The Birth and Evolution of the HR Department
Death by HR: The Simple Model of Project Labor
Levellers and Redistributionists: The Feudal Underpinnings of Socialism
Sons of Liberty vs. National Front
Trump World: Looking Backward
Minimum Wage: The Parable of the Ladder
Selective Outrage
Culture Wars: Co-Existence Through Limited Government
Social Justice Warriors, Jihadists, and Neo-Nazis: Constructed Identities
Tuitions Inflated, Product Degraded, Student Debts Unsustainable
The Morality of Glamour

On Affirmative Action and Social Policy:

Affirmative Action: Chinese, Indian-Origin Citizens in Malaysia Oppressed
Affirmative Action: Caste Reservation in India
Diversity Hires: Pressure on High Tech<a
Title IX Totalitarianism is Gender-Neutral
Public Schools in Poor Districts: For Control Not Education
Real-Life “Hunger Games”: Soft Oppression Destroys the Poor
The Social Decay of Black Neighborhoods (And Yours!)
Child Welfare Ideas: Every Child Gets a Government Guardian!
“Income Inequality” Propaganda is Just Disguised Materialism

The greatest hits from SubstrateWars.com (Science Fiction topics):

Fear is the Mindkiller
Mirror Neurons and Irene Gallo
YA Dystopias vs Heinlein et al: Social Justice Warriors Strike Again
Selective Outrage
Sons of Liberty vs. National Front
“Tomorrowland”: Tragic Misfire
The Death of “Wired”: Hugo Awards Edition
Hugos, Sad Puppies 3, and Direct Knowledge
Selective Outrage and Angry Tribes
Men of Honor vs Victim Culture
SFF, Hugos, Curating the Best
“Why Aren’t There More Women Futurists?”
Science Fiction Fandom and SJW warfare

More reading on the military:

US Military: From No Standing Armies to Permanent Global Power
US Military: The Desegration Experience
The VA Scandals: Death by Bureaucracy

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