Source : VoxEu ebook on Secular Stagnation - E. Glaeser

 

The wonders of the internet age cast doubt on the idea that technological progress is stagnating. Worryingly, however, some fraction of US job losses has become permanent after almost every recession since 1970. This chapter argues that persistent joblessness is unlikely to be a purely macroeconomic phenomenon. Although the US welfare system remains less generous than many European ones, it has become substantially more generous over time. Alongside targeted investments in education and training, radical structural reforms to America’s safety net are needed to ensure it does less to discourage employment.

 

US investment and innovation – the most standard ingredients in long-run economic growth – are not declining. The technological world that surrounds us is anything but stagnant. Yet we can have little confidence that the continuing flow of new ideas will solve the US’s most worrying social trend: the 40-year secular rise in the number and share of jobless adults. Past history suggests that such joblessness will persist, even during the most robust recovery, unless there are serious structural reforms involving the social safety net and the formation of human capital.

Figure 1 shows the time series of the growth in real GDP per capita and the non- employment rate for males aged 25 to 54. The figure illustrates that GDP growth has indeed been quite sluggish since 2006, which makes the secular stagnation hypothesis credible. The recession was awful and the recovery has been weak. Moreover, the recent decline in growth rates seems to fit a larger downward trend; real per capita growth averaged about 2.5% between 1947 and 1969 and has averaged less than 2% since then.

Yet it is hard to know whether the past painful eight years represent the trend or the cycle. Things looked far worse in 1938 and pretty bleak in 1982, but if you had predicted permanent stagnation at either time, you would have been woefully wrong. I don’t mean to suggest that the GDP numbers alone rule out the possibility of permanent stagnation – but rather that the time periods are short and full of confounding forces.

Moreover, when we turn to the ingredients that theoretically determine longer-term growth, including innovation and investment, there seems to be little cause for concern. A decade ago, the US granted 187,000 patents, which was then a historical high. In 2013, the number of patents granted passed 300,000. Perhaps, modern patents are less important. Perhaps, the patent office has become more permissive, but that isn’t what the world feels like to me.

During the first ten years of my life (1967-1977), the only major technological innovation that I observed entering our apartment was colour TV, and that TV broadcast roughly the same set of channels over the decade. How can such a world possibly be compared with innovations of the past decade? (...) Read the full article