Was the Great Stagnation originally a problem of human capital?

"What happened in 1971?" It is one of the most important and debated questions in US economic history, and new research suggests that the answer may be lurking a few decades earlier - in 1948, to be precise.

At the start of the 1970s, wage growth slowed down, productivity growth rates fell, and US economic performance deteriorated. There were some interruptions in these trends, such as the cheery mid-1990s, but they mostly held for more than 40 years. Many parts of the US, especially if they have deindustrialized, continue to struggle with this legacy today.

There are numerous theories as to why: oil price shocks, more stringent government regulations, an increased emphasis on environmental protection over economic growth, and the collapse of the Bretton Woods international monetary order. In my 2011 book The Great Stagnation, I blame the disappearance of the low-hanging fruit that resulted from powerful machines and plentiful fossil fuels.

Some of those likely are factors. Now an economist, Nicholas Reynolds of the University of Essex, claims to have found a new villain in this economic story: a negative shock to the quality of human capital in America.

Americans born after 1947 and before the mid-1960s - the first of whom were just entering their prime working years in 1971 - did not see economic gains comparable to those of their predecessors. But the problems of this cohort are more far-reaching. They had more problems as young children, and they did worse in school in the 1960s, accounting for the educational declines of that era, such as lower test scores and higher dropout rates.

Birthweights also declined in the 1980s, a sign that the post-1947 cohort was less healthy, most of all when it comes to maternal health. You might think that development is due to intervening economic factors. But the post-1947 world is still wealthier than what came before, so it is not obvious why an economic slowdown, but not absolute decline, should have created such significant health problems.

It's not just that Americans born after 1955 stopped getting taller, whereas Europeans didn't. There are deeper problems, such as the alarming rise in the midlife mortality rate since 1999. These "deaths of despair" may also be a legacy from this 1947 break in Americans' quality of health.

The broadest lesson is simply that many of the problems of the recent past are rooted in the less recent past. And these results hold for all major groups of native-born Americans, both White and Black, across all parts of the country.

This hypothesis focusing on health problems fits a number of facts, but how much does it explain? The obvious question is what exactly happened in about 1947 to put the US on this less constructive path. There is no obvious smoking gun, but the cohort decline seems to start in adolescence, prior to entering labor markets. So perhaps it is something in the structure of American society, or in US public health practices, rather than stemming from traditional macroeconomic factors.

One possible cause is an increase in postwar automobile usage, and thus higher levels of lead exposure, given the lead additives in gasoline at the time. There is no direct evidence for this claim, but lead has been shown to have significant negative impacts on human development, and some researchers blame it for the later higher US crime rates.

Still, it is not obvious why lead should lead to such a sharp break in the data. And if lead is the main culprit, then there should be major improvements forthcoming, as lead additives were fully banned from American gasoline in 1996, with a phase-out starting in the 1970s.

A second possibility is that the baby boom generation was so large that there was a decline in quality of care given to each child. Again, this is an unproven hypothesis, but it does fit the timing of the effects. And some economic theorists of the family have stressed a trade-off between the number of children and the quality of their upbringing.

And yet this effect, to the extent it is relevant, should also be receding, as the boomers age and US birth rates fall.

I also wonder if there is some kind of natural rhythm to the social vitality of a nation, rising and falling along with changes in effort and inspiration. This was a popular idea earlier in the 20th century, though to many it sounds more like hand-waving than scientific explanation.

In any case, this mystery suggests that public health remains an undervalued area of investigation. And while it is too late to fix many social and economic problems, it is always constructive to focus on what kind of growth environment America is creating for its children today.

(COMMENT, BELOW)

Cowen is a Bloomberg View columnist. He is a professor of economics at George Mason University and writes for the blog Marginal Revolution. His books include "The Complacent Class: The Self-Defeating Quest for the American Dream."

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