Has Growth Stalled in Spite of Third Industrial Revolution Tech?

Paul Krugman and Business Week have recently referred to a grim new paper  – “Is US Economic Growth Over?” by Robert Gordon.  He’s an economics professor at Northwestern University, and notes that real growth peaked in the 1960s, and has been tailing off for some time now:

“British data for 1300-1870 come from Broadberry et al. (2010) and are ratio-linked to Maddison’s U.K. data through 1906. U.S. data are based on NIPA Table 1.1.6 back to 1929 and are ratio-linked to annual GDP from Balke-Gordon (1989)”

He doubts the reality of continuous economic progress, and instead says that there have been three distinct Industrial Revolutions:

  1. 1750 to 1830: E.g. steam, railroads
  2. 1870 to 1900: E.g. electricity, internal combustion engine, running water, indoor toilets, communications, entertainment, chemicals, petroleum
  3. 1960 to present: E.g. computers, the web, mobile phones

What looks like continuous progress is the working out of the inventions of each revolution.   They take some time to really kick in, and that’s when growth happens.  E.g. automobiles were invented in the late 19th century, but didn’t have a broad effect until the 1920s, and didn’t become universal (at least in the US) until the 1970s.  Now there are more cars in the US (250M) than people over 16 (~240M), so more big growth is impossible.

There was little growth before 1750, and there’s no guarantee that there will be any in the future.  It’s already declining in spite of the Third IR.  That hasn’t had nearly the effects on ordinary life as the Second.   Cellphones are nice, but the difference between a cellphone and a telephone is minor compared to the difference between a telephone and a letter.   The Third IR did cause a growth bump in the late 90s, when PCs and the rising Internet really did make a difference, but that seems to have played out already.

The reason he gives is that the benefits of the Second IR were fundamental improvements in human quality of life, and can only be achieved once.   People can take care of sewage disposal once, and it’s done.    They can acquire easy and clean transportation,  or the banishment of night, or relief from farm labor, or freedom from the heat and cold of the seasons only once.   All these gains can be improved upon, and can be more widely shared, but at some point future gains just aren’t as great.   Electric lights can become more efficient, and safer, and cheaper and have better color, but the big change was from candles.

The Third IR added freedom from repetitive mental tasks, and greater access to information, but those just aren’t as big a deal, according to Gordon.   I partly agree.  I’ve spent most of my career designing computers, but I’ll be the first to admit that they aren’t as important as indoor plumbing.    To drive this home Gordon proposes a thought experiment, which I’ll rephrase slightly. Which would you rather have:

  1. A PC, and an outhouse and outside well?
  2. Or books and a bathroom?

Fond as I am of reading and writing blogs, I prefer to go inside in the winter!

He also believes that even the present anemic rate of US growth is slowed by 6 factors:

  1. An aging population
  2. A stagnant educational system (i.e. graduation rates are no longer rising)
  3. Rising inequality (Note that the above chart is for average, not median, GDP per capita – median looks much worse)
  4. Global competition
  5. Bad energy and environmental prospects
  6. High consumer and government debt

Other countries may be affected less.  E.g. Canada is refreshing itself with lots of skilled immigrants, and Sweden suffers far less from inequality and debt.

It’s a bleak picture, but at least in my own field I don’t think it’s right.  Advances in electronics have NOT come in clumps; there has been something major in every decade.   Here’s a list off the top of my head for the last century, where I’ve assigned the decade to the time of wide use, and not just first invention:

  • 1900s – radio telegraphy, electric street cars, movies
  • 1910s – vacuum tubes, radio telephony, vinyl records
  • 1920s – radio broadcasting
  • 1930s – radar, movie sound
  • 1940s – digital computing, television
  • 1950s – transistors, tape recording
  • 1960s – communication satellites, integrated circuits
  • 1970s – microprocessors/DRAM/disks => PCs
  • 1980s – computer networking, CDs, VCRs
  • 1990s – Web, cellphones, GPS, digital cameras
  • 2000s – digital video (DVDs & streaming), smartphones, electric cars

Invention has been constant, and shows no signs of slowing.

But what of his larger point, that the Second IR satisfied human needs in a way that the Third has not?   I think there’s growth here that isn’t showing up in the statistics.   Most people have seen a great expansion in freedom in the last 50 years.  The 1960s may have been great for monetary gain for white straight males, but minorities, gays, and women would much rather live in the 2010s.    Even the elderly are far better off – they’re healthier, more mobile, and more engaged.  The metric of dollars per person is not capturing this.    It can capture the relief of physical discomfort that the Second brought on, but not the relief of mental discomfort that we’re seeing today.   It should matter that people feel less oppressed.

Has Third IR technology aided this expansion of freedom?  Perhaps, because people become more tolerant as they are exposed to a broader range of experience.   Recorded music, television, and now the Web have made all of the world’s culture available everywhere.    This can be overstated, as Wired-style cyber-vangelists tend to, but to the extent that the Third IR has been helping this process, it has been improving the quality of life as much as the Second.

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