The Great Divergence
Entry 9: What about Tyler Cowen’s toilet?
I’ve always been very taken with this Dean Baker point you allude to about asymmetrical globalization. His argument is basically that we’ve thrown manufacturing workers into competition with a global industrial base, but higher-skilled professions seem magically immune to the power of globalization. More immigration of trained professionals into the United States seems like an idea with a pretty broad intellectual coalition behind it. Needless to say, in its current format, Congress doesn’t seem likely to take major action on anything at all, but if something good were to come out of divided government I’d hope it to be something on this front.
Meanwhile, I don’t have an elegant pivot but I did want to address this business with Tyler Cowen and the toilet. His idea is that if we had more brand-new, broadly beneficial inventions, then we’d have more equality.
This seems backwards to me. After all, it’s not that nobody told the poor Indians how to build a toilet. The people are just too poor! In the United States, things aren’t nearly that bleak, but would-be entrepreneurs are surely aware that decades of stagnation in wages puts real limits on how much new stuff American workers can afford to buy. That hasn’t been a barrier to innovation in the computer sector, where Moore’s Law puts new products on a rapidly declining price trajectory. But where’s the percentage in inventing new workhorse household appliances if nobody’s going to be able to afford to buy them? So instead people have been dreaming up new financial products to sell to rich investors.
When you have broad-based prosperity, people try to dream up new things to sell to the mass market. But rich people’s appetite for stuff gets satiated long before they run out of money. So when all the income gains accrue to a narrow elite, innovation comes in the form not of new toilets but of new financial products the rich can stash their excess wealth in.