Sunday, February 28, 2016

Slower American Growth


American economic growth is very likely to slow for decades into the future, in large part because the period of spectacular gains already occurred with industrialization and technology from 1870 to 1987.  Robert J. Gordon details his case for inevitable slow growth in a new book, The Rise and Fall of American Growth, published last month.

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The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War (The Princeton Economic History of the Western World) Hardcover – January 12, 2016

by Robert J. Gordon

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5 Stars
A profoundly important book and a great read
By Mark Witte on January 6, 2016

I think of Rashomon; a gripping story told from a series of different angles, each reinforcing but also changing our perspective on what we learned in the others. Gordon breaks America's unprecedented rise in quality of life into two periods, 1870-1940 and 1940-2015. In the first period and then the second, he lays out a series of chapters where each documents one area of the technological change that re-shaped the lives Americans lived. In the 1870-1940 period, these include food, clothes, lighting, communication, entertainment, transportation, healthcare, and finance. In the 1940-2015 period, the parallel stories of improvement are some repeats (food and clothes transportation, entertainment, and healthcare), but also the way computers have worked their way into our lives and how a large share of modern people have to plan for and live lives that extend far beyond the end of their working years. This is all presented with a readable mix of clear data analysis and wonderful supporting anecdotes. 

This book is something of a spin-off from Gordon’s influential work on the slowing of growth in the US. His “headwinds” argument is roughly that if the US were to keep up the same rate of technological progress going forward as we saw over the decades from 1987-2007, then the US would see markedly slower income growth for average households due to rising headwinds due to an aging population, rising inequality, limited further educational gains, reductions in the amount of CO2 emissions we will allow, etc. The objection that is commonly raised to his pessimism is that maybe technological growth going forward will vastly outshine what the US enjoyed from 1987-2007 (which, aside from the rise of the commercial internet, home computing, cellphones, and advances in pharma, one might argue wasn’t that great a period to change, right?). So, sure, technological growth going forward might be much greater than what we’ve seen so far (Joel Mokyr makes this case eloquently), but the 1987-2007 benchmark is a hard one to beat. Supporting this view, Gordon points out how the changes that brought the huge improvements in quality of life in the past will be difficult to approach in the future. Sure, Skype is great and cellphones are convenient, but their introduction did far less for human happiness than the introduction of the phone. Granted, it would be nice to be able to get from New York to Tokyo in eight hours, but that gain was nowhere near the boon we gained from moving from ships to airplanes. Certainly most of us would be glad to live to 120, but the gain in those years won’t bring us nearly the joy that the rise in life expectancy we say from 42 in 1890 to 62 in 1940.

Nevertheless, we will always continue to hope for breakthroughs, and this book is an example of that. Gordon has written a timeless classic.

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Margaret Wente wrote a noteworthy review of The Rise and Fall of American Growth for the [Toronto] Globe and Mail at:

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