Low hanging fruit

Growth in the U.S. economy from the war and until the middle of the 70th century was based on the picking of three low hanging fruit. Now, the fruits are picked, and perhaps it is one of the reasons that there are so few jobs created in the United States.That, at least is the claim Tyler Cowen makes in his book “The Great Stagnation”

In the book he emphasises that the United States has had three major advantages. They have had a nearly free land, major technological breakthrough and smart uneducated youths. Now these resources fully exploites, and Cowen believes that there are few low hanging fruit in the future.

Cowen writes:

In a figurative sense, the American economy has enjoyed lots of low-hanging fruit since at least the seventeenth century, whether it be free land, lots of immigrant labor, or powerful new technologies. Yet during the last forty years, that low-hanging fruit started disappearing, and we started pretending it was still there. We have failed to recognize that we are at a technological plateau and the trees are more bare than we would like to think.

It is obvious that there is no more free productive land left in the USA. It is also understandable that after a while, as education level increases and more and more people are educated the productivity growth for each additional year of education is less and less. However, the most interesting in Cowen’s analysis is that he claims that we have reached a technological plateau, and that technology can no longer drive the economy. He says that the big leap is over. We all have electricity, running water, telephone and transportation. Exchanging a refrigerator of 60 liters for a 240-liters machine with ice cube fascilities is not a quantum leap, but a small improvement. It was something quite different when we first got the possibillity to freeze or keep our food cold.

He writes:

Across the years 1965 to 1989, employment in research and development doubled in the United States, tripled in West Germany and France, and quadrupled in Japan. Meanwhile, economic growth has slowed down in those same countries, and the number of patents from those countries has remained fairly steady. The United States produced more patents in 1966 (54,600) than in 1993 (53,200). “Patents per researcher” has been falling for most of the twentieth century.

By this, I believe, he means to say that despite the internet revolution, we have not seen new technologies that really changes the way we live. As he says, teleportation would change the way we live, an internet enabled car with GPS does not.

A lot of our recent innovations are “private goods” rather than “public s.” Contemporary innovation often takes the form of expanding positions of economic and political privilege, extracting resources from the government by lobbying, seeking the sometimes extreme protections of intellectual property laws, and producing goods that are exclusive or status related rather than universal, private rather than public; think twenty-five seasons of new, fall season Gucci handbags.


Keep in mind that median income growth has been slow, and stock prices—the valuation of capital—haven’t made lasting progress in a long time. As of the fall of 2010, the S&P 500 is more or less back where it had been in the mid-1990s. As economist Michael Mandel puts it, if neither labor nor capital is reaping much gain, can we really trust the productivity numbers


“Discovering who isn’t producing very much and firing them” has been the biggest productivity gain in the last few years.

This is exciting ideas to develop further. It is interesting how he takes issue with the Internet hype from the last few years.

Most Web activities do not generate jobs and revenue at the rate of technological breakthroughs. When Ford and General Motors were growing in the early part of the twentieth century, they created millions of jobs and helped build Detroit into a top-tier U.S. city. Today, Facebook creates a lot of voyeuristic pleasure, but the company doesn’t employ many people and hasn’t done much for Palo Alto; a lot of the “work” is performed more or less automatically by the software and the servers. You could say that the real work is done by its users, in their spare time and as a form of leisure. Web 2.0 is not filling government coffers or supporting many families, even though it’s been great for users, programmers, and some information technology specialists. Everyone on the Web has heard of Twitter, but as of Fall 2010, only about three hundred people work there. Let’s go down the list and look at the (approximate) employment figures for some of the top Web companies: Online Industry Employment Levels Google–20,000 Facebook–1,700+ eBay–16,400 Twitter–300

Now the numbers he uses does not including all the supporting industries that spring up around these internet companies, but there is no doubt that Google or Facebook is far from creating as many jobs as the old industrial companies did. At least as interesting that the fact that these companies do not earn so much money that tax revenues provide the ability to support a welfare state or to pay pensions to people who are not working. Of course, the Internet has a value beyond the purely monetary. You can read more about Cowen’s thoughts on it here. And I should also mention that he concludes the book with an optimistic belief that the internet and smart machines can still turn out to be the breakthrough that is helping to create new low hanging fruit

All this is of course very important for income and income distribution in society. This graph shows how the development has been in the United States.

Graph loaned from Wikipedia/User:Frichmon http://en.wikipedia.org/wiki/File:Gdp_versus_household_income.png

Media income has risen much less than the growth in gross domestic product. Until about 1975 median income increased entirely in line with growth in GDP. So the change is after that time is significant. I also believe that this shows partly at least, why the extreeme right is dominating the economic discourse in the US. In a country without strong trade unions that can fight for equality, where the average man and woman do not see their own income grow while the richest only becomes richer, it is not surprising that tax relief is one of the most important political issues. In Norway, there have also been differences, but not nearly so great. From 1990 to 2007 the increase of the real value of median income after tax was 40 percent, while GDP rose by over 70 percent from 1990 to 2010

How should we interpret this in a Norwegian context?

Here we have also had great low hanging fruit that we have picked, perhaps the most important been an abundance of natural resources (oil, hydroelectric power and fish) and a strong increase in women’s labor force participation, as well as a big growth in education level. I think we’ve taken out most of the potential within the labor force participation and education. And we know that oil is going to end.

If we believe this analysis shows that the need to change from an oil-based economy to a different type of economy is urgent. If we do not,and do not find new low hanging fruit, there is great danger that we too can experience an economy that grows, but where there is not created employment and income for ordinary people.

We need to start the restructuring now, we should be ready with something new when the last sweet oilapple are picked.

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