Is U.S. Economic Growth a Thing of the Past?

  • Share
  • Read Later
H. Armstrong Roberts / Retrofile / Getty Images

The U.S. and economic growth have consistently gone hand in hand. The country’s history has consistently been accompanied by economic progress, and since the end of World War II, the U.S. economy has averaged GDP growth of more than 3% per year.

Of course, that kind of growth doesn’t just grow on trees. The development of the U.S. has coincided with the most technologically impressive period in human history. The U.S. Constitution was ratified in the midst of an Industrial Revolution in England that would soon spread throughout world, and since that time the human race has witnessed such revolutionary inventions as electric light, indoor plumbing, the automobile, air travel, modern medicine, mass telecommunications, the computer and the Internet.

But is there reason to think that kind of technological advancement — and the resultant economic growth — will continue indefinitely? That’s a question that Robert J. Gordon, an economist at Northwestern University, posed in a recent working paper. Gordon argues that most of the economic growth in the U.S. has been prompted by three separate industrial revolutions: the first occurred between 1750 and 1830 and brought us steam engines, cotton spinning and railroads; the second, between 1870 and 1900, brought electricity, running water and the internal combustion engine; and the third, between 1960 and the end of the 20th century, brought computerization and the Internet.

(MORE: Is the U.S. Headed for a Double-Dip Recession?)

Though each of these revolutions bestowed unique and wonderful gifts upon the human race, the economic effects varied greatly, according to Gordon. Most significantly, he argues, the latest technological developments will simply not be able to sustain rapid economic growth for as long as the first two. Writes Gordon:

“The computer and Internet revolution (IR#3) began around 1960 and reached its climax in the dot.com era of the late 1990s, but its main impact on productivity has withered away in the past eight years. Many of the inventions that replaced tedious and repetitive clerical labor by computers happened a long time ago, in the 1970s and 1980s. Invention since 2000 has centered on entertainment and communication devices that are smaller, smarter and more capable, but do not fundamentally change labor productivity or the standard of living in the way that electric light, motor cars or indoor plumbing changed it.”

Gordon poses a colorful rhetorical question that he hopes makes his point about the relative importance of the second industrial revolution as compared with the inventions of the past decade:

“A thought experiment helps to illustrate the fundamental importance of the inventions of IR #2 compared to the subset of IR #3 inventions that have occurred since 2002. You are required to make a choice between option A and option B. With option A you are allowed to keep 2002 electronic technology, including your Windows 98 laptop accessing Amazon, and you can keep running water and indoor toilets; but you can’t use anything invented since 2002.

Option B is that you get everything invented in the past decade right up to Facebook, Twitter, and the iPad, but you have to give up running water and indoor toilets. You have to haul the water into your dwelling and carry out the waste. Even at 3 a.m. on a rainy night, your only toilet option is a wet and perhaps muddy walk to the outhouse. Which option do you choose?”

(MORE: The Six Daunting Financial Problems Facing America)

One need not ponder this question long to realize the fundamental importance of such inventions as indoor plumbing. It also illustrates the triviality of some of the advancements of the past decade. Indeed, the average growth rate of labor productivity in the U.S. has slowed significantly since 2004, giving credence to the idea that the dividends of the Internet have already been paid in terms of productivity, and that all the technological advancement of the previous decade has been in creating distracting baubles like social media rather than inventions that actually propel an economy forward.

At the same time, couldn’t one make the argument that you’d prefer the invention of, say, animal husbandry or the written word to indoor plumbing or electricity? In other words, aren’t fundamental technological advancements that come before necessarily more profound because they are the building blocks upon which successive inventions are created? Gordon ignores the entire idea that technology begets itself — that the tools we have today make it more likely that invention will move at a faster pace than it had in the past. And though labor productivity has slowed since 2004, it is probably a little too early to therefore conclude that all the benefits of the Internet revolution have been realized. There are plenty of reasons to believe that the Internet is still a young phenomenon that will continue to change the world in ways that we cannot anticipate. (When only 33% of the world has access to an invention, is it reasonable to say that its full impact has been felt?)

(MORE: America’s Slow Economic Recovery)

Gordon ends his paper by listing six headwinds that he believes will, when combined with the effects of diminishing technological advancement, reduce our average yearly economic growth to a depressingly low 0.2%:

  • Demographics: the population is aging, and the onetime economic benefit of women entering the workforce has already been realized
  • The plateau of educational attainment: the U.S. is slipping in international measures of educational success, and it is becoming increasingly difficult to afford postsecondary education for many
  • Rising income inequality is restraining growth because there are fewer people with disposable income
  • Globalization is forcing low-skilled but high-paying jobs abroad
  • Any effort to cope with global warming will slow the economy
  • Both consumers and the government are overly indebted and paying down that debt will slow growth

All six of these headwinds are widely considered to be real threats to the American economy. And if Gordon is right about the Internet ultimately being a productivity dud, the U.S. may indeed settle into a period of the kind of slow growth that characterized much of the world before the first Industrial Revolution began in the 18th century.

MORE: As the Fiscal Cliff Nears, Will Anyone Swerve?

109 comments
natideckard
natideckard

Economy has to grow. We are leveraged and paying interest - so if there is no growth, we cannot cover the interest and we will collectively default.

PhilosophicalAnalysis
PhilosophicalAnalysis

Gordon's argument by analogy is, to put it bluntly, awful. Not only is this an inappropriate analogy, as it compares the entirety of IR #2 with a small subset of IR #3, but it additionally ignores the fact that technological advancement thus far in human history necessarily builds upon previous technology, as Matthews spoke of briefly. In a similar vein, it also ignores that, despite his dismissal of current innovation, that this IR is not completed yet, and is thus, again, not a parallel analogy. The two options are even more absurd. Given the option of all human advancement to 2002 or just advancement since, well we really aren't left with much of a choice.  Speaking to the first point, if we are looking at each IR in a vacuum, I would argue that the entirety of IR #3 to date has had a more sudden and dramatic affect on human advancement than IR #2 (consider the rapid pace of invention and globalization caused by the internet and other forms of communicative technology). Additionally, Gordon overlooks incredible, though less conspicuous, recent advancements in science, health, and technology that undeniably will have an immense affect on our personal and economic futures. As for the second, yes, Gordon is correct; I would choose IR #2 over #3, but I would also choose IR #1 over both, as I would similarly choose argriculture, writing, animal husbandry, and other early advancements ad nauseaum over anything that came later. In the end it may turn out that he is correct, but from a philosophical standpoint, Gordon's argument is invalid as it ignores significant details of technological advancement and only focuses on the parts that (weakly) make his point. Saying this IR is inconsequential and will not be fruitful in the future is naive and quite simply poor argument.

Samian
Samian

America has too many laws and regulations on the books. I think "The Economist" covered this topic quite convincingly several months ago.

The barriers to proprietorship in 2012 have never been more daunting.  People want to start businesses, innovate, and make something of themselves.  

Yet bureaucracy and the threat of litigation deters far too many.

Full disclosure: I'm fairly liberal.

But I'm also convinced that the regulatory environment has become too onerous for everyone BUT the already-wealthy (i.e., established corporations) to generate wealth and new jobs in this country.

danlunche
danlunche

Robots! Thats where the future will be.

Surfboat Dan.
Surfboat Dan.

Frolly Hicking Cow!  Reading the last few posts it is amazing that the Roman Empire promoters are still defending it and the "your casa is my casa" people don't get the idea of the usefulness of intellectual property.   Together we should get, well, nowhere.  

The point I think Robert J. Gordon misses is the degree of control exerted by oligopolies who have mastered intellectual property to the extent that the creative effort, which is necessary for economic growth,  has become stifled .   It has become stifled because instead of inuring to the benefit of "Artists and inventors" as in:

     Art 1, Sec 8, cls.8,  US Const.:  To promote the Progress of Science and useful Arts, by

securing for limited Times to Authors and Inventors the exclusive

Right to their respective Writings and Discoveries; 

the benefit has now inured to the benefit of the sophisticated people like the Romney group and similarly situated stockholders.   In short there has been an inadvertent intellectual sabotage of inventiveness.   It was engendered by the management of profits  for the benefit of those people Romney so lovingly calls corporations.  

Corporations do not invent.  They bank inventions to be managed by others who understand "Business."  Romeny will understand this much better than President O'Bama will. 

Only Romney thinks that money is something for the Corporations to manage and  to use to temporarily run a "company store" economy. 

Romney seems to overlook the fact that money has been legitimized and is owned by the sovereign public who have fought and died for the preservation of America and not the corporations who though born in America owe no allegiance to it.

Gary McCray
Gary McCray

Corporations have no conscience, no ethics and are ultimately absolutely destructive of themselves as well as everything else.

Their only mode is conquer win and prosper - - In the short term. 

There is no long term.

This is an unfortunately devastating lesson humans are about to have driven home in a very catastrophic way.

TruthinSF
TruthinSF

Yes, as long as we continue to saddle businesses with government regulation and taxes, we will continue a long, steady decline.  We will never get rid of the business cycle.  But if we cut government spending, taxes and regulations, we will finally get growth again.

f_galton
f_galton

The United States is becoming more diverse, which means the average IQ will be lower, which  results in lower educational attainment, and a greater share of the economy going to wealth redistribution.

 

Vincent Lovece
Vincent Lovece

 How does diversity equate to a lower IQ?

f_galton
f_galton

There are racial differences in IQ. Perhaps that's too controversial, if so we can restrict ourselves to educational attainment.

Danyz
Danyz

Well, it could be said that any civilization whose economy is fueled 70% by consumer spending, often on frivolous luxuries, is on a shaky foundation, indeed. Just take a good look at all the "stuff" packed into your homes, things that seemed important when purchased but now essentially take up space. I like to picture Japanese style homes, whose beauty derives from their sparseness. No going back in time, to be sure. But think: if we as a people had selflessly contributed our truly unnesessary excesses to helping impoverished nations and furthering scientific exploration, we might have been living in a Utopia poised to go to the stars...

Vincent Lovece
Vincent Lovece

This is like the eighth time since the 1940s that the pundits have said something to the effect of "America is doomed" or "The Russians will paint the moon red!" or "The Japanese will eat our lunch!" They are always wrong.  

Godzilla1960
Godzilla1960

All of our talent and time seems to go into making better toys for grown-ups and children alike.  Our best efforts are directed into allowing us to be, as T.S. Eliot wrote,

"Distracted from distraction by distraction 

Filled with fancies and empty of meaning ..."

seeseebutler
seeseebutler

I remember hearing the same argument back when the main stream media was making excuses for Jimmy Carter.

Godzilla1960
Godzilla1960

Boy, that was a stretch.  

I lived through the Carter administration and I remember no such arguments.

Antiehypocrite
Antiehypocrite

I am actually looking forward with tremendous anticipation to the day when Americans who are filled with hatred and envy for the day that the economy gets so bad that they turn their millions of guns on each other.

The world has had enough of your mafia-like foreign policy - you have raped and pillaged weaker countries for long enough.

seeseebutler
seeseebutler

Yes, it will be much better when a totalitarian regime like China is the most powerful country in the world. Or, better yet, lets bring back the Soviet Union, which treated its satellite states so well. There is no such thing as a perfect super power, but America has done it better and more justly than any other county in the history of the world

Joe McPlumber
Joe McPlumber

 We'd be plenty super-powerful without stretching our military thin and spending ourselves into weakness and bankruptcy.

Craig Darling
Craig Darling

Wow... I can not believe that Time missed the mark by so much on this one.  Social Media is the economic revolution of our time.  It is changing the world completely... and eliminating the huge media as well.  Intuitive... that is what social media is... those that use it will intuitively choose whom to do business with.... The girl down the street that wants to make cloths... can do so. Custom cloths for the price of Target?  Yep.  The guy or gal that wants to landscape... using social media can have referrals galore... anything that you wish to do, you now may.  Develop your own economy.  It is now possible, and those that don't realize this may be left in the dust, this includes Time. Social Media is bring craftsmanship back to the world... watch.

Godzilla1960
Godzilla1960

How exactly does social media improve productivity?  

Facebook has been a huge economic flop precisely because there is no clear way to make money from it.  It basically allows grow-ups to return to a high school mentality of spending countless hours on the mundane.

Not much money in that.

Basketball Jesus
Basketball Jesus

I'm wondering why Professor Gordon sees the challenge of global warming as a headwind versus an opportunity for the U.S. to invest in clean energy and generate jobs in that industry?  

Godzilla1960
Godzilla1960

Because we are going to let that opportunity sail right on by.

Cynthia Rouse
Cynthia Rouse

Cynthia Rouse, 0 minutes agoThe globalists, and their corporate politicians have been extracting capital and opportunity from the US since the implementation of NAFTA. I saw a promotional film for an upcoming economic seminar in China, in a beautiful, new, gleaming city; built with modern, state of the art infrastructure. It looked like something out of "The Jetsons" Sleek, futuristic, efficient, modern, valuable. Rich. First world economic power.Fly into the US, drive across the US, and what do you see? You see economic devastation. No matter how they try to spin this, everyone got a bailout except the people. Only the independently wealthy and stock holders have done better in the last 12 years. Anyone who works for a living has lost ground. Millions and millions of middle class american have had their lives destroyed. Where is their bailout? Where is their TARP?I would say one word to young people: entrepreneurship.The people are going to elect an independent to the presidency in 2016. I think that they have seen and heard enough of the talk, talk, talk, drink the kool aid and blame the other party. In all candor, I don't know how they have gotten away with it for this long...

Gary McCray
Gary McCray

God if I never hear "Double Dip Recession" again it will be too soon.

The American (and global) economy reacts to a lot of external forces and is not simply an ideal to be championed and then everything will be OK.

Things will not be OK, Corporate greed with governments powerless to control them for the good of the country and the good of the people is the tip of the iceberg.

Failing global consumerist based economy is everywhere.

Oil and resource depletion and environmental pollution and destruction are becoming more and more evident.

Surprise global warming is real and things are going to get a lot worse.

Aint no "double dip recession" in the end it is going to be an end to a way of life.

There will be a LOT of death and suffering, and if we are lucky enough of humanity will be left and have learned enough to more intelligently rebuild on the ashes of our previous know it all grab everything we could but now dead civilization.

roddalitz
roddalitz

For some time I have had an idea that growth is a bubble, that is, a trend which has outgrown its ability to repay in the real world. For centuries we have had the idea that we can grow indefinitely, but there are only so many natural resources, only so much water and soil, and the really important question is whether we have invested the benefits of technological advances wisely, to support future generations. Mostly I think the answer is NO, we have blown them on supporting unproductive people, and failed to educate the young, and failed to invest in long-term infrastructure to provide a sound foundation for the next decade.

There is too much that looks like the later stages of the Roman Empire about the West.

Godzilla1960
Godzilla1960

Capitalism itself is ultimately a Ponzi scheme that requires more and more consumers buying more and more stuff in order to keep the shark that is our economy constantly moving.

Vincent Lovece
Vincent Lovece

 And what alternative would you prefer?

Godzilla1960
Godzilla1960

Don't know.  

I just know that unrestrained growth is unsustainable in a world of 7 billion people and which is expected to top out at 10-11 billion.

The economic system of the future global economy hasn't been developed yet.

bwshook
bwshook

US economic growth is not gone forever; we're currently in a period of "adjustment"--we've been through these periods several times in decades past.  We're currently experiencing a "stuck in a rut" economic period, which is the precedent for only one thing:  economically, it'll get worse before it gets better.  That's the adjustment.  From that point onward, US economic growth will begin to climb again, and it will keep climbing until the next time it needs an adjustment, and so on.

Lasertop
Lasertop

The Next spurt is pretty obvious, Robotics.  When you have machines that can work 24/7 Productivity will go up.

Capn_D
Capn_D

I agree.  This Gordon guy ought to leave his desk and see what is happening in manufacturing.  The age of the robot machine is yet maturing.   That revolution has yet to peak.

frankspeaking
frankspeaking

as a former Democratic president pointed out in his speech to the

Democratic convention, the national debt was quadrupled in the 12 years

of Republican administrations prior to his presidency and doubled again

in the 8 years of Republican administrations that followed him.

 

Godzilla1960
Godzilla1960

This goes way beyond presidents and parties.

travlr009
travlr009

and will be go up well over 2 times in an  8 year  Obama term.

so his point is?.............

h rutner
h rutner

Yes, US economic growth is gone forever, will decline in the future , and so is our high living standard. why? From the perspective of a pragmatic industrial scientist, it's like simple flow of water under gravity from a tank with higher water level, the USA, linked to all globally connected tanks of lower levels. This is simple Economics 101 under globalization. Offshoring by our corporations will continue until the levels are the same in terms of wages and living standards. ...or more importantly, until it is no longer profitable. And our current tech advantage will also decrease as other nations like India in computer science and China in applied research with larger numbers of more skilled workers will soon outstrip the skills of our dropout generation and even our college grads that will be forced to accept minimum pay service jobs , or if lucky higher paying civil service jobs.

Nonaffiliated
Nonaffiliated

You should move beyond "simple Economics 101".   Free trade may cause short term problems, but over the long run it's better for all.  However, you have a point about education.  If we don't do a better job of educating our children, they'll never be able to match past generations' productivity...regardless of what other nations do or don't do.

Sikhs are Brown Supremacists
Sikhs are Brown Supremacists

this is not the choice of American people. This was imposed from above by Jewish bankers. 

Open borders, millions of 3rd world invaders, open trade - let corporations ship out all the jobs overseas until American wages come down to 50 cents/hr.  

iansamry
iansamry

I agree with Robert Gordon that the transformation brought on by the internet has been exaggerated in many respects. Computers have better organized information and their networking has made it more quickly and easily accessible allowing firms to better react to markets. But ultimately information technology does not increase the amount of resources available in the global economy in the same way that industrial technologies have.   

One thing he seems to ignore is advances in robotics and automation which bring up the question of whether technology has or will begin to permanently reduce the need for labor and create a class of perpetually unemployed individuals, even in the presence of steady economic growth.  

frankspeaking
frankspeaking

"...advances in robotics and automation which bring up the question of

whether technology has or will begin to permanently reduce the need for

labor..." not a question of whether, but when.and I would argue already a reality as it explains the last three recoveries being joblessgoing forward the labor will be knowledge based labor

rdevaughn
rdevaughn

"Indeed, the average growth rate of labor productivity in the U.S. has slowed significantly since 2004, giving credence  to the idea that the dividends of the Internet have already been paid in terms of productivity, and that all the technological advancement of the previous decade has been in creating distracting baubles like social media rather than inventions that actually propel an economy forward."

With quotes like this, I'm pretty sure I should be able to write for Time...

Labor productivity isn't the only kind of productivity, and the minor distractions presented by social media are nothing compared to the myriad of advantages the ubiquity of information and ease of communication will bring.

World internet penetration is around 32%, although its higher in the US, near 56%, that still leaves nearly half the population unconnected.

If you think we have even remotely begun to fully integrate the advancements of the information age, you are narrow minded at best. The internet has only begun, and its only just begun to change us.

Humanity will change- not just the US, as poorer people gain access to information, as we all gain access to unbelievable amounts of information- government documents, the human genome and other enormous sets of scientific data. WikiData alone will revolutionize the world. Imagine an enormous relational database with everything from historical weather data to population census data, economic data, a history of the price of tea in China. If you don't think that the ability to analyse correlations between huge and disparate sets of data will inevitably change the way we are, you are extraordinarily narrow minded, or have given up on the future.

"Any efforts to cope with global warming will slow the economy down;" In the next 20 or 30 years when we develop fusion power will that increase or decrease our impact on the climate? And the economy?There are too many old tired people hating on the future, propagating nonsense about the inevitability of failure. Its time for humanity to move on.

Kirby Ledvina
Kirby Ledvina

I truly do not see the problem with slow economic growth. As long as economic growth rate matches population growth rate (which in the US is about 0.9% right now and probably decreasing), shouldn't we be ok? I feel we put so much emphasis on economic growth that we overlook other important parts of life.

Nonaffiliated
Nonaffiliated

Economic growth by itself is of interest only in terms of geopolitical influence.  However, when economic growth exceeds the  increase in total hours worked, that means we have become more efficient.  With greater efficiency comes the opportunity to choose higher earnings (for home, vacation, education, etc) or less work, allowing one to concentrate on "other important parts of life". 

urgelt
urgelt

This strikes me as a fair analysis, but when it comes to projecting the future, it's flawed.

It's flawed because it ignores some seriously big dogs in the kennel:  robotics and biotech.

Robotics will become tremendously significant as a way to produce work with fewer laborers.  It already is, in the manufacturing sector, but as battery technology, sensors and algorithms improve, robotics will penetrate into more economic sectors.  If you doubt it, consider autonomous vehicles under development by several corporations and by DARPA.  They're improving at an astonishing speed.  The 2020's will be the decade when they hit their stride as an economic force.

That will accelerate certain sectors of the economy, but it will decelerate others.  Many human workers will be out of luck.  For example, taxi drivers and long-haul truck drivers will be displaced.  The net effect may be lowered consumer demand owing to a shrinking middle class, and that can't be good for economic health.  The picture to draw is an economy skidding sideways due to robotics, not lifting, with wealth being concentrated into fewer hands.

Biotech is a true wild card.  We really don't know what might come out of it or what its impacts will be, but it's simply not safe to prognosticate if we ignore it.  Suffice to say that when we start seriously tinkering with human phyiology and genomics, not merely to address diseases but to alter what it means to be human, it's going to have a big economic impact.

I don't know if it's accurate to say that we will never claw our way out of our present economic stagnation.  But if I put my prognostication hat on, I can try to make a prediction.  I think we'll see a very serious crash of the world's corrupt financial system and a consequent period of runaway inflation and much worse joblessness.  It's going to be grim.  But at the far end, if we hold together as a civilization, some of these tech developments in robotics and biotech are going to take hold, and at that point, it might be a wild ride for the world's economies.

Jon Gibson
Jon Gibson

If we were as potentially intelligent as we are now, but were only mice-sized... think of the resources we could stretch farther... a kernel of corn could be dinner for two... jet aircraft could fly tens of thousands of us at once... we could go skydiving without a chute and without dying...

....oh the mind reels at the possibilities!!

Jon Gibson
Jon Gibson

Before long we'll be engineered to eat less, consume less, be smaller... eventually we'll all be mice-like creatures, and the circle will be complete.

Fatesrider
Fatesrider

 The biggest thing to come - assuming the current powers that be who are working hard to suppress and discredit it ever leave it alone long enough to be developed - will be a sustainable energy industry.  Both biotech and robotics will demand more energy - which we do not have.  As energy demand goes up, energy availability will go down and the cost to obtain it will go up, strangling growth.  The only solution is to find sustainable energy sources (we don't need to focus on just one since many are available) whose availability can only go up.

If the U.S. was truly interested in revitalizing the economy, investing in viable alternative energy sources to replace limited (and easily manipulated in price) fossil fuel supplies would be an excellent start.

urgelt
urgelt

You are certainly correct to point out the connection between energy sources and economic health, Faterider.  When energy is cheap and abundant, relative to other commodities, economic growth is very likely; when it's expensive and scarce, economic growth will indeed be strangled.  This fact was missing in the article's analysis.

I wasn't intending to cataglog every deficiency of the article's analysis, but to focus on two that I thought it ignored.  You've identified a third, and it's a big one.

The only quibble I might advance against your argument is rather minor and arguable. 

It's not quite clear to me that biotech, in the net, will demand energy at all.  It may become a net source of energy - or a way completely around the old energy-intensive industrial processes.

To illustrate how this might be so, imagine a hypothetical bioorganism which has been engineered to convert a diet of raw carbohydrates and cellulose to fuel without any industrial steps at all.  (Imagine a cow-like creature who doesn't fart methane, but instead excretes a liquid carbon-based fuel which can be collected in a bag tied onto its rump.)  There would be no cracking/refining plants, as you need with fossil fuels.  (This is a highly speculative scenario, but it's difficult, today, to say it's impossible.

A biotechnology like that might reduce our energy infrastructure costs while increasing the supply of ready-to-use liquid fuels.

Biotech labs don't consume very much energy compared to the old industrial infrastructure, and it could be a game changer when it comes to energy availability and expense to the rest of our society.

But the point is speculative; nobody has any applications like that ready to bring to market.

frankspeaking
frankspeaking

 how about some acknowledgement next time you lift an idea and specific language next time

urgelt
urgelt

You accuse me of stealing someone's specific words, but you haven't said whose specific words I've stolen.

I categorically deny stealing anyone's words.  I composed these thoughts myself.

It's certainly true that I am not the only one writing observations about these trends.  Ideas flow freely from mind to mind on the internet, as they should.  But I haven't copied and pasted, or even paraphrased a specific source.  These words are my own.