I found this article by James Pethokoukis on why economic growth has slowed interesting but ultimately frustrating. Like so many other such articles it’s much better at stating the problem than producing much in the way of answers. I agree with this:
In 1900, the high school graduation rate was only 6%; now it’s between 75% and 80%. The college graduation rate back then was maybe 2% or less; it’s now around a third. However, again, we are seeing a real fall off in continued growth in human capital, at least as measured by years of schooling. Part of that is math, there’s simply so many years that you can stay out of the work force to improve your job skills. Perhaps we are running up against that. We are running up against the number of people qualified to take on post-secondary education. In primary and secondary education, there are fewer people graduating high school today than there were in the early 1970s and test scores haven’t improved at all.
However, he elides over the facts that the unemployment rate for new college graduates is 8.5%, higher than the general rate of unemployment and that H-1B visa holders are frequently paid less than native-born workers for the same jobs. If we do, indeed, need more workers with more education, wouldn’t you think that the wages should be rising for them and the unemployment rate lower?
The key to more robust innovations is more robust entrepreneurship. Big, established firms innovate all the time, but they tend to innovate at the margins. They don’t tend to come up with big industry upending innovations for precisely the reasons that doing so would mess up their current profit centers.
We typically see new industries being created by new firms, new technologies coming to the surface with new firms. New firm formation is really the key to the creative destruction that makes modern economies dynamic and innovative. We have seen a secular falloff in the rate of new business formation and the percentage of people working in new businesses.
I think the solution to that problem is to lower the barriers to new business formation, to stop subsidizing large companies, and reduce the power and effectiveness of the tools, e.g. intellectual property law, that large companies exploit to beat down smaller upstarts. Unfortunately, I can’t see any enthusiasm for doing any of those things because all of them have powerful support constituencies.
Additionally, there used to be a dictum that big companies like to do business with big companies. I think that’s still true but I think it can be extended: big government likes to do business with big companies which prefer to do business with other big companies. In other words the larger and more powerful government becomes the more policy will tend to be oriented to favor large companies and the lower our rate of new business formation will become.
Rather than articles devoted to defining and exploring the problems in minute detail I’d like some articles completely dedicated to solutions.