For many decades, Labor Day was a holiday on which Americans celebrated (and maybe even felt a bit smug about) our nation’s economic prowess. This year, not so much. In our current economy, many people are suffering grievously. Moreover, an increasing number believe that the problems are permanent. Surveys show a significant proportion of the population believes that their own living standards will continue to decline, and that their children’s generation will live less-well than their own. In other words, the feeling is growing that what we face in not a normal cyclical downturn, but a sea change for the worse.
The proximate cause of the current situation was the housing bubble and bust, and more generally the excessive and irresponsible use/deployment of credit in both the public and private sectors. However, there is every reason to believe that there are structural problems with the economy that go well beyond the sort of things that are usually portrayed on graphs in economic discussion.
Politicians, economists, analysts, and bloggers have asserted numerous and sometimes conflicting factors as primary causes for our economic problems. This post will summarize some of the explanations most commonly proposed plus a few more. I don’t necessarily agree with all of these, and today I’m focusing on simply stating the proposed causal factors, leaving detailed analysis/assessment for a future post.
The possible causes of the economic decline:
1)The low-hanging fruit has already been eaten. Economist Tyler Cowen, for example, argues that America’s historical prosperity has been driven largely by: (i)the availability of free land, (ii)a sequence of key technological breakthroughs, and (iii)the high return on investment offered by providing schooling to motivated but uneducated immigrants. He further argues that the free land is gone, that today’s technological improvements are not comparable to those introduced in the period 1880-1940 (electricity, automobiles, airplanes, radio, mass production, pharmaceuticals, etc), and that the high % of the population already attending college makes additional improvements from this source difficult. (Tyler’s recent book includes a graph attempting to measure the “rate of global innovation” since medieval times; it shows innovation peaking over the period 1850-1905, and having now returned to the level where it was in the early 1700s.)
2)Technological unemployment. The argument here is that the advances in technology that have already occurred, and those that are likely in the near future, reduce the need for labor so radically that full employment will never again be possible. This assertion is basically the opposite of the low-hanging-fruit argument, at least the technological aspect thereof.
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