Knowing and Making

A debate has been going on within economics (and in my head) about how the economy is changing. Tyler Cowen thinks there is a " Great Stagnation ": all the low-hanging technological fruit (trains, planes, automobiles) has been harvested; we've grown for the last thirty years by getting some efficiencies out of existing processes, but that has limits; and there's no new major new invention on the horizon which will transform living standards further in the coming century. Umair Haque says something similar in more provocative language: the old models are bankrupt, we need a new mode of life - moving away from consumption and towards eudaimonia . A bigger TV doesn't provide any more satisfaction, just a shallow, temporary endorphin hit and a status upgrade relative to some of your friends. [ Update : Umair comments on twitter that "my definition of eudaimonia is economic, not just psychological" ] But the default position of economists - including...

There's lots of Bryan Caplan I don't agree with, but I can't deny he has some interesting ideas and a good way of thinking about them. The connection between growth and ideas is not so much logical as psychological. It is not logical for people to embrace counter-productive ideas just because conditions are getting worse, but they seem to do it anyway. This is from a paper on idea traps which is the concept that a society can get stuck in a sub-optimal equilibrium where the economic ideas that it runs on are flawed, but do not self-correct. My own experience of this is a paradox based in the economic situation in the UK right now. Logically, when there is low demand in an economy companies with a fixed cost base should spend more on sales and marketing. (This might not apply to firms which can easily scale down their costs - you can argue that the marginal return on sales spending is lower and therefore the optimal spend is less. But most companies are retaining most of th...