The Great Stagnation
Based on Wikipedia: The Great Stagnation
What if everything we thought we knew about economic progress was based on a historical accident? What if the extraordinary growth that Americans experienced for most of the twentieth century wasn't the normal state of affairs, but rather the result of picking fruit that was hanging so low it practically fell into our hands?
That's the provocative argument Tyler Cowen made in 2011 with a slim book—really more of a pamphlet at fifteen thousand words—called The Great Stagnation: How America Ate All the Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better. The subtitle alone tells you Cowen isn't pulling punches.
The Fruit That Built America
Cowen, an economics professor at George Mason University, identifies three major forms of what he calls "low-hanging fruit"—easy wins that turbocharged American prosperity for generations.
First: free land. The American continent offered vast stretches of fertile, unclaimed territory. You didn't need sophisticated technology or massive capital to farm it. You just needed to show up and work. This is fundamentally different from, say, trying to squeeze more productivity out of land that's already being farmed intensively.
Second: the great inventions. Between roughly 1880 and 1940, humanity capitalized on centuries of accumulated scientific knowledge to create technologies that fundamentally transformed daily life. Electricity. Refrigeration. The automobile. Mass communications. Indoor plumbing and modern sanitation. These weren't incremental improvements—they were revolutionary leaps that created entirely new categories of human experience.
Third: education. For most of American history, there were millions of intelligent children who simply never got a chance to develop their minds. Send them to school, teach them to read and calculate, and suddenly you've unlocked enormous human potential. The returns were massive because the baseline was so low.
Cowen adds two minor forms of low-hanging fruit: cheap fossil fuels that powered industrial expansion, and the stability provided by the American constitution. But his core argument rests on the big three.
Here's the uncomfortable conclusion: we've eaten all this fruit. The land is settled. The transformative inventions of that golden era have been fully absorbed into society. And while education still matters enormously, the easy gains—moving from widespread illiteracy to universal basic education—are behind us.
The Grandmother Test
Cowen offers a simple thought experiment to illustrate his point. Think about what your grandmother witnessed in her lifetime if she was born around 1900. She went from horse-drawn carriages to automobiles to commercial aviation. From kerosene lamps to electric light. From outhouses to indoor plumbing. From handwritten letters that took weeks to arrive to telephone calls that connected voices across continents in seconds. From a world where a simple infection could kill you to one where antibiotics could cure it.
Now think about what has changed in your own lifetime.
Yes, you have a smartphone. Yes, you have the internet. These are genuinely significant. But in terms of the physical, material conditions of daily life—how you get around, how you stay warm or cool, how you cook food, how you clean yourself and your home—the changes have been far more modest.
Your grandmother's transformation was from premodern to modern. Your transformation has been mostly about information.
The Numbers Tell the Story
Cowen points to a stark statistical reality: median wages in America—the income of the person right in the middle of the distribution—grew steadily for decades, then essentially flatlined starting around 1973. This date isn't arbitrary. It roughly coincides with the point at which the major gains from the earlier technological revolution had been fully realized.
The economy kept growing after 1973, of course. But that growth became increasingly uneven, accruing primarily to those at the top of the income distribution rather than spreading broadly across the population.
Cowen argues that our failure to recognize this shift has poisoned American politics. The left blames conservative economic policies for the stagnation. The right blames liberal social policies. Both sides are partially correct and partially deluded, he suggests, because the real culprit is neither political tribe—it's the exhaustion of the easy growth opportunities that made postwar prosperity possible.
What Cowen calls "the honest middle"—people willing to acknowledge that both sides have some valid points and that the problem transcends partisan politics—can't be heard above the din of mutual recrimination.
The Productivity Puzzle
A skeptic might point to the productivity statistics of the late 1990s and early 2000s. Didn't productivity surge during the dot-com era? Cowen concedes the numbers show improvement—productivity grew at 2.8 percent annually from 1996 to 2000, and an impressive 3.8 percent from 2000 to 2004.
But he argues we need to look more carefully at where that productivity showed up and what it actually meant for ordinary people.
Information technology genuinely improved. But other major sectors of the economy—particularly those that consume a huge share of national spending—showed little meaningful progress.
Take finance, which accounts for about eight percent of the American economy. Did the sophisticated financial engineering of the 1990s and 2000s actually create value? Or did it merely shift money around, creating paper profits that ultimately evaporated in the 2008 crash? Cowen has strong views on this question.
Then there's government, which represents fifteen to twenty percent of economic activity. Here's a quirk of how we measure things: government output is calculated based on how much we spend on it, not on what it actually produces. If we hire more bureaucrats and pay them more money, the official statistics show more "output," even if nothing has actually improved. This means that a growing government sector can make the economy look more productive on paper while delivering the same or worse results in practice.
Healthcare and Education: Where Money Disappears
Healthcare consumes about seventeen percent of American economic output—a staggering figure that has grown relentlessly for decades. But are Americans actually healthier than they would have been if we'd spent less?
The economic concept of moral hazard helps explain part of the problem. When someone else is paying for your healthcare—whether an insurance company or the government—you have less incentive to control costs. You might demand an expensive test that has only a small chance of finding anything useful, because why not? It's not your money.
There's also what economists call asymmetric information: patients don't know nearly as much as doctors about what treatments they actually need. This creates opportunities for over-treatment, defensive medicine, and spending that doesn't improve outcomes.
The result is a sector where more spending doesn't reliably translate into better health.
Education shows a similar pattern. Despite decades of increased spending—education represents about six percent of the economy—test scores and other measures of student achievement have remained essentially flat. We're paying more and getting the same results. The easy gains from simply getting kids into school have been captured. Further improvements require solving much harder problems.
But What About the Internet?
This is where Cowen's argument gets most controversial. Surely the internet represents a genuine technological revolution? Surely it's transforming our lives as profoundly as electricity or the automobile transformed our grandparents' lives?
Cowen doesn't deny that the internet has been wonderful—particularly for the intellectually curious. You can learn almost anything online. You can access the world's libraries, listen to obscure music from distant countries, connect with people who share your niche interests.
But, he argues, the internet has done surprisingly little to raise material standards of living. The biggest internet companies employ relatively few people—nothing like the factories of the industrial age that provided millions of well-paying jobs. And much of what the internet provides is free, which is great for consumers but doesn't show up in economic statistics or generate the broad-based income growth that earlier technological revolutions produced.
As Cowen puts it: "We have a collective historical memory that technological progress brings a big and predictable stream of revenue growth across most of the economy. When it comes to the web, those assumptions are turning out to be wrong or misleading."
The Productivity Paradox
Cowen's skepticism about the internet's economic impact echoes a puzzle that economists had been wrestling with since the 1980s. The Nobel laureate Robert Solow famously quipped in 1987, "You can see the computer age everywhere but in the productivity statistics."
Why might this be? One theory is that when new technologies emerge, they advantage some businesses while disadvantaging others. The net effect can be close to zero, even if individual companies are transformed. Another possibility is that we're simply measuring the wrong things—the internet generates enormous consumer value that never shows up in traditional economic statistics because no money changes hands.
Think about how much utility you get from free services like email, maps, or video streaming. In a meaningful sense, you're richer than someone twenty years ago who didn't have access to these things. But that enrichment doesn't appear in wage statistics or conventional measures of economic growth.
The Coming Boom That Never Came
Cowen's book invites comparison with an earlier bestseller called Prosperity: The Coming Twenty Year Boom and What It Means to You, published in 1998 by Bob Davis and David Wessel. That book predicted that information technology would usher in a new era of broadly shared prosperity.
The prediction didn't pan out. As one reviewer noted, the book now resells for a penny—the market's harsh verdict on a forecast that proved spectacularly wrong.
But critics of Cowen wonder if he's making the equal and opposite error. By dismissing the economic potential of the internet, might he be underestimating a transformation that simply hasn't fully manifested yet?
After all, the great inventions of the late nineteenth century took decades to reshape the economy. Electric power was demonstrated in the 1880s, but the full productivity gains from electrification didn't show up until the 1920s and 1930s. Perhaps we're in a similar transitional period with digital technology—the seeds have been planted, but the harvest is still years away.
The Great Divergence Alternative
Not everyone buys Cowen's explanation for wage stagnation. An alternative theory, sometimes called the "Great Divergence," focuses on power rather than technology.
According to this view, the problem isn't that innovation has slowed—it's that the gains from innovation have been captured by a smaller and smaller slice of the population. Globalization allowed companies to shift production to lower-wage countries, weakening the bargaining power of American workers. The decline of unions removed another source of worker leverage. Tax policy and financial deregulation further tilted the playing field toward those at the top.
If this diagnosis is correct, the prescription is different. Rather than hoping for new technological breakthroughs, we should focus on policies that redistribute the gains from existing prosperity: progressive taxation, stronger labor protections, investment in education and training.
Cowen is skeptical of this approach, arguing that the redistributive policies of the 1950s and 1960s worked precisely because there was so much real income growth to redistribute. You can't divide a pie that isn't expanding, and trying to do so creates political conflict and economic distortions.
We Thought We Were Richer Than We Were
This brings us to Cowen's interpretation of the 2008 financial crisis. His explanation is elegant in its simplicity: "We thought we were richer than we were."
Americans had grown accustomed to rising home values, rising stock prices, rising consumption. When the underlying growth engine sputtered—as Cowen argues it had been doing since the 1970s—people papered over the gap with debt. They borrowed against their homes. They ran up credit card balances. The financial sector invented ever more creative ways to extend credit to people who couldn't really afford it.
The housing bubble and subprime mortgage crisis were, in this telling, symptoms rather than causes. They were "the proverbial canary in the coalmine," warning of deeper structural problems in an economy that had been living beyond its means for decades.
Not everyone agrees with this link between the great stagnation thesis and the financial crisis. Critics point out that different rich countries experienced very different outcomes in the crisis years, even though they'd all been through broadly similar economic trends in the preceding decades. If technological stagnation were the root cause, wouldn't all advanced economies have suffered similarly?
The Post-Material Turn
The columnist David Brooks offered a different interpretation of what Cowen's data might mean. Perhaps, Brooks suggested, we're witnessing a fundamental shift in values rather than a failure of the economy.
For generations born in the early twentieth century, higher income genuinely meant a better life. Moving from subsistence to abundance, from manual labor to leisure, from want to comfort—these were real and meaningful improvements in lived experience.
But for people born into affluence, more money doesn't necessarily translate into more happiness in the same direct way. Once your basic needs are met, what you're really seeking is meaning, connection, creativity, intellectual stimulation. And much of this comes from outside the monetary economy.
Think about how much of the most vibrant creative work now happens for free. Wikipedia. Open-source software. YouTube videos. Podcasts. Fan fiction. Memes. These represent enormous human effort and produce enormous human value, yet almost none of it shows up in economic statistics.
Brooks affirmed Cowen's acknowledgment that this shift has brought large increases in human happiness with correspondingly little economic activity. We're richer than our grandparents in ways that can't be measured in dollars.
What Is to Be Done?
Cowen's prescriptions for the great stagnation are notably modest—some critics would say absurdly so.
He suggests raising the social status of scientists. In a society that lionizes entrepreneurs and celebrities, the people actually making fundamental discoveries often toil in relative obscurity. If we want more innovation, we should make innovation more socially prestigious.
Critics found this recommendation "a bit empty." The problem, they pointed out, is that many recent innovations have been private goods—like sophisticated financial instruments that benefited their creators while imposing costs on everyone else—rather than public goods like penicillin or the railroad that benefited society broadly. Raising the status of scientists won't necessarily channel innovation toward public benefit.
Cowen also expressed optimism about the rise of China and India as producers and consumers. These countries contain billions of people who are now connecting to the global economy, bringing both new workers and new markets. The internet, whatever its limitations for American workers, does seem to be enlarging the global scientific community by enabling researchers in remote places to collaborate with colleagues worldwide.
And he sees hope in growing consensus for educational reform in the United States, though others are skeptical. Despite decades of reform efforts—many of which faced initial union opposition—American educational outcomes remain mediocre by international standards. The pattern of optimism followed by disappointment has repeated enough times to warrant caution.
Policy Low-Hanging Fruit
Some economists seized on Cowen's framework to suggest a different kind of low-hanging fruit: policy reforms that could unlock growth without waiting for technological breakthroughs.
The list is familiar to policy wonks: Tax pollution and traffic congestion rather than income and investment. Stop subsidizing healthcare treatments that don't improve outcomes. Eliminate agricultural subsidies that distort markets and raise food prices. End the mortgage interest deduction that encourages people to buy bigger houses than they need.
Perhaps most provocatively, some suggested that rich countries would get better returns by funding education in developing countries rather than pouring more money into diminishing returns at home. And looser immigration laws would allow both rich and poor countries to benefit from the remaining gains available from matching workers to opportunities.
The Debate Continues
More than a decade after Cowen's pamphlet appeared, the debate it crystallized remains unresolved.
In 2012, the economist Robert Gordon published a paper asking "Is U.S. Economic Growth Over?" that echoed many of Cowen's themes. Gordon noted that the easy gains from increased labor force participation, schooling, and land use had indeed been spent. He pointed out that major industries like transportation and sanitation had reached a point of diminishing returns—you can only make plumbing so much better.
Yet at the same time, digital technology has continued to advance rapidly. Artificial intelligence, once a distant dream, now performs tasks that seemed impossible just a few years ago. Perhaps we're on the cusp of another great technological revolution—one that will make Cowen's pessimism look as dated as those predictions of a twenty-year boom from 1998.
Or perhaps the pattern Cowen identified will persist: technological marvels that delight and amaze us, but that somehow fail to translate into the broad-based prosperity that earlier generations took for granted.
The honest answer is that we don't know. Economic prophecy is even harder than technological prophecy. But Cowen's contribution was to shift the terms of debate—to make us think more carefully about what growth actually means, where it comes from, and why it might be harder to sustain than we assumed.
The low-hanging fruit has been picked. Now comes the harder work of climbing higher.