In this interview with Nick Schulz, Tyler Cowen discusses his stagnation hypothesis. He complains that he is getting unexpected pushback from market-oriented economists, but he does not complain about unexpected support from journalists on the left.

Perhaps one reason for the ideological reaction is that Cowen cites statistics that are typically used to bash America. Things like slow growth of median household income and the large amount that we spend on health care without better longevity. Advocates of more statist policies use these data to suggest that we would be better off imitating Europe.

If pressed, I assume Cowen would say that things are no better in Europe. Is innovation any better in Europe? No. Is growth in health care costs less of a problem in Europe? No. Has median income performed better in Europe than in America since 1973? I have not checked, but I would be that the answer is no.

One of the main points that free-market economists make in defense of capitalism is that it promotes innovation. Again, Cowen would not deny this. But the claim that innovation has run out of low-hanging fruit might be interpreted to suggest that we should just give up on it for now. Instead, since the advantage of capitalism is no longer available, we might as well do more central planning and redistribution. That may not be Cowen’s policy conclusion, but I think it is what statists will take away from his e-book.

Another quibble I have is that Cowen cites the lack of job creation as a sign of stagnation. I think that is borderline demagogic. If you think of it as a cyclical phenomenon, weak job growth by definition does not reflect secular stagnation. On the other hand, the secular decline in employment is something that I believe is indicative of rapid technological progress, not the opposite. Nobody said that the role of innovation is to create jobs. Innovation disrupts patterns of production, and in the long run it raises real incomes. If anything, people may take more of their income in the form of leisure.

Cowen says that he came to believe in the stagnation hypothesis when he began to doubt that the possible understatement of growth in the quality of goods and services (aka “CPI bias”) has become more severe in recent years. He decided that it must have been just as hard to measure progress in the quality of durable goods prior to 1973 as to measure the progress in, say, computers since then. He is entitled to hold that as an opinion. I think, though, that one is equally entitled to hold a different opinion. In particular, product variety has been increasing more rapidly in recent years. Nowadays, Tyler prides himself on his ability to find outstanding ethnic restaurants in strip malls. As of 1973, the ethnic food available in a strip mall was limited to chow mein or pizza, neither of which merited an ethnic dining guide.

I personally do not think that the stagnation hypothesis can survive the thought experiment in which you offer somebody the choice between (a) today’s median income and today’s array of goods, services, and prices or (b) 1973’s median income (plus, say 25 percent) and 1973’s array of goods, services and prices. I think that so many people would reject the 1973 option that the stagnation hypothesis becomes untenable.