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BLOG: What's wrong with the economy?

Tom Jackson • Nov 23, 2011 at 11:26 AM

Why is the economy so bad?

I'm not referring just to the Great Recession, which has supposedly ended, but to a longer term trend. Why isn't the economy working well for people who aren't rich?

The usual answer from political discourse is that it's the fault of liberals, or the fault of conservatives. Politicians tend to stick to political talking points in giving the answer: It's the fault of free trade treaties, or it's the fault of too much taxation.

Two new books, written by economists for general audiences, attempt to go a little deeper and discuss structural reasons for the bad economy.

Tyler Cowen, who writes at the Marginal Revolution blog, is the author of The Great Stagnation: How America Ate All of the Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better.

Cowen argues that from 1880 to 1940, there were a series of dramatic technological breakthroughs, including electricity, cars, electric lights, radio, airplanes, the telephone, the record player, and indoor plumbing. These inventions helped create many new industries. There hasn't been comparable innovation in recent years, Cowen says, although excitement over the Internet has tended to obscure that.

Cowen also argues that America no longer has free land to generate economic growth and that improvement in the public school system apparently ended in the 1960s.

Race Against the Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy, by Erik Brynjolfsson and Andrew McFee, says that many workers have been thrown out of work because machines can do their jobs more cheaply. (A familiar example would be the way machines have replaced many bank tellers and people who run cash registers.)

This trend is accelerating as computers become exponentially more powerful and are able to take on many new tasks, the authors say.

Both books are $4 as electronic editions from Amazon.

Cowen discusses the two books here. A debate between the authors of the two books may be viewed here (about 35 minutes long).

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