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Northwestern University economist Robert Gordon is one of the foremost tech/productivity/growth pessimists — he might prefer the term “realist” — with his views most fully expressed in his 2016 book “The Rise and Fall of American Growth.” It’s an excellent book. And if you read it and like it, then you might want to check out Gordon’s new NBER working paper, “Why Has Economic Growth Slowed When Innovation Appears to be Accelerating?”
It’s a compelling headline question given the apparent disconnect between economic statistics and what you read in the business media or hear from Silicon Valley. Now Gordon’s answer to that question is what you would expect if you’ve read his book or more generally followed his work. (Indeed, the paper provided a pretty good summary of his thinking.) His claim is that the “great inventions” of the Second Industrial Revolution — including electrification, the internal combustion engine, public sanitation, advances in chemicals and plastic — were really something, especially compared against subsequent waves of progress. These inventions, Gordon writes,
affected every aspect of life for businesses and consumers . . . and involved fundamental one-time-only changes in such basic dimensions of human life as location (from rural to urban), temperature (from alternating hot and cold to an even temperature all year round), and speed (from the hoof and sail of 1820 to the Boeing 707 of 1958).
By contrast, the Third Industrial Revolution’s digital revolution of computers and the internet “generated a productivity boost of only a decade between 1996 and 2006, as contrasted to the five-decade (1920–70) interval of rapid productivity growth following the Second Industrial Revolution, because the earlier inventions had a more profound effect on every aspect of human existence.” And while the Second Industrial Revolution greatly altered everyday life for consumers and fundamentally transformed physical industries such as manufacturing, construction, mining, and transportation, the digital revolution’s impact was more limited beyond changing office life. So, you know, spreadsheets.
And what about the much-heralded Fourth Industrial Revolution, which has been described as “emerging technology breakthroughs in fields such as artificial intelligence, robotics, the Internet of Things, autonomous vehicles, 3-D printing, nanotechnology, biotechnology, materials science, energy storage, and quantum computing”? Gordon is not unexpectedly dismissive: “Progress thus far suggests that the impact on productivity growth and job destruction will be gradual and evolutionary, not sudden and revolutionary.”
Of course, there is another side to this trade. Some equally-smart folks have been arguing for an American productivity revival or an imminent productivity boom. Certainly policymakers should assume the Gordon case when making budget plans or thinking about pro-growth policy that supports the rise and diffusion of new technologies. Complacency is unwarranted. And to end on an optimistic note, this from Joek Mokyr, Gordon’s colleague at Northwestern:
If the recent economic history of technology teaches us anything, it is that the past is a poor guide to the future. After millennia of very slow and reversible growth, the world has taken off in the past two centuries on a path of unprecedented economic expansion, driven primarily by useful knowledge and human ingenuity. As our ability to understand natural phenomena expands so will our ability to harness nature to our needs. To criticize the cliché that “everything that can be invented has been invented already” is now itself a cliché; but the question whether the positive feedback mechanism driving technological progress will eventually run into diminishing returns and slow down is and will probably remain unresolved.
In the case of Smithian Growth such diminishing returns are a priori obvious; in the case of the growth of useful knowledge theory is of little help and the best we can do is to observe that thus far the evidence for it is not persuasive. Equipped with increasingly powerful tools, our understanding of natural processes will continue to grow at a rapid pace, and new applications, some imaginable and some not, will continue to appear. They will lead to continued improvement in economic welfare, even if these are not always reflected in our National Income Accounts.