Fully Grown: Why a Stagnant Economy is a Sign of Success
by Dietrich Vollrath
The University of Chicago Press, 2020

The U.S. is over ten years into the expansion phase of the business cycle, and employment is back to pre-crisis levels. Still, economists and laymen alike are uneasy about the economy. Many people worry about recession (since 1970 the average expansion lasts about six years), but also about the health of the economy more generally. This isn’t new, just take an example from this cycle: between 2010 and 2015 there was a lot of debate about secular stagnation, and some will recall the conversations between Larry Summers and Paul Krugman; in fact, some might be aware of (it’s doubtful many will recall) the back-and-forth between Alvin Hansen and Joseph Schumpeter, among others, in the 1930s. Much of this has subsided, and 2008 is starting to feel more distant. And now that we are twenty years into the century, we are writing narratives and theses about the structure, growth, and dynamics of our economy since 2000. Dietrich Vollrath in his new book, Fully Grown: Why a Stagnant Economy is a Sign of Success, does just that.

Setting up the context of the book, as well as the data he focuses on throughout, he writes:

The growth rate of GDP per capita. . . averaged 2.25% per year from 1950 to 2000. But the average growth rate of GDP per capita from 2000 to 2016 was only 1%. That difference of 1.25 percentage points of growth per year means that GDP per capita today is about 25% lower than if we had matched the twentieth-century growth rate throughout the twenty-first century.

Vollrath indicates that “even excluding the years of the recession, the growth rate of real GDP per capita in the twenty-first century has been at least 1 percentage point lower than during the twentieth.” So that growth isn’t just a product of the recession and it warrants our attention.

Detailing the differences between growth rates, growth, and levels, and carefully explaining all the accounting is done during the first several chapters. It is important he does this, but here is also where we find the main issue with the book as a reading experience. We are told in the preface that in part this book was born out of the “stories, data, and math” from, but not all of which was used in, a collaboration on an undergraduate textbook on economic growth. Sadly, it does not seem Vollrath adjusted his style from what you would find in such a textbook, including the tendency to overexplain. Again, detail is important here, especially for GDP accounting, but wordy explanations of simple concepts will make students feel like they are reading for class, and too many analogies might make those with advanced knowledge want to put their head through a table (“let’s try a little mental experiment.” Please, no.) However, as we move through the book, especially in the final chapters, he becomes a much more engaging writer, and because most of the basic concepts have been explained it is not so tedious.

In terms of his explanation of the growth slowdown, he starts off in very broad terms writing that “It was predominantly a function of slower growth in human capital per capita combined with an additional drop in residual growth.” He then breaks these down and romps through different possible factors that could account for the growth slowdown, culminating with an accounting of "how we went from growth of 2.25% per year in the twentieth century to 1.0% per year in the twenty-first.” For example, smaller family sizes and population ageing explains 0.8 percentage points, leaving 1.45 percentage points of the 2.25 to be accounted for. He arrives at these numbers through very tight reasoning and answers current and interesting questions: did we run out of innovation? does inequality or industry concentration contribute to the growth slowdown? Are we overstating price growth and understating real GDP growth? What about China?

More likely than not most people who take issue with this book will do so for what is left out (two words: Federal Reserve), or phenomena they believe GDP accounting misses, and it is unlikely to change their mind about particular issues within the economy. For example, Vollrath believes health services would consume a large amount of GDP even if there were innovation, because it is a luxury good that is part of our general shift into purchasing services, so any savings would be driven right back into it. This is persuasive as a part of the explanation, but one doesn’t have to look at that industry for very long to see this is missing quite a lot, especially in terms of innovation.

What is important to keep in mind is that Dietrich Vollrath is not arguing there aren't any issues within the economy or that GDP growth is the end-all and be-all: “Taken all together, I think the right conclusion is that while we do not have a problem with growth, we may have a problem with distribution. . . This suggests that we should engage with these issues on the merits of their distributional consequences and put less weight on their supposed effect on the growth rate.” But if he is correct, he is also right in his asking the reader: “what would you sacrifice to reverse the growth slowdown. . .lower fertility rates are associated with higher living standards. Would you sacrifice the level of living standards and go back to the real GDP per capita of 1930 or 1920 to generate more rapid population growth?” Fully Grown: Why a Stagnant Economy is a Sign of Success has a lot of pedagogical value and persuasively makes the argument that the dynamics of innovation within the US economy are healthy, more books should be written like this.

—David Murphy holds a Masters of Finance from the University of Minnesota.