The Past Speaks

Prof. Robert Gordon, the economist who is the kingpin of the stagnationists, has published a revised paper in which he fights back against  the many critics of his thesis that we are entering a long period of scientific, technological, and economic stagnation.

The abstract of the paper is rather sobering:

The United States achieved a 2.0 percent average annual growth rate of real GDP per capita between 1891 and 2007. This paper predicts that growth in the 25 to 40 years after 2007 will be much slower, particularly for the great majority of the population. Future growth will be 1.3 percent per annum for labor productivity in the total economy, 0.9 percent for output per capita, 0.4 percent for real income per capita of the bottom 99 percent of the income distribution, and 0.2 percent for the real disposable income of that group…

There is no need to forecast any slowdown in the pace of future innovation for this gloomy forecast to come true, because that slowdown already occurred four decades ago. In the eight decades before 1972 labor productivity grew at an average rate 0.8 percent per year faster than in the four decades since 1972. While no forecast of a future slowdown of innovation is needed, skepticism is offered here, particularly about the techno-optimists who currently believe that we are at a point of inflection leading to faster technological change. The paper offers several historical examples showing that the future of technology can be forecast 50 or even 100 years in advance and assesses widely discussed innovations anticipated to occur over the next few decades, including medical research, small robots, 3-D printing, big data, driverless vehicles, and oil-gas fracking.

Gordon’s bottom line: people in the United States in, say, 1973, were far better off than their grandparents had been in 1890. They had cars, air conditioning, colour TV, antibiotics, plentiful food, high wages, the Salk polio vaccine, and a fairly robust social security system instead of horses, chopping lots of wood, family Bibles, scarce food, low wages, high infant mortality, and Gilded Age inequality.  From 1973 to the present, there have has been little technological progress outside of a few areas related to IT. Moreover, living standards for the median American family have, at best, remained unchanged.

Gordon says that we can expect post-1973 stagnation to continue. Perhaps he is right. However, I’m a bit more optimistic for the simple reason that an increasing percentage of the world’s population is now able to contribute to the technological progress than underpins economic growth. In the past, only a tiny proportion of the male population of a few advanced countries had even the opportunity to acquire the human capital needed to contribute to process and product innovation. That’s changed as more countries have become wealthier and more people around the university have gone to university. Childhood nutrition is improving around the world, so there should be even more people with high native intelligence in the future. The Flynn Effect if going global. Moreover, globalization and new forms of IT are making it easier for smart people around the world to share ideas about how to be more productive.