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Cowen: Innovation, cheap energy will grow economy
Indiana Correspondent

INDIANAPOLIS, Ind. — At least one economist is “genuinely optimistic” about America’s future and even more so about America’s farmers. Tyler Cowen, economics professor at George Mason University, explained his predictions to more than 500 producers and ag representatives at the Indiana Livestock, Forage and Grain Forum in Indianapolis last week.

“The bad news is pretty bad, and the good news is pretty good,” stated Cowen, who is a regular contributor to the New York Times, The Wall Street Journal and The Washington Post.
Some of the contributing factors to the bad news are that while education and healthcare costs rise, labor and income are going down.

“Job growth in the last decade has been extremely slow due to too much (government) regulation and automation,” Cowen said.
Another factor is that America is getting older in terms of the median age in the country.

“In 2050 America will be as old as Florida is now,” Cowen said.
However, good news followed on the heels of these unfortunate factors. Cowen predicted that cheap energy and innovation will lead to greater growth.

“We will have cheap energy again, which is good for the economy. In the area of innovation, it’s very good news. At the same time, the price of things (products like books) is going down. We are integrating the Internet into everything, and the U.S. is at the center of that.”

America’s meteoric rise at its beginnings was based on cheap land and boosts in education, Cowen said, as outlined in his best-selling book, The Great Stagnation. Now that those resources are exhausted, America is left with no solid basis for growth and wealth.
Discipline and innovation are needed to move forward from here. Cowen predicted that while some countries, regions and industries will push to the top, others will fade away, leading to a time of extremes.

“Average is over,” Cowen stated.

That said, there will be big winners and losers, he said, with North America coming out on top.

The New World is a peaceful place, without significant geo-political issues among its countries. Wealth among poorer people is growing in countries like Brazil. And, with two common languages, it is easier to trade.

“North America is the best place to invest and be,” Cowen summed up.

While North America overall will have a bright future, other places in the world will struggle.

“The world is a mixed place. It’s very good for North America, bad for Europe, and with China we don’t know,” Cowen said.
Cowen said the euro crisis is not over. He said the solution cannot be found in governments borrowing more money. Unfortunately, as governments seek to prop up their economies with borrowed money, they are only postponing the trouble.

As European governments wait for others “to pay the bill,” too many things can go wrong, Cowen said.

Greece, Portugal, Spain and Italy are “great places to stay poor,” Cowen said, citing dismal statistics of their Gross Domestic Products (GDP).

“GDP aside, retail sales in Spain are the same as they were 20 years ago. So essentially they’ve lost 20 years. It is a mistake to think those problems are over,” he said.

Economists are divided over what they expect for China, Cowen said. The country has surprised most economists by its current recovery; however, not everyone is convinced that it is a genuine recovery. Since China drives so much economic growth, its future does affect the rest of the world, he said.

One view is that China will resume growth at 7-8 percent, while another view is that China will stumble because it has “postponed the reckoning.”

In this view, which Cowen favored, the recovery has been fueled by over-extension of credit.

“Their credit is up 50 percent but not because the economy is up 50 percent. Those of us who distrust government are more inclined to think that China is still in trouble,” Cowen said.

Even should China continue to grow, it will not avoid the “middle-income trap.” In other words, once the median income rises to a certain level, economic growth slows down. If China continues its path of recovery, this economic slowdown could happen in five years, Cowen predicted.

“It is hard to move up the value chain, from producing carrots to autos to sophisticated military aircraft, for example.”


Within the context of dramatic worldwide shifts, commodities, by contrast, will be relatively stable during the long term.

“Commodities are cyclical in the short run, but in the long run, their stability is based on the fact that people have to eat,” Cowen stated.

Consumers find meat hard to give up, once they are used to having it on their plates, Cowen further explained. Meat consumption is expected to rise in places, like the Philippines and Indonesia, in which wealth is growing.

Cowen also predicted a rising demand for dairy around the world.
“People spend a lot on food, and they spend a lot on food from Indiana,” he said.

American farmers are in a good place on the world stage, based on rising farmland values, food supply shortages, and higher prices for food.

Farmland has risen by 5.5 percent per year in the last eight years, resulting in $1.8 trillion in equity for farmers.

Food prices have risen dramatically, with spikes since 2007, based on the FAO Food Price Index.

“Producing more food is harder than producing more manufactured goods. The world is wealthier and demand is up … The supply is not keeping up, which is good for farmers,” Cowen said.

The past 10 years have seen average growth in crop yields, he said. With world population and demand growing, meeting food needs will be difficult.

“The next doubling of production will be harder (than the last) due to climate change and volatility,” Cowen said.

Cowen advised farmers in the crowd to prepare for the future. With all the volatility, there will be big winners and big losers.
“Don’t take things for granted. Prepare for the future. Whatever bumps you might have, you’re really thriving.”

Cowen, the keynote speaker, was brought to the farm forum by Indiana Soybean Alliance. Many different state farm groups sponsored the fourth annual Indiana Livestock, Forage and Grain Forum, held at the JW Marriott in Indianapolis.

Cowen’s blog, Marginal Revolution, was named the best economics blog on the web by The Wall Street Journal.

Go to for more information.