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The Rise and Fall (and Rise?) of American Growth
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:
Published in EconomicsIf 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.
In 1997 a Nobel-prize-winning economist opined that the Internet had no greater impact on the economy than the fax machine. And that in ten years, the phrase “information economy” would sound silly.
New advances in computerization, the internet and other innovations has led to the opportunity for a “innovation boom’. However, Congress and the Administrative State have limited those opportunities to a connected Crony few through unnecessary hyper regulation, allowing bureaucrats to “interpret” laws and regulations any damn way they feel like and a financial system that strongly encourages loans and other investments be limited to that same connected few. That is why there is a disconnect between income and productivity growth.
Small business has been cut out of the start up game, by our politicians and the large multinational corporations. Regs are way too onerous and there is no money for them, the unconnected.
Ford discontinuing much of its product line in North America should be a huge heads up. Sales were “pulled forward” through near zero interest rates and other government schemes leaving little growth for future sales, which also may be hammered by the coming higher interest rates.
That sales problem for Ford and for much of the retail market is exacerbated by the fact that he middle and lower class has been squeezed out of their disposal income to buy new products and are now saddled with huge amounts of debt. The cost of living has skyrocketed while wages have stagnated as a result of this diabolical regulatory onslaught. 78% of American households are now living paycheck to paycheck and it may get much worse soon. That is why Trump was elected. Many Americans are getting very angry and fed up with the direction the Deep State has taken this country.
Economics, like any measurement system, only tell part of the story.
The internet has opened up productivity. But it has also shown that people, given more opportunities, often do not choose to create wealth. Instead, they ue their time to share videos of kittens, what they ate for lunch, or their political views. (See Chet:Rico)
These choices are also symptoms of enormous wealth (by any comparative standard), but they are not captured in economic statistics.
I had my first job in a commercial bank in the 1950’s as a teller. I worked as a Head Teller with a dozen or so other tellers. I moved then to branch bank manager, bookkeeping department manager, and proof department manager. Those roles involved supervising operations of 50 to 100 employees. Then I moved into bank computer systems development since I had all this specific experience in bank operations. I left the private sector and went to work for the Treasury Department in government payment operations and led a project team in the development of the Direct Deposit Program, working closely with the Social Security Administration, the Federal Reserve System, and the financial services industry (banks, S & L’s, MSB’s, and CU’s). This constituted the critical mass necessary for the full range of private businesses to begin adopting direct deposit for their payroll operations.
Nobody even mentions today how this work has changed payment operations and opened the way for plastic cards at point-of-sale and internet payment capability so that physical plants for financial operations to support payments and funds transfer capability are almost non-existent.
This has resulted in enormous changes in the job market and opened the way for big advances in how our commercial markets operate. I can still recall how the bank lobbies were full on payday Friday’s to cash checks and take deposits, particularly when that fell on the 3rd of the month when Social Security checks were delivered.
This triggered a childhood memory, circa 1964. My mom rushing out of the house to go to the bank on a Friday because she needed “money for the weekend”.
That large sedans are dead and cross over SUVs have displaced them?
Oh, yes. There’s much more to the whole story as well. This includes reductions in operations at Treasury related to checks, also at the Federal Reserve, and Post Office delivery of tens of millions of SSA payments on a single day each month. Then comes ‘Cash Dispensers’ which evolved into ATM’s and then all the processes that developed on the internet. Most later generations take all this current capability pretty much for granted.
Some things don’t change. Our local “Vital Records” office has a FULL parking lot the beginning of each month. All the people on the dole show up, and wait all day to “earn” their checks.
Must be a good time to close down the patent office?
Productivity is low because the ‘information economy’/ digitised workplace requires an educated, capable workforce able to calculate and read and write. The American education system does not provide this caliber of worker in sufficient numbers and there is little hope for improvement in the foreseeable future.
Headline ….
65% of Public School 8th Graders Not Proficient in Reading; 67% Not Proficient in Math
Good comment! Anyone who claims to be able to predict the future of technology is an ignorant ass, best ignored except by those preparing a future book on the Stupidest Predictions of the Past.
In the ‘50s, an expert consulting for IBM, predicted a market for as many as 30 main frame computers. At the time IBM’s business was almost 100% in punch card system production sales and leasing.
Productivity is low because we’ve consumed all the low hanging fruit. Simplifying work processes, reengineering tasks to align with technology (changing traditional work flow because IT systems force you to do step 3 after step 5 instead of after step 2) are difficult and often costly. Plus, my favorite, you can’t eliminate non value added work because of legal, regulatory or company policy requirements.
That’s almost half!
I don’t think it is ‘productivity is low’ but rather ‘productivity improvement’ or ‘growth in productivity’ is low.
I sit corrected.