Robert Gordon, of Northwestern University, has aroused fear among conventional commentators by his paper (NBER Working Paper 18315) suggesting that U.S. economic growth has begun to slow inexorably, and that it will cease altogether, slowing to the sluggish levels prevailing before the Industrial Revolution, by 2100. To some extent, these arguments are familiar, having appeared both in this column and in some of my other work as long ago as 2004. Yet for once I have found someone more pessimistic than myself. On this occasion the normal attitude of this column will be reversed — perhaps to a “Bull’s Hall” — and I will outline the lacunae in Gordon’s analysis, and why the future may be more cheerful than he suggests.
Gordon believes that economic growth in the “frontier” economy with the highest productivity and wage rates – Britain before about 1906, the United States since – has been generated by three industrial revolutions, the steam/textiles/railroad revolution between 1750 and 1830, the electric power/internal combustion/indoor plumbing revolution of 1870-1900 and the electronics revolution since 1970. He then asserts with some plausibility that the second, which produced innovations running through 1970, was much the most powerful of the three and that the third has already run its course, bringing a brief peak of productivity growth in 1996-2004 and not much since but some clever playthings. He lists a number of factors that will retard both innovation and growth further and suggests that by 2100 not only will the great benefits from industrialization have passed, but that six “headwinds” buffeting the U.S. economy will slow living standards improvement even further below the pace of technological improvement.
One repellant aspect of Gordon’s analysis is that he conflates overall growth with growth of living standards for “the 99%” which is of course lower in periods of rising inequality. This unpleasant intrusion from the ethos of “Occupy Wall Street” distorts his analysis. It enables him to claim that growth was fastest in 1929-57, which is intrinsically implausible since those years contained the Great Depression and a world war. What changed in those years was income distribution; by impoverishing the 1% through higher taxes, lower executive salaries and a sluggish stock market, a leftist government and society transferred the admittedly fairly robust fruits of economic expansion entirely to the “99%”, producing no extraordinary growth in overall living standards but a growth of working class living standards that was indeed unparalleled.
He then makes the opposite mistake with respect to the pre-industrial period, claiming that British “99%” living standards multiplied sixfold between 1300 and 1800. As anyone who has read Robert Allen’s “The British Industrial Revolution in Global Perspective” will remember, they did nothing of the kind. They rose rapidly from 1300 to about 1470, driven not by technological change but by the Black Death, which removed nearly half the population and created “Merrie England” for the remainder. Then, from about 1500, working class living standards fell back and inequality rose, so that by the middle 17th century real manual labor incomes were a quarter of their level 180 years earlier, although consumption patterns among the aristocracy and upper gentry were much more lavish.
Then after 1650 the scientific, agricultural, industrial, political and economic revolutions all kicked in, producing general growth, so that by 1800 working class living standards were nearly back to their 1470 level (in other European countries such as Austria they were still an eighth of their 15th century peak) while inequality had remained high or even increased somewhat. Bottom line: there was at most a modest increase in the living standards of the “99%” (or at least the bottom 90% of it) between 1300 and 1800 but sixfold growth per capita had indeed occurred, accruing almost entirely to the top 10%, as well as allowing England’s population to quadruple.
Some of Gordon’s “headwinds” facing living standards in the 21st century are temporary, while others are avoidable. The removal of the “demographic dividend” of women’s entry into the workforce simply removes a one-off tailwind – if we pretend that today’s two-career families are indeed better off than the home-cooking nuclear families of the 1950s. Two other “headwinds,” the removal of the U.S. advantage over other countries in college education and the “flattening” of the world economy through the Internet are temporary factors that have probably done most of their damage – for one thing, the benefits of college education have been distinctly oversold, as I shall discuss below.
Inequality has risen, but there seems no reason to assume that it will continue rising, rather than leveling off or even dropping back. The costs of combating “Global Warming” are an entirely self-inflicted headwind, which can be removed by electing governments that dismantle most of the environmental and other regulatory molasses that, contrary to Gordon’s thesis, I regard as largely responsible for the post-1973 drop-off in productivity growth. Finally the twin household and government deficits, as discussed frequently in these columns, can be eliminated by sharply raising interest rates, eliminating deductions in the tax code and taking a baseball bat to wasteful government spending. In short, Gordon’s headwinds mostly result from foolish policies and foolish lifestyle choices, and can be eliminated if we have the will to do so.
More interesting than Gordon’s headwinds, however is his contention that the benefits of technological change are bound to slow following his three “Industrial Revolutions.” Here I think he is also misguided. Even without speculating about the second half of the century, I can think of three technological developments between now and 2050, two marking further developments in his third industrial revolution and one marking the initial emergence of a fourth industrial revolution, which are likely to keep productivity growth healthy for at least the next half century.
The first is in education. As Gordon points out, the U.S. advantage in education has eroded, while college costs consistently rise faster than inflation. Gordon claims that the rise in college costs is due to an arms war in science labs and athletic facilities; I would claim that much more of it is due to an unstoppable escalation in the number of diversity officers and the like — caused both by grossly excessive unfunded mandates from politicians (as in medicine) and by the escalating foolishness of the academic class itself.
Add to that the declining quality of the education experience and the increasing amount of rubbish in college courses (evidenced by the increasing disparity between male and female graduation rates – young men, being mountains of testosterone and possibly misguided self-confidence, have less patience with officially required uselessness than young women.) Thus, if there were no technological solution, we could expect the U.S. educational position, male graduation rates and the actual knowledge levels of the younger generation to continue declining, while college costs escalated to infinity.
However there is a technological solution. It is increasingly possible to get college courses of increasing quality on the Internet. The kinds of young men who, while intelligent enough to complete college nevertheless drop out, are the most likely to take advantage of these offerings, since they are generally technologically savvy self-starters. However, the existence of these courses, costing a tiny fraction of the same lectures in a college auditorium, removes the need for college altogether for many people. What’s more, Internet learning allows an a la carte approach to education; there are no useless “required core courses” taught by teaching assistants in lecture halls of 400 students, and the executive who finds his knowledge base going stale at the age of 40 or 50 can quickly update himself on the latest developments. We need a mechanism whereby potential employers can be informed reliably of the knowledge gained through these courses, but the traditional employer demand for college degrees is mere credentialism, counterproductive in a modern economy.
The revolution in education will change all our lives, causing increases in efficiency in our career paths comparable even to the advent of indoor plumbing, in Gordon’s well-chosen example. Sandra Fluke, demanding free contraception as she ploughs her way through Georgetown Law School at the age of 31, will become a relic of the past, as her successors will be more than a decade into the workforce by that age, picking up the knowledge they need from the Net and paying for contraception from their earnings.
A second economically gigantic change is the recent success in producing self-driving automobiles. Once these are perfected (and they don’t need to be perfect drivers, only better than the majority of distracted motorists) they will result in huge improvements in productivity and quality of life. The old and infirm (like myself in a relatively few years) will be kept off the roads, to the great relief of other motorists, but will still be able to enjoy a full life without having to resort to dubious and expensive taxis once they can no longer pass a road test. My new car next spring will probably be a lightly used Lincoln, but the one after that will, I trust, be self-driving.
Commuters will free up their mornings and evenings from the stress and time consumption of driving – they will be able to text their friends all they like once a machine is doing the driving. Road congestion will be eased, as the greater reaction speed of machines will allow faster driving speeds and smaller distances between cars. Automobile design will be revolutionized, as motorists will have the option of cars equipped like a bedroom, a kitchen or a conference room, rather than the current awkward arrangement. Urban design will undoubtedly be revolutionized again, and human life’s possibilities enlarged almost as much as they were when the first automobiles appeared.
Those two innovations represent extensions of the electronic industrial revolution, deriving from it just as aviation derived from the mechanical/electrical industrial revolution of 1870-1900. The third innovation probably represents the beginning of the fourth industrial revolution; it is the field of genetic engineering and cloning.
There are two such technologies that can potentially revolutionize human life, both probably about a decade away from reality. One is the ability to clone human beings, allowing parents to produce children that are identical twins of themselves. The other is genetic engineering, allowing parents to improve the intelligence and health of their offspring, potentially, as techniques get better, creating human beings with capabilities far beyond those achievable in nature.
The ethics of these techniques are tricky. Given the alliance between the Christian lobby and the left on this issue, it is quite likely that available techniques will be banned in the United States. However if they are, that will merely transfer the technology abroad. Asian societies, brought up with Confucian ethical systems, do not appear to have the problems with genetic engineering from which the West suffers, and so the techniques will be developed there if not here or, in extremis, on some uninhabited island owned by a strong-willed billionaire.
Once developed, these techniques will truly revolutionize human life, probably to the same extent as steam or electricity. Human capabilities will be improved, as will the speed of innovation and creation, pushing productivity up at previously unimaginable speeds. Life itself will be extended, further increasing the productivity of the workforce and producing currently unavailable capabilities, such as interstellar travel, that require a longer than human lifespan to carry through.
Provided that politicians don’t get in the way (and I quite grant you, there is a substantial probability that they will) Gordon’s pessimism is thus ill-founded. The only caveat is that of population. U.S. productivity growth and living standards have been held down in recent years by mass unskilled immigration, legal and illegal. In any case, no country is an island; the growth of global population is itself the greatest threat to the world’s poor achieving “Western” standards of living. Just as living standards were hugely improved by the tragic accident of the Black Death, so too a global conquest over the scourge of population growth will make it easier for all to share in the fruits of technology, as well as banishing the environmentalist curse from the global economy.
The chances of Gordon being right are thus quite substantial, given the fallibility of human endeavors, especially those in which politicians get involved. But a better future is there, waiting for us nationally and globally, if we take the steps to achieve it.
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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)