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.