all words: Jeff Jetton + Shaun Harris
all photos: Shaun Harris
Tyler Cowen is an economist, academic and writer who occupies the Holbert C. Harris Chair of Economics at George Mason University. He is well known for two blogs that he writes: Marginal Revolution, an economics blog, and Tyler Cowen’s Ethnic Dining Guide, portions of which have been reprinted in The New York Times and Washington Post.
In February 2011, Cowen received a nomination by The Economist as one of the most influential economists of the last decade.
We recently sat down with Tyler ahead of the release of his newest book, The Great Stagnation.
BYT: Could you give us a brief synopsis of what your new book is about?
Tyler Cowen: It’s called The Great Stagnation. It is a Penguin eBook special and the main argument is that we are in economic trouble today in the United States, because the rate of technological innovation has slowed down. If I think of the life of my grandmother: she was born in 1905 – she saw immense change during her life – the automobile, the flushed toilet, electricity, the radio. Major, major changes that weren’t really there when she started. Before she passed away, virtually everyone had them. If I think of my life, born in 1962 – other than the internet, I haven’t seen comparable changes. There is more stuff – it is better, it is nicer, it is easier. I enjoy all of that. In terms of earth-shattering, high changes of progress and economic growth in the numbers, we see that, since 1973, there has been a notable slowdown – and that is what I call ‘the great stagnation’. That is the very simple version of the book.
BYT: And the notable slowdown is measured in terms of a decrease in the number of patent innovations?
Tyler Cowen: You see it in patents per researcher, yes. But directly, if you look at median family income, for the typical family – not the very wealthy but the typical household in the distribution, it has only gone up a small amount since the early 1970’s. Now, there are ways in which we have had progress which are not measured by that number. Some social norms are better, there are things on the internet like Facebook, which are fun – they don’t generate a lot of revenue but it is still an improvement in living standards. But again, compared to the earlier era, we are coming up short in terms of revenue and jobs. The book is a kind of cautionary note that we still have expectations locked in from the earlier time and I don’t think we will get to the next big technological explosion for some number of years.
BYT: Is it reflective of education or background or professional trade that you think we have had an innovation slowdown, because some of the things that you note happened in the early twentieth century. They are very much inventions in a lot of cases and I don’t know if that was a result of the type of work people were or are doing and how the types of jobs that now exist within our world have impacted new innovation and new invention. Do you have any perspective on that or is that completely irrelevant to the story?
Tyler Cowen: No, it’s not irrelevant at all. One problem is that too many smart people go into finance, but I don’t think that is the main problem. I think the main problem is that the social space is somewhat filled out. For instance, I have a toilet. It works pretty well. I’m not saying it couldn’t work better, but it is not easy to imagine an improvement comparable to getting a toilet when you don’t have one. Cars – they’ll get better, they are better than they used to be. We are not about to get flying cars. So you reach technological plateaus and after a while it is hard to have the next big thing. You are not stuck there forever. Man invented fire, this led to a lot of gains, then there’s a temporary consolidation. Later gains of course came, they will for us too, but think of it as alternating periods of big bursts and then slow consolidations. And I am trying to frame the issue by saying we are right now in a slow consolidation which explains a lot of the feelings of middle class discontent – complaints about inequality, the drive for fiscal austerity, which I don’t think we are doing the right way. But people are now saying “we can’t afford this,” like they have this intuition which has a lot of truth behind it so I think of this as a general framework for trying to make sense of a lot of current social and economic developments.
BYT: Doesn’t that put a heavy burden on the term ‘innovation’ or even ‘technological innovation,’ in that an innovation’s worth is defined by the number of jobs that it creates?
Tyler Cowen: I don’t think it is the only worth. How much better off does it make people? Today we have so many small innovations – an absurd number of small innovations: millions and millions. But a lot of them don’t have that big of a trickle down effect. Not that they are anyone’s fault. A lot [of innovations] are on the internet. There are new sites, literally, every second, but the media in America doesn’t necessarily benefit that much from those. Actually, we benefit a lot. Highly educated people benefit a lot. People who love sampling new information can benefit a lot. People who are just dying to be in touch with the latest music out of Zimbabwe benefit a lot. So it is not that we don’t have innovation, but it is the way it is structured where there has been this fundamental shift.
BYT: Do you think the focus on innovation is misdirected today? When you were mentioning toilets, for example, I found that interesting because I think there are a lot of designers. A lot of people will think about innovation and get caught up in making the seat heated automatically, or making it drop down without having it bang. So are we being distracted by what currently exists and making it better and have we exhausted “Okay, does a toilet really need to have automatic heating on the seat?” You know, this is a level of, almost ‘lame’ innovation, where it isn’t really having major impact. It is almost just justifying your design existence. It is trying to do something but not really pushing imagination.
Tyler Cowen: Some of the things may be wasteful social signaling. If the person loves the heat on the toilet, to me, that is their business. But often it is boasting to your friends “I have heat on my toilet”, but it doesn’t make you much better off. I think at some point from now, there will be a new toilet. You will do your business in that toilet and it will medically sample your output and diagnose you and you will have an advanced warning of disease and problems. This will be phenomenal. Something like this will come, but in the meantime, it will be a lot of spinning our wheels. It is just a very different era. Economists tend to think of progress as this uniformed march, two to three percent a year. I am trying to paint a very different picture. The nature of progress changes a lot and we need to take that into account.
BYT: Is that spinning of the wheels driven by Wall Street and the need for sustained upward growth?
Tyler Cowen: I think that is a factor, but again, I think the main thing is that further progress really is difficult at certain points.
BYT: Is the message, 1) ‘let’s not fool ourselves into thinking that we are so innovative today’ and 2) ‘it’s okay that we are not because these run in major cycles and it will come again’?
Tyler Cowen: Absolutely. It is okay if it is not, but only if we realize that is the state of affairs. It is only okay if you understand that these are the actual limitations. And the third message is that I want people to think more about bigger innovations. I would like to get us off the current plateau. That is not easy, it is not going to come tomorrow but until people see a problem, I don’t think people will be determined enough to start innovating again in a major way.
BYT: What is the current plateau of innovation?
Tyler Cowen: I have a good broad sense of what your lives are like. You have a lot of stuff, it is really good. It would actually be hard to make you that much happier. Stuff that makes you happier is your friends, your girlfriend, your social life, which is fine. But even though you are not millionaires, just making you happier isn’t that easy. That is the frontier we are at. Examples of what could be breakthroughs, which are not here yet, are genome-based medicines. Those will really work someday. People thought they would be here by now, but they are not. The science is being done. But in terms of products, it doesn’t affect us. Another breakthrough that I think will come, but not now, is the notion that American business will be fundamentally organized around the internet. We had business and big box stores and whatever, and the internet was an add-on, which was great, but in some cases, like the closing of Borders, the add-on didn’t quite work. To really structure our whole business life and existence around the fact that we do stuff over the internet, which people talked about well over a decade ago, we still really haven’t done it and it is not easy. We have to reshuffle a massive, multi-trillion dollar economy. I think twenty to thirty years from now, we will have done that and it will be a major breakthrough.
BYT: What will usher in the arrival of some of these breakthroughs?
TYler Cowen: It depends which one it is. If it is the biosciences, I think it just takes time. You can see the science, you can read about it.
BYT: Time for people to see what it is, or time for it to develop?
Tyler Cowen: Time for it to develop. Like understanding genetics. When people opened up the genome, it turned out to be much more complicated than we thought. It is hard. There are regulatory lags which may be necessary but still, to get a new pharmaceutical drug to market can take ten or even twenty years. That is a long time. With a lot of innovation, there is liability law. Again, I am not suggesting we get rid of it, but say you have a new kind of car that’s a lot better. It is still going to kill some people. Who is going to get sued? By how many people? By how much? How do we get that right so that there are protections, but you still get the new whatever it is. It’s not easy. Laws work and move slowly.
BYT: Lets think about a process for a second: So, you have all of these different things that are emerging. Say, a variety of technologies that are emerging but you put these things together, you get a burst. When have you seen these types of migrations kind of happen to result in such a big innovation?
Tyler Cowen: Well, the internet I think, which is already important and will become even more important, but it takes a long time. When was the internet invented? 1960’s. It was related to planning for a nuclear war, which is a very, almost irrelevant topic for what we now think about in terms of the use of the internet. You have the internet for decades and it’s hardly used. Finally, in the last ten years, the internet is important for most people but it still hasn’t done that much for us in terms of macroeconomic performance. The last ten years have been pretty poor. Not to blame the internet, but it just shows, and this is something from the 60’s. It has already been over 40 years, this has been a transformation. It will be a revolutionary transformation. Forty years, the clock is ticking and we are still not there. It is this notion of lags that people underestimate. We are used to thinking, you see the end product and good stuff like “hey, I bought one!” You go to the Apple store, you get it the first day. We don’t think in terms of lags at the micro-level, but at the macro-level, it’s all about lags and I want more people to see those lags more clearly.
BYT: What are some of those lags that you are mentioning at the macro level?
TC: Think about the internet. You need a lot of different people to realize how it can work. So, inventing browsers. Without browsers, the internet wouldn’t be anything like what it is. A search! Mathematicians told those guys that they were crazy, this problem could never be broken and obviously they succeeded. We have Google. Without Google search engines, the internet would be far, far less efficient. Just realizing that is valuable. You can go back and find people in the 1970s or 80s who said that the internet will be awesome – and they were sort of kooks or they talked about something that sounded like the web. Maybe they had their little clans of admirers, but no one thought about it. Telecommunications being used and deregulated. People having fast connections. All of these components as they come together – they have come together, they are coming together. Or the notion that big box stores are very often a waste. It is being forced on us, but it is actually being fought to be welcomed. Borders has been fighting to stay in business for years. What they should have done two and a half years ago would say, I quit. We are going to share what we have got back to the shareholders and step aside and let someone else do something better – but it is not how things work.
BYT: When you think of innovation areas worth pursuing, what characteristics do you see in that area?
Tyler Cowen: It depends if you’re asking ‘what is advice for everyone, or what is advice for the marginal innovator or investor’. The marginal person wants to look for something no one else has found. So in a way, you want to get away from the obvious tips. I think very often, innovators are consumers. A lot of innovation is user or consumer driven. Areas tend to be very innovative when amateurs are active. So you look at the industrial revolution in England in the 19th century. It was mostly amateur driven, people who became professionals but they were tinkerers. Looking at the web, the internet, it’s tinkerers like Mark Zuckerberg. It’s crazy to call him an amateur now but he was that, he was an amateur. He was some guy. He did it! He was a programmer and it was awesome. When you see the democratization that it takes, not free entry, not that everyone can try but a lot of different people who aren’t just becoming big companies have a hand on trying something new, you tend to get a lot of crucial progress.
BYT: Does that relate to new practices around open innovation?
Tyler Cowen: Yeah, sure.
BYT: Can you talk about how that maybe benefits the opportunity to find more game changers or even more incremental type of innovation, how open innovation and the democratization – how that is changing the way we practice and can produce innovative products?
Tyler Cowen: Less bureaucracy, fewer people who can tell you no, greater chance for youth. Youth is often more innovative and a lot of it is just open source and you are free and you just do it.
BYT: Why do you think youth is more innovative?
Tyler Cowen: I think there is something biological. At some point, brains ossify, even if people are highly productive. You don’t see great breakthroughs coming from 75 year-old economists. You just see them from 35 year-old economists.
BYT: That would explain the Rolling Stones!
Tyler Cowen: Yeah, they can play. They are old. Yet their innovative stuff was way back when. Paul McCartneys, Bob Dylans, many, many examples. There are some exceptions. But overall, youth is innovative. They are not locked into the old ways. The brain connections are still forming.
BYT: How far back did you go when looking at these innovative bursts. I mean, you can arguably trace it back to the wheel and fire and things like that, but when actually measuring when these bursts occur, how far back did you look?
Tyler Cowen: Well, I went back to the beginning. I think the key era, and this is not commonly presented as such, but was the era of 1870. If you look at economic history, people talk about the industrial revolution and they talk about the late 18th century, early 19th century. A lot of the ideas were from then but the actual payoff wasn’t till the 1870s. Speaking of lags, if you read People in the early 19th century, it was pretty stagnant. David Recardo said that, Karl Marx talked about the worker being immiserated, like why are people so badly off. Maybe he exaggerated, but the big payoff wasn’t until you are really getting railroads everywhere, and then later cars and electricity and powerful steam engines and when life really starts to change and people start getting more informed and educated and stuff like that.
BYT: But, no one could have predicted these types of creative bursts?
Tyler Cowen: Not so easily, no.
BYT: So as far as you and I know, this plateau may be ending in 10 years from now, right? It is difficult to predict this type of unimaginable innovation.
Tyler Cowen: Yeah, I don’t pretend to offer any concrete prediction as to when the next burst will come.
BYT: Are there ways to increase the likelihood of a burst, sooner rather than later?
TC: There are always ways, but they are not easy. Education, however, is one thing that should be done, that would have a huge impact. Today’s graduation rates are lower than they were in the late sixties. What kind of progress is that? No matter what one thinks we should do, I think it is clear that doing it would be hard.
BYT: You mentioned something that was interesting about the democratization of innovation and something that is very different in modern times versus former, is that more people can be involved, right? Does that impede progress, invention, experimentation, when more people are involved with trying to create something new?
TC: No, I think it accelerates it. That is the historical dependency. Think of the arts. Go back to age of Mozart, Beethoven, Haydn. What is striking then is how many people as children learn to play the piano or learn to play the violin, just wrote stuff on their own for the heck of it and they were involved. It was like amateur experimentation.
BYT: How do they get involved?
TC: Well, in that case, their parents bought them the stuff. Presumably, they had some innate interest in doing it. So, low capital costs also. When capital costs are high, it is hard to get a lot of people involved. It is expensive.
BYT: How do you avoid that then?
TC: Well, in a lot of areas you can’t. You can’t try and build a new and better car – there is no cheap way to tinker on that. That is one reason why progress is slow. I don’t think there is a way to avoid it. You have a few companies that have the resources to try and they are screwed up in their own particular ways, so it is a tough slug.
BYT: You are mentioning these big bursts and one of the things I always think about is that a lot of these inventions are creating some type of connection–either connection of message or connection of delivery of product, whatever. You have, the railroads for example. You have TV, you have internet. All of these big innovations are somehow connecting people with one another in a more advanced way.
TC: Right, Match.com.
BYT: Exactly. So, I found it interesting, do you recognize that as a common denominator in innovation in terms of …
TC: Especially recent innovation. It is maybe less true for fire, but it is true with the wheel, it is true with Facebook, it is true with a lot of new stuff.
BYT: And why do you think that is? Is it a part of human nature to want to feel close to others?
TC: Part of human nature, but also it’s that a lot of material stuff we took care of. Like we have really cheap food, you have your toilet. You don’t need that much better of a toilet so you have your connection.
BYT: But even before the toilet, well I don’t know when the toilet was invented but probably far before the railroads and so on…
TC: But the good toilet! The one that you’re not going to get sick from…
BYT: Right. There are still these advances that we are trying to get you and I to have a more intimate connection through message or whatever.
TC: Yeah, printing press, telegraph…
BYT: Yeah, all of that. Do you think that kind of trajectory of innovation, you will still have that factor present as we go forward in that it is still going to be about how facilitating deeper connections – whether it is through minds or whatever?
TC: A lot of it, but some of it, if for instance, the biosciences pay off, I wouldn’t really classify that in such a way. In a way, one of the problems is the innovation of the last 15 years are almost exclusively that, which is great. We have awesome connectivity compared to not too long ago. But, a lot of other stuff is pretty stagnant like measured productivity and health care.
BYT: How do we get longer on invention?
TC: First, I think people should recognize all these facts. Beyond the self concerning factor, I think in our culture, science should have a much higher status. I would like to see more kids having their own models and things like science as the thing to do – the exciting area. In that again, I see we have gone backwards. When I was a kid, it was a higher status than today.
BYT: Do you see why that shift occurred?
TC: I think partly, it was I was born in 1962 which was like the end of an era of breakthroughs. The moon walk, wow! That was exciting. Maybe it didn’t lead to anything, but we were all stunned. We saw it as a kid. I was like seven and thought “oh my god, this is awesome!” and you are like “science brought us this” and everyone was like “woah, science,” and then you have this long period of science not bringing that much and I think some of that status just went away. I can understand why.
BYT: Does that come from such a higher level of mission? Like, you of have the president of the United States and other leaders of the world saying we want to do this, and people are saying “let’s go do that!” So it was almost commanded by our most supreme leader within a governmental type of structure. Think of organizations. Is this a key factor of driving momentum behind invention and innovation?
TC: Sure. You look today and what is probably a big problem? Climate change. People talk around it. There are a lot of activists. But to have really significant leaders get up and say “it is not really there, I don’t blame them,” it is like the public isn’t there but it is a very different environment. The notion of science tells us this. Does it command that much respect on that issue?
BYT: Which has greater influence of the other, would you say? The leader on the public or the public on the leader?
TC: The public on the leader. The leader needs to be reelected. To just scream at people and worry them and scare them doesn’t get you anywhere. You lose credibility. I think it has to be bottom-up.
BYT: Or single term presidencies.
TC: Yeah, and then you don’t get what you want anyway. Like Jimmy Carter. You look at his early speeches on energy and not everything he said was right, but a lot of it was quite prescient. He is like “We have got to solve this problem now!” That was a long time ago. He got on TV with a sweater, lectured the American Public, and then he was out of there.
BYT: If, for instance, Facebook or twitter employed many more thousands of people and had some sort of increased social benefit, in your eyes, would it play a different role in your outlook on what you write about in the book?
TC: No, I think the social benefit is already huge. It will be bigger but I am not complaining about that at all. I think the problem… I don’t blame these companies for it… is that the revenue in jobs wouldn’t be there if they had done nothing. But on revenue and jobs, we are coming up short. But in terms of like the fun dimension of life, I think things have been done fantastically well. I am not in general a pessimist at all. It used to be fun and material stuff merged together. You would get your toilet, your car – it was fun. A lot of stuff, a lot of jobs, a lot of revenue. Now, there is this disconnect. We get the fun without jobs and revenue which doesn’t have to be bad. It is also to get the free fun, but you still have a problem with jobs and revenue and the two don’t track each other so well so it is like what economic growth is has changed.
BYT: Do you think that is just going to be constant or will that be an era or a phase?
TC: It will continue to decouple for a long time.
BYT: Like long time, fifty years?
TC: Again, I am not a forecaster. Think of match.com. I think it is a huge advance. A lot of people have met their spouses that way. They are much happier. In terms of revenue and jobs, they employ some people. It is like close to nothing but it is making us a lot better off. So it is like we feel better off in ways in which are real and we have this old habit of thinking the revenue and jobs are going up along with that and they are not so we are kind of like spending and planning as if everything were rising in unison.
BYT: What is interesting is that I hear, not a contradiction, but two factors working together in what you are saying which is that one, to invent and imagine new innovations, you need to be able to do it without capital. I think some of these successful internet companies have managed minimum capital to get started so they have been able to advance in that way, but because they start with little capital, they actually haven’t created the infrastructure to create jobs too. Like that was a part of their model – you don’t have a lot of money to do this, we need it to work between two people – and that is kind of the structure. Can those work in harmony or is there a way to get something up with minimal capital to advance, and then can we today have those try and work better together?
TC: You know, one early sign is internet and computers. You simulate a lot of things. So making a movie, it used to be super high capital. Some kinds of movies still are, but there are many more cheap documentaries, digital editing, whatever. Computers and the internet. Things like safety or car design. You can simulate them more and test things like music production or how it will sound. You don’t need to listen to the symphony orchestra, you use your computer. That is part of how computers are not a part of an exhausted innovation. They help make a lot of other areas low capital and we are still seeing it but it is far from finished.
BYT: Do you think maybe there is more opportunity for innovation and service by studying and having new ways studying behavior in the interactions?
TC: And measure patterns, crunch the numbers, make it more scientific. I think people who are good with other people, like that is a growth area, and they will reap out good returns. You can outsource that. I guess sometimes you can on the phone, but not in person. People who do fundraising – those are big growth areas.
BYT: That is interesting. We have talked with people from casinos for example, who have studied behavior to a great degree to understand security patterns and how to get the most out of people in the casino environment.
TC: They do it pretty scientifically. They are actually pioneers. Just as the porn companies pioneer the web, Las Vegas has pioneered human psychology because they have money directly at stake. They need to get it right or they are gone.
BYT: Let’s switch gears a little bit and you are also somewhat of a food blogger and you recently ate at the Ritz Carlton. How was it?
TC: Well, I thought what I had was great, really great. But what I saw go past, and what I have heard from people of respect has been very mixed. My guess is that it is a very mixed experience. If you know exactly what you are doing, you will get a very great meal.
BYT: Do you notice the difference in hotel restaurants and on the street restaurants?
TC: I won’t eat in most hotel restaurants. Really good hotel restaurants, I will. Some of the best restaurants are hotel restaurants. But just a normal hotel restaurant – nothing will get me to eat in there. I don’t think they are that bad. I just think they are rarely interesting in that they have to serve too many people.
BYT: What could they do to be more interesting?
TC: There are a lot of ethnic Mom and Pop eateries attached, usually attached to motels rather than hotels, and they are just add-ons. They are just for extra cash. There will be a Thai place somewhere weird and it will have seven tables and grandma cooks, and those are awesome and they innovate. It is that lack of overhead. At hotel restaurants, there is such high overhead. So if you go back to this capital costs points high overhead. They have got to drive a lot of numbers. They are never that bad either, but if you are looking for peaks, why ever go? Unless they are some kind of Michelin starred, fancy Parisian hotel – that is a different story. But to eat in your Best Western, which is a pretty good chain, why would you ever do it unless you had to?
BYT: What do you think about food trucks?
TC: They are really good. I don’t like all of them but you don’t need to. You just need to like the ones you like. The law way overregulates them. I think that is awful and we ought to have way more. They are the wave of the future. Food sector in the future, I think will be a lot more small innovative eating done on a small scale – not too corporate and the cheap stuff is already better than the expensive stuff.
BYT: Kind of a reverse idea…
TC: Yeah. Expensive stuff, you are paying for status like it is usually good. But most meals, I would rather eat good cheap meals. Even if Michelle Richard were to cost what China Star does, most of the time I would rather go to China Star.
BYT: Would you say that food and eating the way we eat, the innovation, has plateaued as well in terms of what people are going to create?
TC: I don’t think so at all. I think it is a phenomenal period for food innovation. I just don’t think it helps us that much because food is already good, but I think it is mind blowing how innovative food is. You have low capital costs, not for everyone but for most parties. People from all over the world, it is pretty much unregulated unless it is like uncommon safety standards. It is a great environment.
BYT: Why did you release your book as an e-book only?
TC: As an innovation, right? I think most books are too long. They are way out of control magazine articles with a lot of fluff. I wanted to write a book with no fluff, to the point. It is 15,000 words, and it also costs $4. I think books should be cheaper. I’m not sure how thick it would be printed out but I know it wouldn’t be that big or that thick. I thought that trying to get this on the front tables at Barnes and Noble, a big capital intensive company with a lot of overhead, that model doesn’t match, so it is e-book only. Short, to the point, cheaper, readily accessible.
Tyler Cowen’s book, The Great Stagnation, can be found as an eBook on Amazon.com