American Enterprise Institute

Web event — Is the ‘great stagnation’ over?

Introduction: James Pethokoukis, DeWitt Wallace Fellow, AEI

2:05 PM Discussion

Panelists: Tyler Cowen, Holbert L. Harris Chair of , Michael R. Strain, Director, Economic Policy Studies, AEI Catherine Tucker, Sloan Distinguished Professor of Management Science, Massachusetts Institute of Technology Dietrich Vollrath, Professor and Chair of Economics, University of Houston

Moderator: James Pethokoukis, DeWitt Wallace Fellow, AEI

Tuesday, April 6, 2021 2:00–3:00 p.m.

Event page: https://www.aei.org/events/is-the-great-stagnation-over/

James Pethokoukis: Hi, I’m Jim Pethokoukis, and welcome to today’s AEI event, “Is the ‘great stagnation’ over?” Since the early 1970s, Americans have seen disappointing levels of economic growth, productivity growth, and apparently technological progress, at least compared to the immediate postwar decades. However, there seem to be new reasons for optimism. As the COVID-19 pandemic begins to recede, short-term economic projections are extremely optimistic. And 2020 was an impressive year for technological progress, featuring rapid vaccine innovation, the use of AI for discovering new antibiotics, positive developments regarding nuclear fusion, and a new age of human spaceflight for the United States. The media are also starting to catch on. A few recent headlines: , “The coming technology boom”; from Bloomberg, “The 1920s roared after a pandemic, and the 2020s will try”; from The , “Why a dawn of technological optimism is breaking”; and from The Financial Times, “Goodbye virus-ridden 2020, hello roaring twenties.” So, is really over? And if so, what does that mean? To try and answer these questions, I’ll be chatting with a really great panel. Tyler Cowen is the Holbert L. Harris chair of economics at George Mason University, and he serves as chairman and faculty director of the . He’s the author of several books, including 2011’s “The Great Stagnation.” Catherine Tucker is the Sloan Distinguished Professor of Management Science and Professor of Marketing at MIT Sloan School of Management. She’s also the cofounder of the MIT Cryptoeconomics Lab and co-organizer of the Economics of Artificial Intelligence Initiative. Dietrich Vollrath is professor of economics and chair of the Department of Economics at the University of Houston. He is also the author of “Fully Grown: Why a Stagnant Economy Is a Sign of Success,” released last April. And finally, Michael Strain is director of Economic Policy Studies here at AEI, as well as the Arthur F. Burns Scholar in Political Economy. And he’s the author of “The American Dream Is Not Dead: (But Populism Could Kill It),” released last year. One thing finally, before we begin: We’ll be doing a Q&A at the end of this event. So please, please, submit your questions as soon as possible on Twitter with the #AskAEIEcon, that’s AskAEIEcon. You can also submit a question via email by contacting the email address listed in the event description. So, to begin, I’m going to start with Tyler, since you wrote a book called “The Great Stagnation” and a big reason why I’m probably doing this panel, it’s been 10 years since you published that book. What was your argument at the time about the great stagnation and why we were stagnating? Tyler Cowen: At the time, I suggested that our previous technologies had in some regards run their course. So, if you take powerful machines and fossil fuels and put them together as a kind of general-purpose technology, we did everything we could with that. So, we invented cars and then everyone, almost everyone had a car. And then cars got better, but along some origins, cars just didn’t get all that much better. I think the odds are we are today on the cusp of another revolution based on new general-purpose technologies, which I would define as some mix of internet, computers, and computational power. So, in 2011 when I published the

book, I thought the great stagnation would end within the next 20 years, and odds are that’s what we’re seeing today is the great stagnation ending. James Pethokoukis: And this is for anyone who wants to jump in: Is there a general consensus for — what period are we talking about? Are we talking since the early ’70s? Are we talking really since the end of the internet boom? First of all, when we talk about stagnation, are both of those applicable? And do we have a good reason why they happened to begin with? Tyler gave one set of reasons, is that the general consensus? Michael R. Strain: Well, can I just key off Tyler’s comment about the time period we have to look forward to? I am very confident in my view that the great stagnation, such as it was, is not permanent. There is a whole lot of innovation happening, new technologies being created. And it’s true that we haven’t found the best uses for all of those new technologies and all of those new inventions, but I’m very confident that at some point we will. So, that’s what I mean when I say I don’t think stagnation is a permanent condition. But whether or not we figure out how to use all this great new innovation in the next three years, five years, 10 years, you know, there I’m feeling less confident about any prediction that I might make. And so, I think Tyler actually framed it well. You know, at some point in the next 20 years, this is going to end, we’re about halfway through that period, I guess I would agree with that. I’d be surprised if we woke up in the year 2031 and hadn’t figured out how to use a lot of this new technology. And in fact, we just saw a great use of some new technology and a great use in coronavirus vaccines and that’ll have a huge impact on productivity. But whether or not this happens in 2023 or 2025 or 2027, I think when you start getting to that level of granularity, it becomes harder and harder to make predictions. James Pethokoukis: Is the reason for this — and I ask this to Catherine — is the reason for this confidence, do you think, mostly because that’s kind of how it’s always worked before? We’ve come up with great new ideas — took a little while to figure out how to use them, how to spread throughout the economy, eventually, they made big differences. Are we just kind of assuming that these new technologies are just kind of like the ones in the past and we’ll have that eventual impact, whether it’s next year or 10 years from now? Catherine Tucker: Now, this is such a wonderful question. So, I’m something which is called a “digital economist,” and we’ve spent the last 20–25 years trying to excuse why it is that all the technologies we studied have been everywhere apart from the productivity figures. And we’ve got two major explanations. One is that we’re just not measuring it right. Google Maps appear nowhere in the productivity figures. Google Maps are just wonderful, right? And we’re just missing out on these innovations. And then if people aren’t convinced by that argument, we then say, “But look at electricity, look at steam.” It’s just natural the trajectory of general-purpose technology, you expect 20–30 years of really what we’re going to call “constant experimentation” before it appears in the productivity figures. So, I think that aligns with a lot of what the panel is saying. Dietrich Vollrath: Yeah, I agree, I think Catherine really hit that correctly in the sense that I think if you look historically, most of these big events, or if you think of these central

general-purpose technologies, we think of them as arising immediately and the moment electricity came around, everything changed. But that was a decades-long event, I mean, to the point that, you know, I mean, we were electrifying rural America into the ’40s and ’50s and even into the ’60s. These are decade-long changes. So the fact that we haven’t seen massive productivity growth out of computing, say, or the internet doesn’t necessarily mean it wouldn’t come. And as Tyler was mentioning, it may just be that we’re finally to the point where we really figured out how to use it, right? It’s been experimenting. Catherine Tucker: Yes. I mean, the way I’ve always liked as a technology economist to think about it is we thought that the light bulb — we thought that electricity was initially about the light bulb and about illumination, and the productivity impact of that wasn’t amazing. On the other hand, putting electricity into factories, that is a real productivity revolution. So I think so much of, you know, what you’re calling the experimentation period, we don’t even — for 20 years, maybe we’ve just been using the technologies for things which aren’t showing up in the productivity figures. Michael R. Strain: And Jim, to answer your question more directly, I agree with all that. My optimism is not driven by some sort of kind of vague, “This is how it’s always happened in the past.” I mean, if you look at specific technologies, you know, we’re getting much better at batteries, we’re getting much better at therapies like vaccines, we’re getting much better at artificial intelligence, you can go onto YouTube and find videos of driverless trucks going down the highway. You know, so these are very, you know, specific, concrete, tangible innovations and technologies that you can point to, and the question is, you know, at some point, are businesses going to figure out how to make money using them? And the motivation there I think is so strong that the answer is surely “yes.” Tyler Cowen: I think the new innovations will be special in at least one significant way: A lot of them will not contribute that much to per capita GDP. So, if you take the mRNA vaccines, which we know work, right? I’ve had two of them. They’re influencing what would normally be called the “cyclical component.” If you think of older people as more likely to die from COVID-19, by saving lives, I’m not suggesting per capita GDP will go down, but the impact on human welfare will be much greater than what would appear to be the long-term secular trend in GDP. Also, two of the big advances that might happen is a vaccine against HIV/AIDS and an effective vaccine against malaria. Those would be incredible advances for humanity. I don’t know how much they would show up in the US per capita GDP or productivity, possibly not really much at all. The other new wave of innovations, which you could call green energy — again, you could be very optimistic about those, but the main thing they’re doing is helping us avoid a catastrophe. So, they’re boosting GDP relative to a quite awful counterfactual of just continuing to burn coal and other fossil fuels. I’m not sure we’ll feel we have higher standards of living relative to what we were used to simply because there’s a solar panel on your home. It might in some ways make your energy supply better, but again, it will be hidden by the counterfactual. So, it will be a very strange kind of technology boom when I look at the two main areas where I see a lot of progress.

Michael R. Strain: So, Jim, can I disagree with Tyler a little bit? I want to agree and disagree. I think, Tyler, it goes back to the issue of the timescale you’re talking about. And so, I agree with you that if we can go into the lab and create a malaria vaccine and it takes two weeks to do that, that would be a game changer for human welfare. I wouldn’t expect it to show up in US productivity statistics the year after or the year after that, but a world where we aren’t losing so much talent and skill to malaria will look a lot different than the status quo. And, you know, maybe 10 years from now there’s a renaissance in Africa of invention — you know, there’s a Bill Gates figure who pops up who would have died of malaria but who didn’t, and then we can all benefit from that. And so, you know, my view is that over a suitably long time horizon, that malaria vaccine would show up in the US productivity statistics, but over a suitably short time horizon, it wouldn’t. Tyler Cowen: I see that as very long run, though. The countries that will benefit the most from such a vaccine are not really producing ideas or TFP today. So they might send more talented migrants to the United States, but there’s a legal cap on migration and those people might come from some other region instead. I see it as a 40–50 year effect on any US statistic. Again, I’m delighted about it for the sake of those lives, those countries’ GDPs elsewhere. But in terms of US statistics, I think things could be incredible and for the next 10 years, it’s going to look like the boring 2.2 percent story or something else that will be quite unexceptional. Dietrich Vollrath: Yeah, I think we need to be conscious of the difference between technological optimism and technological advances in an exciting decade, say, of innovation — that’s distinct from how we measure boring old GDP and productivity, because they separate more and more over time. I think, you know, if we go back 80 years, GDP and innovation probably were really much more tightly linked, because innovations were producing things that generate a demand for themselves. You invent the refrigerator and everybody goes through a wave of buying a refrigerator, and it plays right into productivity statistics and GDP. But a lot of innovations today are — you know, Tyler brought this up about some of those, say, climate-based ones, they’re really about replacing, they are about not buying certain things. They’re not about creating a market or adding a product, they’re about replacing one or removing one. So I just think the disconnect can be there, which isn’t to say we should be pessimistic, but we need to maybe not have our optimism keyed off of measured productivity or measured GDP statistics necessarily. James Pethokoukis: Is there a risk that if we go through a period where none of this stuff is really showing up in data and maybe it’s not obvious that people’s living standards are rising, do we risk having, sort of, less societal tolerance for the kinds of disruptions that economic growth and progress naturally make and we had this whole populace move and maybe gets worse and there’s less tolerance for job loss or job dislocation or any other disruptions that come? I mean, don’t we need to have tangible signs of rising living standards to justify policies that promote, you know, growth and progress? Dietrich Vollrath: I think those innovations will be tangible, right? Like, a malaria vaccine is incredibly tangible to people who, you know, live in an environment where that’s endemic. The advances in AI and computing or just being able to do a panel like this that, you know,

we’ve kind of all adapted into this the system, these are tangible things people can know. But I think there is a good question there, and it’s just like, will people accept that even knowing when they look at the statistics, they’re like, “Well, it doesn’t look like anything is changing”? But in many ways, right? Like, we all felt changes even over this stagnant last couple of decades, right? We live fundamentally different lives than we did, you know, when I was growing up or, you know, my parents live fundamentally different lives now than they did in the past even without massive productivity growth. Michael R. Strain: So, I don’t think anybody’s looking at the GDP or productivity statistics, but they are, I think, looking at it in terms of assessing how they feel about kind of broader economic policy issues, but they’re thinking about their own lives and I really wonder if the pandemic is going to affect that. I mean, I think, Tyler, when your book came out, that was really kind of, in some ways, at the beginning of the populist wave, or certainly in the early stages of it, and I argue against the narrative of populism. I get a lot of sarcastic comments about, “Oh, great, you have a better iPhone than you used to have, but what does that actually do?” Or, you know, Facebook is better than it was, or things of that nature. But we just defeated the plague in a year and that was technology and that was the big, bad pharmaceutical companies that did that. And I think it’s still too early to say, but I wonder if there won’t be more warmth toward kind of abstract notions of creative destruction and abstract notions of the importance of innovation as a consequence of what I think is reasonably widely viewed as a pretty stunning technological success in terms of the vaccine. Tyler Cowen: Here’s one of my fears — it’s the biomedical innovation progress is so fast but the rest of the economy stays relatively static, so we become older as a society more quickly than we had been expecting. It may or may not be populism, but you could have a lot more status quo bias — just more entrenchment, 10 years more of a problem — and we could, in a funny way, innovate ourselves into a tighter complacency and a tighter stagnation. I’m not rooting against increases in life expectancy. Ceteris paribus, I would take them, obviously. But that said, you want to be careful about the order in which progress comes, and I’m not sure if we’re going to get it in an optimal order. Michael R. Strain: I worry about that also with inequality, where you have a situation where, you know, some new cancer therapy is invented and you can avoid chemotherapy and, you know, it basically cures your cancer with 100 percent success rate, but it’s extremely expensive. And, you know, so we now have a situation where, you know, that not only do the rich, you know, find it easier to send their kids to college, but they also don’t die from cancer, whereas the lower middle class still does die from cancer, something of that nature, I think that’s a real risk as well. Catherine Tucker: Right, I’ll just sort of jump in there and say that, you know, in the digital economic space, we have a lot of studies trying to say, “Well, do digital technologies enhance and then get rid of inequality, or are they making it worse?” And I think the annoying result of having a general thesis is we have many contradictory results. I mean, you’ve got your very appealing cancer example here, but there’s also papers which showed that simple processes such as digitizing medical records actually enhance outcomes for

poorer patients because the doctors aren’t having to listen anymore and paying potentially more attention to someone who’s more highly educated. Instead, it’s something which helps, actually, outcomes for people who might not get the right medical attention. So, I’m just saying, I think you can — for every bad implication you have for reinforcing inequality, I also think you can find some rays of hope as well. James Pethokoukis: Just as far as what Catherine said, it certainly seems to me that a lot of the media coverage, at least about digital technologies — it’s about the downsides, it’s about inequality, it’s about a surveillance state, it’s about job loss, you know, the robots take all the jobs. I wonder if Catherine senses that as well and if that’s at all worrisome? I do worry about a lot of sort of pushback against these technologies — I don’t know, a neo-luddite movement or something — where people just don’t see the upside to all this change. Catherine Tucker: Well, you know, a year ago — I think before the pandemic hit and people were thinking about worthier topics — in my field, this phrase “tech lash” became popular, which is just this idea of an increasing focus on the negative consequences of digital technologies rather than the upside. And it’s just been so refreshing being on this panel where there’s so much enthusiasm and optimism. Dietrich Vollrath: To throw something on top of that, I think one thing to consider — just really kind of thinking blue sky like this — is that, you know, as we advance and as technology improves, I mean, to think very economist-y about it, right? Kind of the marginal utility of what we’re gaining out of a lot of these innovations may not necessarily be very high compared to the marginal utility of indoor plumbing or electrification. And so, that real, tangible feel of improvement that, say, my grandmother and my parents felt as kind of those things hit their households, you know, there may be improvements, you know, coming along, but the new version of my iPhone doesn’t have the same — it doesn’t carry the same weight, right, of, “Oh, my God, we have electricity.” So, you do wonder if that kind of a notion of a little — you know, like, “Well, things are fine the way they are and I don’t really like change, and the changes I’m looking at aren’t that — they’re good, but they’re not that great,” starts to weigh a little on people’s willingness, as I think we were saying, people’s willingness to kind of get behind it and accept the disruption that comes. Whereas maybe in the past, you maybe are a little more willing to accept some disruptions because the gains were just so tangible and big and so clear. Tyler Cowen: A lot of the innovations might also be negative. So, it could be easier for terrorists to deploy weapons of mass destruction, drone attacks might become a greater worry. Even something more mundane such as crypto — debate all the time, “Well, there’s $1 trillion of value created, but what’s the social value there?” I would just say that debate is unsettled, but $1 trillion is a lot if the social value isn’t going to be that high. So let’s not fall into the trap of thinking all innovation is good. That has, for many decades, typically been the case. But I think it’s very easy to imagine a very near future where actually a lot of the innovation on that is bad. James Pethokoukis: Indeed, that’s sort of what I was getting at, too much of — it seemed to me, a lot of the media coverage is about these downsides. And I wonder one of the reasons is

that when you — we seem to take it for granted that things are obviously better than they were 20 or 30 years ago, that people’s lives are clearly better. But certainly, there’s a narrative out there that that is certainly not the case — that, really, people’s lives really aren’t much better over the past 30 or 40 years and we’ve had all this disruption and job loss, mergers, acquisitions, we’ve had new technologies, but people’s lives aren’t any better, so what’s the point of all this? And I do worry about that attitude to feed a certain narrative and that we won’t do the things that we need to do to keep growth advancing the way I think we’d all like it to. Tyler Cowen: I think you’re not taking the negative seriously enough. So, if the points in Rust Belt don’t return, yes, that’s terrible. But you could imagine, just at the fundamental, the balance between technologies of attack and technologies of defense is so altered that the world as we know it isn’t really quite feasible anymore. Like, eventually, that does happen, right? It’s happened in every other historical era. The new balance may or may not be a better one. James Pethokoukis: Dietrich, we’ve focused on Tyler’s book; I know you have a book too, which is that all these concerns I have about productivity growth, but maybe I shouldn’t be so concerned about them; they’re actually a sign of what our society has done right. Dietrich Vollrath: Yeah, you know, that book very much is a look backwards as opposed to a look forwards in many ways. So, you know, I don’t want to extrapolate that argument necessarily, you know, blindly, but, yeah, I mean, I think the point of that was that — and that gets back to an earlier comment I made, which is that thinking about productivity growth or GDP growth, in particular, isn’t necessarily the way to measure “improvement,” you know, in quotes. You know, however, you want to think about welfare or well-being, you know, we saw lots of — we saw a very rapid economic growth in the 20th century tied to a lot of very material gains — putting things in homes, basically. And then through aging and through shifts out of producing stuff and things, we’ve kind of naturally gotten much slower growth as a result of being very good at it for a long time, right? So, the argument in the book is basically the reason we have some slower growth now is because we did a lot of things right for a long time and it’s just — you know, if you do start to project that forward, then that’s where I say that disconnect between the kind of the statistics and the actual experience, I think, will certainly stay there and may accelerate in the sense that as we invent things, we often are — like I said, we may just be deciding we’ve invented a way to use less of stuff. And so GDP might not go up, we might lower our resource use, we might see that in some productivity, but we may have reached the point where we’re not trying to actively make the economy grow, we’re trying to limit our impact on the environment or something like that. And so, you know, I think it makes it harder to evaluate, “Are we improving?” You know, kind of to Tyler’s point, like, you can’t just look at one statistic, GDP per capita, say, and say, “Well, on net, things must be getting better because that’s going up a lot.” We’re going to have to think hard about the particular implications of these technologies as they arise.

James Pethokoukis: What is sort of the consensus confidence level that — you know, we probably focus less on AI than, you know, many, I think, conferences or panels like this would — but what is our confidence all of these technologies won’t create widespread unemployment and they will create — they will help us do what we do better, they will create new things for us to do, and they’re not just going to end up being job-replacing technologies? And is our confidence merely based on, “That’s what’s happened in the past?” Who wants to start? Catherine? Catherine Tucker: Right, well, I’ll take that. So, you know, we always do that half of our economics of AI conference to trying to do empirical studies of precisely this. And in some sense — given that, let’s be clear, this is a recent change and economists love their long datasets — I will say that the evidence we have is scattered across multiple sites, but I think it’s fair to say that those multiple studies do give a consistent view of machine learning as being a human-augmenting technology rather than a displacement technology. And now, if you wanted to argue back, you could say, “Well, maybe the places you looked where machine learning has been adopted, first of all, it has been adopted to win hearts, white-collar workers productivity.” And so, you could make that argument, but I would say that — at least if you look at the studies where machine learning has been adopted, broadly, we’ve been able to measure something — it has been very much augmenting productivity rather than being any evidence for displacement. Tyler Cowen: I’m not so worried about job loss; I’m more worried that the internet makes people weirder. Now, that makes them more creative, it creates small groups who — it’s very fruitful, it can be fun, exciting. But viewed anecdotally, it seems reasonably obvious to me the internet is making us weirder on the hall in a QAnon sort of way, and that intersects with a fairly large government. And I don’t think we have any good models for how that process works either on the psychological side or the political science governance side. So, I’m broadly worried about that, but without having a clear prediction, it just seems to me the political equilibria we used to have are just not coming back. Michael R. Strain: So, I’m not worried about automation — I’m sorry, I’m not worried about technological advances replacing human workers — for the same reason I’m confident that all of these technologies that are being created are going to eventually be used to make the economy more productive, which it’s just too much low hanging fruit for businesses to pass up. And it will, of course, be the case that advances in technology lead to some businesses and some industries using fewer workers — that’s what productivity is — but that’s going to create a bunch of workers, a bunch of human resources, a bunch of human capital that’s just sitting around that business can use for new stuff, and they’re going to figure out new ways to use those workers. The same basic process drives the adoption of new technologies. Businesses can just make too much money with these new technologies to ignore them. But I am worried about the transition, the transition period between, you know, when a new technology is invented and when it’s adopted. And I think that we’ve actually been, you know, in conversations like these, we often think about these changes as kind of looming — you know, the looming threat of automation, the looming dangers that new technologies are going to bring. In

reality, advances in technology have been reshaping the labor market for decades, and we’ve seen new ways of producing manufactured goods, new ways of doing clerical work, new ways of doing other really important economic activities, completely change relative to what they looked like in the 1970s, say, or the 1980s. And we’ve seen huge changes in the distribution of employment across occupations, there’s much less employment in middle-skill, middle-wage occupations than there used to be, and that has had enormous consequences for our society, for politics, and for the economy. And I expect that that kind of process is going to continue as businesses learn how to integrate newer technology, and that is very disruptive, even if it does not spell the end of human work. Dietrich Vollrath: I’ll add one thing on top of what Michael was saying, which is — and I completely agree, right? Like, we’ve watched this for, I don’t know, two centuries, right, happening as people move in between occupations and industries. Well, I’ll just say that it’s a good thing if we work less. So, if we find technologies — Michael R. Strain: That’s a controversial statement. Dietrich Vollrath: Yeah, and then it becomes, I think — touching back on that comment on the equity across these technologies, like Michael used the example of being able to access cancer treatment, the disruptions come because — and are felt very heavily by a small group of people maybe who are put out of work. But kind of over the long run, we might imagine AI or machine learning or some of these technologies allowing, in general, all of us to do less work in four days a week, three days a week, Keynes’ 15 hours a week, whatever that is. If it’s equitably, kind of, applied, then that represents a benefit — kind of putting ourselves out of work is a good thing in that sense. But it depends, kind of the speed and pace of that and how tightly it hits may change the attitude about it, right? It’s hard to tell somebody, “Well, you guys lost your job today but don’t worry, 30 years from now, everybody will be working 10 hours a week.” That, you know, is not going to fly. But it will be interesting to see if we do take advantage of some of these technologies to kind of find a new equilibrium where we all kind of ramp down the actual effort that goes in and use that for — you know, well, we could sit around and have panel discussions about how the world works and enjoy our time. James Pethokoukis: Would an acceleration — we were talking that it may not be obvious in all the economic statistics, but shouldn’t it be obvious in some statistics? If we’re going to see an acceleration in technological progress, wouldn’t it show up somewhere, if not business investment numbers, you know, the stock market, interest rates? Would there be some sort of measurable economic impact, even if it’s only — maybe it’s, you know, extending lifespans or replacing carbon-emitting technologies with carbon non-emitting technologies, shouldn’t this show up somewhere in the numbers? This isn’t going to be like a numbers-free phenomenon, is it? Tyler Cowen: Public health statistics. But I think there’s one innovation, in particular, we haven’t discussed yet, and it could be the most important one. And that’s innovations to

make raising children easier. So, raising children is one of the great joys of life, but it’s also one of the great burdens. And I see really quite a few wealthy countries depopulating. So, if we don’t have innovations to make raising children either easier or more fun or less costly, whatever, we’re in big trouble. So, let’s not only talk about per capita GDP; let’s talk about the number of capitas. And that’s possibly a crisis — I would say already a crisis, say, for Italy, maybe Japan and South Korea. Dietrich Vollrath: Well, and it plays into this whole question in the future of innovation in general, right? The general mental model most growth economists would use would say that, you know, that’s the scale of the number of people kind of having new ideas, that it’s going to be behind these waves of innovations and starting businesses. And if we stop having new people and we run down that, kind of — we aren’t growing that stock anymore, we may well run down the pace of innovation. You know, a shrinking population or a stagnant population means that certain businesses aren’t viable, right? Like, there’s certain businesses that are out there that could start tomorrow that with a large enough market, you know, it would be worth doing this. But if the market’s shrinking — just the absolute number of people — then there’s a lot of ideas out there that aren’t worth implementing. So, you know, I think that may be a number — to Jim’s point, like, “What numbers are we looking at?” That’s kind of one of those weird ones but I’d agree with that. I think fertility rates, in some sense, are maybe one way of kind of — not the one statistic, but a way of looking at are we really progressing, right? Do people feel that optimistic about the future that they — and capable of putting kids into that future that they, in fact, are willing to have large families? Michael R. Strain: I completely agree that the fertility rate is the driver of innovation. Going back to my earlier comments on why I’m confident that eventually something like a malaria vaccine will show up in US productivity statistics, though, I agree with Tyler that that could take a couple of decades to happen. I guess I’m less convinced that the difficulty of raising children or the burdens of raising children are driving declines in fertility. You know, it was pretty tough to raise children 100 years ago, maybe even tougher than it was today, It was arguably tougher to raise children 200 years ago than it was 100 years ago. There is a vast infrastructure in many of these countries that witness declining fertility rates to support people who are trying to raise kids. So, I’m not disagreeing that that declining fertility is a problem for any nation, I’m just arguing that it’s not clear to me what is driving that decline. James Pethokoukis: We have really a lot of questions from people watching, so I want to ask sort of one final of my questions before I get to theirs. If we had this, you know, seminar 10 years from now, and it’s “Why the great stagnation continued?” and there was no great acceleration, do you think it’s more likely to be because the technologies that we’ve mentioned really didn’t turn out to be that transformational? Or do you think it’s more likely to be we implemented policies that are actually harmful to economic growth and productivity growth? Who wants to take a swing at that one?

Tyler Cowen: I have a different nomination, I would say it’s that we had some emergencies, we responded pretty excellently, and then we sunk back into our sloth. Catherine Tucker: Right. You know, I was sort of thinking of a version of that, Tyler, in that, you know, something which has been an amazing shock in terms of the adoption of digital technologies due to the pandemic has been the number of small businesses that now have online short storefronts. And let’s be clear, this is a technology that’s been available for 15 years, right? But it was only really the necessity and the need which made it top of mind. And so, so much of our advances, you know, are they going to be top of mind in the next 10 years? Especially in a world — back to what Tyler says — we might be getting distracted, you know, by as you say the other aspects of what might be the roaring twenties. Dietrich Vollrath: Yeah, I wonder if it’s — I hesitate, some of it is part of policy perhaps, but maybe kind of to Tyler and Catherine’s point, it’s a willingness. I mean, I think there is this, you know — are we willing to take the risks that are associated with innovations and implementing them because they involve risks and disruptions, and are the gains seen as worth it? And maybe, you know, kind of the vaccine situation in the EU is perhaps the tangible example of that, right? Like, will we be — right, this is what the situations were like, how could it be more clear what the benefits are on this new technology, and it’s still fighting against this very risk-averse kind of policy setting and mood, so to speak, from the implementer? So, I think that’s more of a cultural thing than it is necessarily a specific policy, although in that vaccine case, some of that, you know, really is written into their evaluation. So, I would lean that way, I think it’s more likely to be that kind of thing than it is the actual failure of these technologies to arise or to be leveraged, it’s probably more fear of risk — you know, precautionary principle kind of things — that prevents people from putting them in. Michael R. Strain: And to take Jim’s question literally, if the technologies that we see existing haven’t found ways of being used and aren’t showing up in productivity statistics, that seems to me to be not really an issue of public policy. My worry about policy (poorly designed policy) is that it prevents the emergence of new technologies — that we’re not doing enough to support research and development, that we are unnecessarily holding back entrepreneurism and unnecessarily holding back business investment in a way that’s preventing new ways of doing things or new technologies from being invented. We can point to a bunch of new technologies that have been invented. And so if those are not incorporated into business practices and don’t show up in productivity statistics, you know, then I think you have to look at the demand side of the economy. This conversation has been focused almost exclusively on the supply side, which is the right place to put it, but if we fail to use batteries or we fail to use vaccine creation technologies or things of this nature, you know, then that just suggests that people don’t want it and businesses don’t see a profitable way to use those. And this is, I think, a real threat to innovation and to productivity: If, because of the aging of the population and lots of people saving and big powerful macroeconomics forces like this, we have just less demand in the economy than we need to have in order to spur businesses to do creative and inventive

things, then that is a problem and I would place that as a nontrivial potential threat to productivity growth. James Pethokoukis: All right, let me run through some of these fantastic questions from the viewers. All right, “As science grows more complex and research productivity slows down, do we need to expand our supply of scientists and innovators? If so, what role does government have here?” Dietrich Vollrath: Yes. Michael R. Strain: Yes, the answer is yes. I mean, we need to let in way more high-skilled immigrants, we need to give a green card to any immigrant who graduates in the STEM field from a US research university, we need to have much more government funding of scientific research. We need to allow businesses to invest in research and development more than they currently do, we need to have a culture that encourages risk-taking and that encourages entrepreneurship. All of these things I think are critical. Dietrich Vollrath: I’d add there’s a lot of interesting research out there in just the last few years about the pools of potential talent that we don’t necessarily use within — well, within the US, within Europe, within any country, but a lot of them more focused on the US — that a lot of innovation comes from people who are part of small networks where they’re exposed to innovators throughout their life — their parents or they live in small neighborhoods in some very small physical areas where they happen to be exposed to that environment and that maybe we aren’t using the full pool of that. And I don’t know what the policy is that you would implement to rectify that, but I think it’s the kind of thing that it’s there, it’s not like we have to invent new people to do this R&D, they’re out there. And there’s, you know, a tail of those groups that have the talent to do this stuff, we just need to do a better job of pulling them in. And by itself, it can just increase the number of people that are participating and spitting out good ideas. James Pethokoukis: “As we break out the great stagnation, will Silicon Valley be leading the way? Or will China take the lead in technological innovation?” So, almost like an American century/China century kind of question. Michael R. Strain: I’d bet on America. Tyler Cowen: I’d bet on America. Look at the vaccines, right? It’s a big difference. We’re even beating them in terms of vaccinating people and, furthermore, Chinese vaccines in China are being held up by their own manufacturing capacity, which runs counter to the traditional narrative but I don’t actually think it’s a surprise. I think the Chinese are way ahead of us in terms of payment space and QR codes and integration of finance and commerce — those are some very real areas. Maybe they’ll end up ahead of us with quantum computing or some biomedical areas. But the simple question, “How many really smart immigrants want to go live in China?” I think settles it. James Pethokoukis: “Should we be concerned about government spending crowding out private investment trapping us in stagnation?”

Dietrich Vollrath: No. Michael R. Strain: I mean, I would have said no a year ago. You know, I think that we are going to reach full employment and I think that the Biden administration wants to continue doing big deficit finance spending programs beyond that point, and so there is going to be some crowding out happening. You know, I think that’s more risk for macroeconomic stability, I think, than it is for any sort of medium-term productivity concerns. But, you know, having what I would describe as a more responsible macroeconomic policy, I think, is important, but, you know, may not be a rabbit hole, Jim, that you want us to go down. James Pethokoukis: Well, good. I’m going to give you even a better rabbit hole. Michael R. Strain: I mean, you asked the question, so maybe you do. Yeah, I don’t want to take control here. James Pethokoukis: No, I know you don’t, you’re giving. But this is a good rabbit hole question, “How does religion impact the adoption of technology?” Tyler Cowen: In my view, religion, on average, keeps the birth rate higher. So, on net, I think a higher population is good for innovation, but it can check the contributions of female scientists or female innovators. I don’t think we should forget that. Religion, per se, other than its effects on population — it can build an ethos for a society or a sense of cohesion, I think we’re past the point where religion is stifling innovation because of, you know, what the church tells people to believe, but I think it’s a mixed effect, mostly positive but with — Michael R. Strain: Have you ever heard of the printing press? James Pethokoukis: I’ve heard of the printing press. Michael R. Strain: That was an important technology. Dietrich Vollrath: Can I ask — James Pethokoukis: [inaudible] Right. Dietrich Vollrath: Can I ask a question based on that question? And I want to ask it of Catherine because I just don’t know this area. Do we have research on whether digital participation — we’ll call it Facebook, whatever you want — increases religious identification, decreases it? Do we have any sense? And that’s for anybody, really, but Catherine might have some ideas on this. Catherine Tucker: Well, let me tell you about — as ever, we tend to write papers at a time because we’re such a new field, but let me give you an example of a paper. You know, you look to see what happens when a state suggests that creationism can be part of the curriculum. And then what we’ve found is that the internet exacerbates all the effects of that role, in that if you go to the right parts of the internet, it’s very easy to find support for creationism and the internet enables you to do that, and then you go down that rabbit hole and then it affects your scoring on key statistics for getting into university. And so, I sort of think there’s interesting interactions between religion and digital tools, but it’s not the case that we’re sort of thinking that it’s the bar or barrier that we might have three decades ago.

James Pethokoukis: I’m going to ask one more question here. This was directed to Tyler, so I guess, Tyler, please answer it and anyone else can then jump in. “What can policymakers do to make sure the balance of innovation remains positive?” And my guess that could mean that it’s the kind of innovation that creates jobs, it’s the kind of innovation that makes our lives better, not just makes us weirder or distracts us. So, how can we make sure we get good innovation? Tyler Cowen: I don’t think that’s a variable we’re very good at controlling. Another issue I’ll bring up, it hasn’t been mentioned yet, but innovation in highly addictive drugs already is a major problem, has been so for a while, possibly could become a bigger problem yet. If you’re bullish on biomedical innovation, we may also innovate with bad drugs that harm people’s lives. So, I’ve studied drug policy a bit, science policy, but I think the general configuration of where you are at already tends to overwhelm what you can do. I’m not saying we shouldn’t do anything, but I think one should have actually a somewhat modest predictive opinion of how much policymakers can indeed change these variables. James Pethokoukis: Anybody able to jump with an idea or even to say — or even give me a final idea about if we want government policy to be sort of pro-innovation? We mentioned a little bit, I think, about immigration, any other sort of pro-innovation policies anyone wants to highlight to wrap up? Dietrich Vollrath: I’ll echo Michael’s before — you know, he mentioned essentially basic science research. I don’t think you’ve said it quite that way, Michael, but increased funding for basic science research. I mean, we know that that has maybe bad — you know, may have good outcomes or may have bad outcomes, depending on — because we can’t forecast necessarily as Tyler said, but we know that forms the core, right? And trying to be super targeted, we’re not good at that, so basic science researches and kind of letting, in that sense then, let the market figure out what that basic science can do, potentially good or bad, and then start to be careful, but I think that’s maybe one of the other big pieces here to ensure that innovation continues. James Pethokoukis: All right, then I’d like to thank Tyler, Catherine, Dietrich, and Mike for coming on the panel today, and thanks, everybody, for watching. Thanks a lot.