Monday, January 16, 2012

Thinking about the Economics Debate in the Coming Election

Based on some recent polling by Gallup the economy will be at the forefront of what is bothering the American voter in 2012.   Indeed, Gallup suggested in a release of polling data today that the President faces a "challenging" re-election climate.   Only Bill Clinton's approval rating was lower at this point in the re-election cycle among modern presidents.  Obama is six points under where George H.W. Bush was in 1992 on the percentage of voters that is satisfied with the direction of the country.   Obama's rating on the economic confidence index is sixty points below where George W. Bush 43 was at the same time in the election cycle.  And the mention of the economy at the most important issue facing the nation is ten points higher for this president than it was for George H.W. Bush in 1992.   Polls do not make elections so a lot could happen between now and November.

If the economy is going to be at the center of this election - what are some good sources to think about the issue?   In the last year I have found two E-books which I think are superb.   The first is Tyler Cowen's   (George Mason University) The Great Stagnation.   Cowen argues that for at least the last several decades the American economy has picked what he describes as the "low hanging fruit" of innovation.  He suggests that without some pretty good research we are likely to plod along at tiny rates of economic growth.  The consequences of that are huge.  First, we have assumed a higher level of growth to fund social programs in government and that surplus, if reduced, will not be available.   Second, we risk having an increasing portion of the workforce being outside it.

The other book is by two MIT economists (Erik Brynhjolfsson and Andrew McAfee) Race Against the Machine .  Those authors take a slightly different approach.  They argue that we may be reaching something that Norbert Weiner argued for six or so decades ago - namely machines are taking away jobs at a faster rate than technology is creating new ones (and even if that is not true - technology is dislocating some formerly well paid employees).   As with any disruptive technology cycle the rewards to the innovators seem disproportionate to one group.

Both books are well written and inexpensive (less than $8 for both!) and somewhat interactive - so for example in the MIT book if you see a reference you can click to see the original research from which the point was made.   What is fascinating about them is that they have some common threads.   First, while both argue we are going through a significant set of changes, neither is completely pessimistic.   Second, both argue that part of the solution to dilemma posed in the book is increased education.  

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