The Great Stagnation

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If one sentence were to sum up the mechanism driving the Great Stagnation, it is this: Recent and current innovation is more geared to private goods than to public goods. That simple observation ties together the three major macroeconomic events of our time: growing income inequality, stagnant median income, and, as we will see in chapter five, the financial crisis.

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Educational expenditures are now about 6 percent of U.S. GDP.

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Keep in mind that according to the so-called “Flynn effect,” each generation has higher average IQ scores than the

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When you measure that rate carefully, it appears that the U.S. high school graduation rate peaked in the late 1960s at about 80 percent. The actual graduation rate today is much lower than the official 88 percent estimate, and there is no evidence of convergence of minority-majority graduation rates over the last thirty-five years, once you include incarcerated populations in the totals.

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The test scores haven’t risen since the early 1970s, but, adjusted for inflation, we’re spending more than twice as much per pupil. In 1970–1971, the per-pupil expenditures were $5,593, and in 2006–2007, those same expenditures are measured at $12,463.

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It is remarkable that we are spending more and more each year on K–12 and still we are not sure—have not been sure for decades—whether the product is getting better. Can you imagine the same being true for your personal computer? Could that be true for your choice in restaurants, clothing, or automobiles? I doubt it.

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So let’s sum up. Government consumption spending, education spending, and health care spending overlap to some extent, but in total, without double counting, they still exceed 25 percent of U.S. GDP. They are also three of our most rapidly growing sectors, and at least two of them—health care and education—ought to be two of our most dynamic sectors. Those are also three sectors where it is especially hard to measure value and especially hard to bring about accountability and clear results. They are, to my eye, also three sectors where there is massive government distortion of incentives.