Everyday Economics (14 videos)

American Stasis

Instructor: Tyler Cowen, George Mason University
Disruption. This is the big buzzword when it comes to startups and Silicon Valley. Many of the top tech businesses today have caused major...

Disruption. This is the big buzzword when it comes to startups and Silicon Valley. Many of the top tech businesses today have caused major disruptions in their industries – from Uber, to Airbnb, and even Facebook, these tech giants are changing the game. However, if we peer outside of this small window, the narrative of fast-paced innovation and a rapid rise in startups falters.

In fact, the rate of startups forming has trended lower and lower beginning in the 1980s. Younger firms are also less likely to become successes than they have been in the past. Outside the sphere of the few highly-visible companies that have made strides in improving our standard of living, the U.S. economy is stagnating.

Lots of older firms with a lower rate of new ones starting up means fewer jobs are being created and destroyed. Established firms are enjoying a larger share of the market. Giants are sitting on their piles of cash, and sometimes acquiring other large firms, instead of investing in new ideas. This lack of dynamism shows in productivity growth, which has mostly been on the decline since 1973.

For employment, fewer young firms means less job mobility. People are, again contrary to the usual narrative, staying in the same jobs for longer than ever before. And that slowdown in productivity growth shows up in places like real wages. In fact, if the U.S. had continued at pre-1973 productivity growth, the median American household income would be about $30,000 higher.

Finally, U.S. federal revenue is increasingly on auto pilot. In 1962, roughly 65% of federal revenue fell under “fiscal discretion,” allowing for new allocations each year. Today, the vast majority of federal revenue is wrapped up in predetermined spending like debt, Medicaid, social security, and Medicare. By 2022, less than 10% of U.S. federal revenue might be considered discretionary.

All of these factors lead to a more “boxed in,” less flexible, less dynamic economy. This is not an advantageous position – living standards are increasing more slowly, sowing seeds of discontent, and it’s difficult for a federal government with little discretionary spending to respond to a crisis.

In upcoming videos, we’ll look at some of the discontent currently happening in the U.S. and what might happen if a crisis were to occur and our lives were to be truly disrupted during this time of economic stagnation.