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The Rise and Fall of American Growth
The US Standard of Living Since the Civil War

by Robert J Gordon, Princeton University Press 2016

Drawing from history, what can we expect in economic growth? There was virtually no economic growth for millennia until 1770. The economist Paul Krugman agrees with Gordon that what happened between 1870 and 1940 "is what real transformation looks like." We had growth through the forties to 1970. Then came the computer revolution that contributed to another leap in productivity.

Commenting on Gordon's assessment of Information Technology, John K Hawley agrees that it has not generated the same economic impact across populations that previous growth has. He writes:

The fruits of these new developments will fall to those who have the cognitive ability and education to take advantage of them. That will leave about half of our population in a left-behind category. We can see these impacts now in the uneven status of economic recovery since 2010.

Commenting on Gordon's book, Loyd Eskildson wrote:

Breakthrough inventions of the 1920-1970 (Ford's assembly line, Toyota's 'Lean Production') era cannot be repeated, and thus the rapid economic growth they made possible won't be repeated either. Labor force growth has also slowed.

So what can we, or should we, expect in economic growth and accompanying patterns in the way we live? Accepting the idea that there will be no great transformation like the century before 1970 or before 2010, should we in the US be happy with modest growth that accompanies population growth, incremental automations and such. In 2013 GDP growth in the US was 4.05%, in 2014 it was 3.88%, in 2015 it was 3.12%. (The European Union in 2015 grew only 1.8%.) Republicans blame President Obama and believe they have a formula for faster growth. However much if any credence we can give to their claim, politics has an impact on economic growth and the distribution of its benefits.

Serge J Van Steenkisteon writes:

Mr. Gordon blames the slower US growth that he has observed since 1970 on what he calls the four headwinds that are slowly strangling the American growth engine: rising inequality, plateauing educational attainment, reduced hours worked per person, and the aging of the U.S. population. To address this slowdown, the author [Gordon] pleads for a greater equality of outcomes as well as a greater equality of opportunities. He also pushes for immigration reform after the example of Canada to stop the self-imposed brain drain.

Paul Krugman also refers to Gordon's "headwinds."

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.

Krugman describes Gordon as "a distinguished macro­economist and economic historian" and adds:

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.

Krugman describes Gordon's book as,

... a magisterial combination of deep technological history, vivid portraits of daily life over the past six generations and careful economic analysis.

One bit of humor is a Peter Thiel quote:

We wanted flying cars and we got 140 characters.

I'm thinking that in the decades ahead we might also be getting great advances in medicine, including cures for cancer and Alzheimer's. Aging might be slowed and life expectancy increased considerably. Life expectancy rising to above 100 years would have a big impact and do little for the nation's economic growth and productivity. Would politics make adjustments in retirement age and social security to unburden the young?

Copyright © 2016 by Frank E. Smitha. All rights reserved.