Even by the standards of a field known as the dismal science, Northwestern University economist Robert Gordon is a remarkably gloomy thinker. This summer, while most of us were busy fretting about the tepid U.S. recovery, he managed to up the ante with a paper that looked 90 years down the line and asked, "Is U.S. Economic Growth Over?" As in, over for good.
His answer wasn't quite a straightforward, "yes," but it was nearly as bleak. Gordon predicted that a mix of technological stagnation and economic headwinds could feasibly slow the economy down to a crawling, pre-industrial growth rate, as mapped out in the green line on his graph below. With the new year just hours away here in the U.S., I thought it would be a good time to revisit my nominee for the most depressing economic idea of 2012, along with excerpts from a conversation I had with Gordon about his work a few months back.
Gordon's argument has two distinct halves, which can be summed up as this: Our greatest innovations are behind us, and the United States will be weighed down by its own dysfunction. We'll tackle each part one at a time.
Not unlike Tyler Cowen in The Great Stagnation, Gordon argues that the world has hit a technological impasse. For the last 250 years, he says, worldwide growth has been powered by three separate industrial revolutions that gave us immense, one-time gains. Round one, from 1750 to 1830, saw the advent of the steam engine and the railroads, which made it possible to travel vast distances in relatively short periods of time. Round two lasted from 1870 to 1900 and gave us the internal combustion engine, indoor plumbing, electricity, and the other foundations of modern infrastructure. The spin-offs from those inventions, such as highways, air-conditioning, and efficient factories, kept the economy growing speedily for decades more. Finally, in the 1960s we entered the information age. Whereas thinkers like Cowen believe that the Internet and digital technology still have lots of untapped economic potential, Gordon argues their major contributions are pretty much spent. There will continue to be great inventions in the future, he says. But they aren't like to power growth the same way as, say, the advent of the automobile.
Then come the headwinds. Gordon identifies six challenges he thinks are going to sap U.S. growth in the years to come: our aging population, our faltering education system, income inequality, foreign competition, the inevitable impact of global warming, and the need to eventually pay down our debt. Subtract the impact of each from out average pre-recession growth rate, and suddenly we're back in the 18th century.
That "exercise in subtraction" isn't intended to be taken literally. Rather, Gordon uses it as a thought experiment to try and make his readers consider the unique hurdles ahead of the U.S. "My guess is that a Canadian or Swedish economist looking at the past and future of his or her country would not be nearly so alarmed," he writes.
Since his publication, Gordon's theory has drawn a heap of criticism those who believe he's underestimating technology's potential and America's ability to fix its own problems.* As the Economist noted, techno-pessimists have been around a long time, and they tend to be proven wrong.
Gordon, though, hasn't been dissuaded. This month, he answered many of his detractors in a Wall Street Journal op-ed. "In setting out the case for pessimism, I have been accused by some of a failure of imagination," he wrote. "New inventions always introduce new modes of growth, and history provides many examples of doubters who questioned future benefits. But I am not forecasting an end to innovation, just a decline in the usefulness of future inventions in comparison with the great inventions of the past."
I interviewed Gordon not long after his paper was released. Here are a few excerpts, edited for length and clarity.
Why, if you want to understand the today's stagnation, go watch old TV episodes.
Many years ago, the New Yorker commissioned somebody to sit at a television set and watch television for a week and write an essay on it. And one of the things he came back and said was, "I was so struck by the situation comedies from the 1950s, the reruns, how similar their lives seemed to today."
This idea, which I've always called the New Yorker game, is to go and do that repeatedly over 30 year intervals, going back, and see when you could NOT make that statement. If you were sitting in the middle of the 1950s, you would see a lot of differences with the 1920s. But the comparison that would be the most stark would be between 1925 and 30 years before that. Because that's when you got this enormous transition away from horses to clean streets to electric power.
Why inventions aren't what they used to be (or: Why the car is a much, much bigger deal than the iPhone.)
The automobile replacing the horse [made] it unnecessary to feed 25 million horses. That, combined with the tractor, simply freed up about a quarter of our agricultural land to feed people or to export to other countries. That's an example of a really big deal, a big invention.
The automobile invented a whole new nature of activity called personal travel. Prior to the automobile, people didn't have their own horse. It was too expensive and maintain and stable a horse, particularly in a city. So the automobile created a whole new activity called personal travel -- vacations, going out and driving through the countryside on the weekend -- that didn't exist before, and was responsible for a tremendous amount of economic growth from the 1920s through the 60s as everything from motels to resorts to Disneyland to supermarkets, all these subsidiary inventions to the great invention of the internal combustion engine, gradually made their way through the economy. That whole process, as I emphasized in the paper, took 100 years.