Could US economic growth be over? That’s the provocative question that economist Robert J. Gordon begins with. And it’s a big question. He points to travel: In 1900 travel was via the open buggy, at 1% the speed of sound. Sixty years later we travelled at 80% of the speed of sound in a Boeing 707. And since then, at a consumer level, we haven’t learned to go any faster.
According to Gordon, this points to a possibility: that the explosive growth over the last two centuries was the exception, and we’re headed back to a time when much slower growth can be expected. “It’s possible US economic growth could be over,” he says to a fascinated but wary audience.
He identifies several headwinds — serious problems we face that impede growth. These are:
To push against these headwinds, says Gordon, we need innovation. If innovation continues at the same pace as before, those headwinds will cut growth in half, he suggests. If that’s true, we will need new developments to drive the economy. And this is where the debate comes in — are there innovations on the horizon that will have as big an impact as the shift from the horse-and-buggy to the Boeing 707? As evidence he shows a graph of growth in the United Kingdom and the United States for the last 800 years. For most of that time the economy grew at a predicable 0.2%. It’s only in the last two centuries that the growth has been 2% per year. Now, that growth rate is in decline.
So, what if economic growth turned out to be just a two-century phenomenon? If growth slows down, Americans in the future cannot expect to double the living standard of their parents. Gordon walks through the problems caused by each of his headwinds.
Demographics: “It’s a truism that standard of living increases faster than productivity only if we’re working more hours per person.” We got that gift midcentury when women entered the workforce in large numbers. That’s an event that can’t be repeated.
Education: There are huge problems in the world of education, starting with the fact that the inflation in the cost of college dwarfs that in medical care. In the United States, we currently have a trillion dollars in student debt. On top of that, the college completion rate is 15% lower than in Canada.
Debt: As is well known, this is huge. It will only be slowed by, “Faster growth in taxes or slower growth in entitlements, the only way that’s going to stop.”
Inequality: Growth of income of bottom 99% has been half a point smaller than the average. “All the rest went to the top 1%.” For most of us, current growth is 0.8%.
So, can innovation come to the rescue? Because of these headwinds, that innovation will need to come up with even better things than in the past, not just keep pace. Gordon lists some examples of why that will be difficult.
- From 1875 to 1929 we went from gaslight to electricity; from something polluting and difficult to read by to what we know now — a huge increase in productivity. Again, this can’t be repeated.
- Electricity was also part of the liberation of women. Before the washing machine, the refrigerator and running water, women (and at the time it was women) had to dedicate several days to washing, grocery shopping and carrying water. That liberation produced a huge economic boon.
- The internal combustion engine In the late 19th century, America relied on transportation by horse, now we use motor vehicles. That transition happend incredibly fast — ownership of cars 0-90% in 30 years. That alone released the land that had been used to feed the horses — fully one quarter of agricultural land at the time.
- Urban sanitation infrastructure. By 1929 almost everybody in America had running water, which did an enormous amount to cut down on disease rates. In the first half of the 20th century the rate of improvement in life expectancy was far more than in the second half. Gordon points to that as a major challenge to the techno-optimists.
What about the electronic age? Gordon argues that the advances are just not as significant. Imagine this: You have to choose everything invented before 2007, but don’t get an iphone, or you get everything invented later, but have no flushable toilet. Which would you choose?
Gordon finishes with his major question: Can we now match what the inventors of the early 20th century achieved?