There is a new ebook by Tyler Cowen about how growth rates and progress in general has declined since 1973. There is a podcast here where he discusses the argument.
The book, is short you can read it in an evening, and published only in ebook format. It is a bit like an evening with your smart friend as he explains something rather than an economic treatise thats full of equations and aids insomnia. It is well worth the 4 dollars and few hours it takes to read.
Loads of commentators have examined various parts of the argument for stagnating progress. I even joined the argument here. I am going to try give a few datapoints that relate to Ireland that are part of the great stagnation argument here. Ireland has not been stagnating since 1973. In that time we moved from an improvished bachwards country to a modern well off one (and then slipped back somewhat again).
But there some areas where we are stagnating in similar ways, there are areas where we made similar mistakes to the Americans (and the rest of the OECD) and if we can expect a similar decline in growth here that means we should alter our expectations.
We spend too much on medicine and do not get good value for that spending. There is a piece here by Ronan Lyons where he argues convincingly that with our age profile we should be spending a third less than what we currently do on medicine
It is generally agreed that access to the health system in Ireland is bad. If we spend more than we should and people cannot get healthcare as easily as other OECD countries do it is fair to say that Irish healthcare is not improving our quality of life the way it should be
'In the past decade, funding per student has been increased in real terms by 61 per cent, yet performance has decreased by 15 per cent.
This disconcerting news was reinforced before Christmas when the international ranking of the reading, mathematics and science skills of Ireland’s 15-year-olds was published. Reading skills dropped from fifth to 17th, the sharpest drop among 39 countries, with one quarter of all 15-year-olds classified as effectively illiterate. This was more politely termed in the report as “below the level of literacy needed to participate effectively in society”.'
We are spending more and getting less on education. Literacy is one of those basic measures that is hard to fake. Anyone who leaves school illiterate is a failure of our education system. In this school education area Ireland seems to have stagnating improvement.
Expecting too high growth
One of the major conclusions of the book is that Americans expected growth to continue at previous rates and this facilitated the financial crisis. People believed house prices would go up forever without wages increasing at the same rate. When people realised that they could not afford their debts and no one was going to buy them off them the house of cards collapsed.
In Michael Lewis' Vanity Fair piece makes a similar claim that Ireland expected too much growth
'An Irish businessman named Denis O’Brien sat on the board of the Bank of Ireland in 2005, when it was faced with the astonishing growth of Anglo Irish, which was about to double in size in just two years. “I remember the C.E.O. coming in and saying, ‘We’re going to grow at 30 percent a year,’” O’Brien tells me. “I said, How the fuck are you going to do that? Banking is a 5-to-7-percent-a-year growth business at best.”'
If the financial crisis in America was aided by delusions of future growth the Irish collapse was to an even greater extent.
Expecting growth to be much higher than it will be leads you to paying too much for things. For example buying empty buildings on the grounds that NAMA will make a profit on them eventually.
There is a very interesting section on how the internet might entertain us but does not provide many jobs. There is a similar argument to in "An Exodus Recession?" that because we can sit at home and look at youtube essentially for free the recession both does not feel as bad but is measurably worse as people do not go out and spend money on cinemas etc that employ people.
This does not relate specifically to Ireland though I do think the internet has improved our lives in ways that are hard to measure and that probably help those who like reading and arguing more than they help the average person.
Cowen also claims that increased emphasis on scientific research could again get progress moving faster again. I was watching Bronowski's the ascent of man last night from 1973, the year Cowen claims the stagnation began. Bronowski gives a warning that the next step in mankinds progress is dependent on science and that if we don't prevent scientific progress from stagnation some other civilisation will.
Expecting growth to return now
I have heard many people running for office who claim anyone who questions that we can return to the good old days of 5%+ growth of being unpatriotic. In this narrative our debts are huge but they were in the 1980's as well ans well soon have 5%+ growth that will evaporate our debts for us.
The evidence is that once countries get as rich as we are now their quick growth from playing catchup then slows. Some of us might be able to get more productive now but not nearly the increase that happened in the 90's when we went from working on farms producing vegtables and potatoes to producing Viagra and Pentiums.
We are not going to have the growth rates we had in the 90's we like the rest of the OECD have entered a period of lower growth, what Tyler Cowen calls 'the great stagnation'. Anyone who says we should plan for Ireland growing at a rate higher then the 6.7% interest rate on the ECB/IMF loan are is trying to get you to take on billions of their debt.
The great stagnation a great short book. Though its arguments apply to America the lessons of what they Japan and other countries who developed before Ireland are important for us to learn.