Rise and Fall of Growth

Rise and Fall of Growth August 5, 2016

Everyone acknowledges that economic growth has stagnated for the past half-century by comparison with the previous century. Robert Gordon (Rise and Fall of American Growth) argues that the stagnation is more or less permanent, and the growth of the world economy between 1870 and 1970 is unrepeatable. According to William D. Nordhaus’s NYRB review of the book, Gordon “is not predicting that living standards in the US will decline; rather he views it as likely that the growth rate of living standards will decline from its very rapid pace in the special century.”

Nordhaus isolates “two sources for his pessimistic outlook. The first is that the long list of ‘only once’ social and economic changes cannot be repeated. A second source is what he calls ‘headwinds.’ These are structural changes in the economy that reduce actual output below the country’s technological potential and provide another reason for slow growth in living standards in the decades ahead.”

The “once-for-all” changes so thoroughly changed human life that we have a hard time conceiving of the alternative. In Gordon’s words, “The century of revolution in the United States after the Civil War was economic, not political, freeing households from an unremitting daily grind of painful manual labor, household drudgery, darkness, isolation, and early death. Only one hundred years later, daily life had changed beyond recognition. Manual outdoor jobs were replaced by work in air-conditioned environments, housework was increasingly performed by electric appliances, darkness was replaced by light, and isolation was replaced not just by travel, but also by color television images bringing the world into the living room. . . .The economic revolution of 1870 to 1970 was unique in human history, unrepeatable because so many of its achievements could happen only once.”

“Standard measures of economic progress” don’t take account of these innovations, and thus drastically underestimate the enhancement of human life during the magical century after the Civil War: “The major inventions that revolutionized American living standards were seldom captured in the standard indexes. Examples include running water, toilets, telephones, air travel, phonographs, television, air conditioning, central heating, antibiotics, automobiles, financial instruments, and better working conditions. These tectonic shifts in technology and living standards would generally go unrecorded in ‘real GDP’ growth and in the growth of ‘real wages.’” By comparison with these changes, the innovations of the past fifty years are much narrower. Gordon “does not argue that returning to rapid growth is impossible. Instead, he thinks that we have exhausted the major society-changing ‘only once’ inventions, and he sees no prospect that we will find a similar set of inventions of such breadth and depth in the near future.”

According to Nordhaus, Gordon is aware of the risks of predicting technology’s future. But I wonder if Gordon’s thesis reflects this caution. Could anyone in 1865 have predicted how drastically the world would change over the following century? How can we possibly know what further once-for-all innovations are ahead of us?

Browse Our Archives

Follow Us!