Technological Plateau or Cultural Lag?

In responding to reviews and criticisms of his new e-book, Tyler Cowen digs in and claims that median income growth (or rather, the relative lack thereof) is the telling indicator of U.S. economic performance in recent decades. From a rhetorical perspective, his insistence is certainly understandable: the divergence between median income trends pre- and post-1973 is indeed dramatic. But from an analytical perspective, does his focus really make sense?

Perhaps, if the idea is merely to substantiate the claim that living standards for ordinary Americans are improving less rapidly than they did in the past. Now while it's possible to debate this claim, I'm not interested in doing so at present. What I care about now is scrutinizing Tyler's argument that this slowdown in the growth of living standards is due to a general slowdown in innovation -- to the arrival, in his words, at a "technological plateau." And on this important issue, I believe Tyler's insistence on looking at median income -- and dismissing the greater relevance of GDP per capita and productivity -- is misguided.

Here is the issue. Median income growth since 1973 is worse than GDP per capita growth over the same period, which in turn is worse than productivity growth (at least since the mid-'90s). The productivity stat's directly contradict the alleged existence of a technological plateau, and Tyler will need to do a much more convincing job of picking apart those productivity numbers if he wants his argument to fly. Meanwhile, the disparity between median income and GDP per capita points to a rival explanation of sagging median income growth. Maybe we're living through a cultural lag, not a technological plateau.

The reason median income hasn't kept up with GDP per capita is that income gains since 1973 have accrued disproportionately to high earners. In other words, we've experienced a big increase in income inequality. And why is that? If we're focused on the growing gap between incomes at, say, the 90th percentile and the 50th percentile (as opposed to the stratospheric gains at the very tippy top of the income scale), a major reason is the increased return to skills due to sluggish human capital development. The continuing increased demand for people with college degrees (or the skills for which a degree serves as a useful proxy) has not been matched by corresponding growth in people with those degrees and skills, and thus the wage premium for college grads opened up after 1980 and has persisted stubbornly since then. As Claudia Goldin and Lawrence Katz put it, in the race between education and technology, technology has been winning handily.

And this really shouldn't be that surprising. Once we exhausted the supply of "smart but uneducated kids" that Tyler writes about, further gains in educational attainment and human capital development would have to overcome deep-seated, class-based differences in values and childraising philosophy. Since the big economic payoff (in the form of the college wage premium) of overcoming this class divide only dates back about 30 years, or a single generation, it's no wonder that these differences are still with us.

Now this cultural lag is a formidable obstacle to future growth prospects, but it's a very different one than Tyler is highlighting. It's not that we're running out of good ideas; it's that we're running out of people who can use good ideas to best advantage.

Comments

[David Proctor]

I would have to support "cultural lag" as the leading cause of income inequality in today's American economy. As a community college instructor, I see this lag on display every day. My classes consist of students who can be completely unmotivated, moderately motivated or highly motivated. A good number of them are even intellectually curious and interested in the subject matter. Significant numbers go on to state universities or earn two year technical degrees that propel them into successful jobs. Community colleges really are on the borderline, so to speak, between the new America of curiosity, ambition, and entrepreneurship and a lagging America mired in resentment, apathy and hostility toward learning and knowledge. Both Americas are clearly on display in any community college classroom.

I think that as the new knowledge economy pounds the underclass ever harder, perhaps we will see a greater willingness to join in the new ways and leave behind what are, essentially, old fashioned "working class" attitudes. Or, the underclass may sink into abject poverty while the successful seal themselves off into "sorted" schools, communities, and businesses.
As a nation, we should focus our resources and creative energies into finding ways to speed up the elevation of the underclass into the new economy. From my front line vantage point, I have to say that will be no easy task but we do need to try. I don't relish the idea of some weird, dystopian feudalism as our national fate!

[Coach outlet]

One is a part of earth, and living upon earth can be far more joyful if one allows for the sensuality of the experience.

[Coach Outlet]

Please post more of this. I largely enjoyed it.

[True Religion Outlet]

Love is in the winter of a sunshine, make the person feels cold and hunger nazr Mohammed human warmth.