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The Rise and Fall of American Growth
The U.S. Standard of Living Since the Civil War
Robert J. Gordon
Two years ago a huge book on economics took the world by storm. Thomas Piketty's Capital in the Twenty-First Century, on the theme of inequality, became a surprise bestseller. Now another big book has been written. Robert Gordon's tome on American economic growth stretches to 768 pages and its central message is arguably more important.
While Piketty was gloomy on how the cake of the world economy is sliced up - admitting that many of his remedies for redistribution were impractical - Gordon is gloomy on prospects for increasing the size of that cake. Growth might have hit the buffers, or is wading through treacle.
Economic growth is the elixir that transforms lives and generates prosperity. Economic growth ensures that living standards double in little more than a generation and that in the modern era the average child can expect to be better off than their parents. Without economic growth, we drift into decline.
According to Gordon, a professor of economics at America's Northwestern University, that is exactly the future we might be facing. The rise in productivity (output per worker) has slowed to a crawl since the global financial crisis and may never recover to previous norms. The current younger generation could be the first in modern American history to be worse off than their parents. His conclusions are for America, but could be equally applicable for other western countries, including Britain.
The book takes the reader through every stage of American living standards since the Civil War to the modern day. Some of this can be skipped, but is nevertheless fascinating. Gordon wonders aloud how the typical American family in 1870 could have lived on the modern equivalent of less than $1,000 a year, when life was nasty, brutish and short. The answer is that everything they spent went on the necessities of food, clothing and shelter.
There was much better to come. What Gordon describes as America's 'special century' was beginning. Over the next 50-60 years life would be transformed. In 1929, the year of the Great Crash, 'almost every urban dwelling was networked, connected to the outside world with electricity, natural gas, telephone, clean running water, and sewers'. In late-1920s America there were nine cars for every 10 households, entertainment was freely available, including phonograph, music, radio, and motion pictures exhibited in ornate movie palaces. Infant mortality had been almost conquered.
There are two essential themes in this book. The first is that America enjoyed a century of prosperity and strong growth from 1870 to 1970, driven by wave after wave of inventions and innovations. The two key inventions were electricity and the internal-combustion engine, from which everything else flowed: Manual outdoor jobs were replaced by work in air-conditioned environments, housework was increasingly replaced by electric appliances, darkness was replaced by light, and isolation was replaced not just by travel but also by colour television images bringing the world into the living room.
That era, however, is long over. Essentially, Gordon argues, all the important life-enhancing and economy-transforming changes took place in that special century. Since then, it has been mostly a case of treading water: The economic revolution of 1870 to 1970 was unique in human history, unrepeatable because so many of its achievements could happen only once.
His second theme is that, even without this disadvantage, modern America has lumbered itself with growth-destroying handicaps, from a stagnating education system and an ageing population, through to excessive debt, at government level and for students, and rising inequality. 'Yes, we are gigantically ahead of where our counterparts were in 1870, but our progress has slowed, and we face headwinds that are stronger barriers to continued growth than were faced by our ancestors a century or so ago,' he writes.
Is it a convincing story? Gordon has been developing these themes for some time and has debated with those he describes as the 'techno optimists'. His argument is a development of the 1987 quote by the Nobel prizewinning American economist Robert Solow: 'You can see the computer age everywhere but in the productivity statistics.'
Gordon does not think much of what is sometimes known as the third industrial revolution; including the personal computer, the internet, the smartphone and the tablet. Yes, they have made communication much easier but, unlike the earlier wave of inventions, they have not transformed home and working lives, or unleashed a new era of enhanced productivity growth. In fact, they have been associated with a productivity slowdown, perhaps because people are spending too much time checking their smartphones.
He has a point. But if you believe that we have barely scratched the surface of the internet of things, 3-D printing, robots and breakthroughs that are currently just a twinkle in the inventor's eye, you will be sceptical of Gordon's techno pessimism. I am, I should say, somewhat sceptical.
I am even more sceptical of the idea that if a lack of invention and innovation is at the heart of the problem, some of Gordons suggestions are the solution. Yes, every country needs to educate its young people better, and it would be better if countries - and particularly students within them - were not burdened with so much debt. But future prosperity will depend on the ability of bright people to come up with good ideas and they, or the entrepreneurs who take them on, having the courage to take them on. Human ingenuity is nowhere near its limits and neither, one hopes, is economic growth.
(Paul Krugman in NY Times)
Back in the 1960s there was a briefly popular wave of 'futurism', of books and articles attempting to predict the changes ahead. One of the best-known, and certainly the most detailed, of these works was Herman Kahn and Anthony J. Wiener's 'The Year 2000' (1967), which offered, among other things, a systematic list of technological innovations Kahn and Wiener considered "very likely in the last third of the 20th century."
Unfortunately, the two authors were mostly wrong. They did't miss much, foreseeing developments that recognizably correspond to all the main elements of the information technology revolution, including smartphones and the Internet. But a majority of their predicted innovations ('individual flying platforms') hadn't arrived by 2000 - and still haven't arrived, a decade and a half later.
The truth is that if you step back from the headlines about the latest gadget, it becomes obvious that we've made much less progress since 1970 - and experienced much less alteration in the fundamentals of life - than almost anyone expected. Why?
Robert J. Gordon, a distinguished macroeconomist and economic historian at Northwestern, has been arguing for a long time against the techno-optimism that saturates our culture, with its constant assertion that we're in the midst of revolutionary change. Starting at the height of the dot-com frenzy, he has repeatedly called for perspective: Developments in information and communication technology, he has insisted, just don't measure up to past achievements. Specifically, he has argued that the I.T. revolution is less important than any one of the five Great Inventions that powered economic growth from 1870 to 1970: electricity, urban sanitation, chemicals and pharmaceuticals, the internal combustion engine and modern communication.
In The Rise and Fall of American Growth, Gordon doubles down on that theme, declaring that the kind of rapid economic growth we still consider our due, and expect to continue forever, was in fact a one-time-only event. First came the Great Inventions, almost all dating from the late 19th century. Then came refinement and exploitation of those inventions - a process that took time, and exerted its peak effect on economic growth between 1920 and 1970. Everything since has at best been a faint echo of that great wave, and Gordon doesn't expect us ever to see anything similar.
Is he right? My answer is a definite maybe. But whether or not you end up agreeing with Gordon's thesis, this is a book well worth reading - a magisterial combination of deep technological history, vivid portraits of daily life over the past six generations and careful economic analysis. Non-economists may find some of the charts and tables heavy going, but Gordon never loses sight of the real people and real lives behind those charts. This book will challenge your views about the future; it will definitely transform how you see the past.
Indeed, almost half the book is devoted to changes that took place before World War II. Others have covered this ground - most notably Daniel Boorstin in 'The Americans: The Democratic Experience.' Even knowing this literature, however, I was fascinated by Gordon's account of the changes wrought by his Great Inventions. As he says, "Except in the rural South, daily life for every American changed beyond recognition between 1870 and 1940." Electric lights replaced candles and whale oil, flush toilets replaced outhouses, cars and electric trains replaced horses. (In the 1880s, parts of New York's financial district were seven feet deep in manure.)
Meanwhile, backbreaking toil both in the workplace and in the home was for the most part replaced by far less onerous employment. This is a point all too often missed by economists, who tend to think only about how much purchasing power people have, not about what they have to do to get it, and Gordon does an important service by reminding us that the conditions under which men and women labor are as important as the amount they get paid.
Aside from its being an interesting story, however, why is it important to study this transformation? Mainly, Gordon suggests - although these are my words, not his - to provide a baseline. What happened between 1870 and 1940, he argues, and I would agree, is what real transformation looks like. Any claims about current progress need to be compared with that baseline to see how they measure up.
And it's hard not to agree with him that nothing that has happened since is remotely comparable. Urban life in America on the eve of World War II was already recognizably modern; you or I could walk into a 1940s apartment, with its indoor plumbing, gas range, electric lights, refrigerator and telephone, and we’d find it basically functional. We'd be annoyed at the lack of television and Internet - but not horrified or disgusted.
By contrast, urban Americans from 1940 walking into 1870-style accommodations - which they could still do in the rural South - were indeed horrified and disgusted. Life fundamentally improved between 1870 and 1940 in a way it hasn't since.
Now, in 1940 many Americans were already living in what was recognizably the modern world, but many others weren't. What happened over the next 30 years was that the further maturing of the Great Inventions led to rapidly rising incomes and a spread of that modern lifestyle to the nation as a whole. But then everything slowed down. And Gordon argues that the slowdown is likely to be permanent: The great age of progress is behind us. But is Gordon just from the wrong generation, unable to fully appreciate the wonders of the latest technology? I suspect that things like social media make a bigger positive difference to people's lives than he acknowledges. But he makes two really good points that throw quite a lot of cold water on the claims of techno-optimists.
First, he points out that genuinely major innovations normally bring about big changes in business practices, in what workplaces look like and how they function. And there were some changes along those lines between the mid-1990s and the mid-2000s - but not much since, which is evidence for Gordon's claim that the main impact of the I.T. revolution has already happened.
Second, one of the major arguments of techno-optimists is that official measures of economic growth understate the real extent of progress, because they don't fully account for the benefits of truly new goods. Gordon concedes this point, but notes that it was always thus - and that the understatement of progress was probably bigger during the great prewar transformation than it is today.
So what does this say about the future? Gordon suggests that the future is all too likely to be marked by stagnant living standards for most Americans, because the effects of slowing technological progress will be reinforced by a set of headwinds: rising inequality, a plateau in education levels, an aging population and more.
It's a shocking prediction for a society whose self-image, arguably its very identity, is bound up with the expectation of constant progress. And you have to wonder about the social and political consequences of another generation of stagnation or decline in working-class incomes.
Of course, Gordon could be wrong: Maybe we're on the cusp of truly transformative change, say from artificial intelligence or radical progress in biology (which would bring their own risks). But he makes a powerful case. Perhaps the future isn't what it used to be.
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