There is a new economic blockbuster out, The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War by Robert J. Gordon. In brief, his thesis is that 1870 to 1970 was a ‘special century’ of technological change yielding dynamic economic growth that transformed our lives. By contrast in America, nothing much has changed since then, growth has tapered right off and there is little prospect of significant change.
Is he right? Paul Krugman says, “My answer is a definite maybe.”
Robert Samuelson gives another account of Gordon’s argument. For him it is too early to say whether Gordon is right. Gordon, he says, does not reject the promise of technology but rather gives a sobering reminder of its limits. Gordon also limits his argument to the private sector. Samuelson says it’s in the public sector, where fields like education and health represent a quarter of the economy, that fail to improve their productivity.
Martin Ford broadly agrees with Gordon about the past, but not about the future. Innovation, he says, has actually accelerated. While not as spectacular as electricity and the internal combustion engine, it is all pervasive:
- information technology (and specifically artificial intelligence) is going to intertwine with any innovations that occur in the future and make everything less labor intensive.
But unless we change the economic rules growth will be snaffled by the few at the top, as it has been in recent decades. Ford posts this interesting graph of real hourly compensation for production and non-supervisory workers versus productivity:
Gordon’s piece at Bloomberg reads like a response to his critics, but it’s actually an excerpt form the book. Contra Ford’s graph he says that there was a lift in productivity for a while from the mid-1990s but it has petered out since:
- Labor productivity, far from exploding as machines and software replace people, has been in the doldrums, rising only 0.3 percent a year in the five years ending in mid-2015, in contrast to the 2.3 percent a year in the dot-com period.
He agrees about steady middle level jobs disappearing and sees inequality as a real challenge.
- Slower productivity growth and low-wage jobs are leading to the unequal distribution of productivity gains. Those are the real headwinds that America faces.
Just backing up, from Krugman, Gordon says five Great Inventions powered economic growth from 1870 to 1970:
- electricity, urban sanitation, chemicals and pharmaceuticals, the internal combustion engine and modern communication.
Modern communication includes the telegraph and telephone, radio, film, television and the beginning of computers.
As far as I can tell, he doesn’t look at agriculture. In premodern times around 95% of Europe’s population were growing food. J. Bradford DeLong tells us:
- In the US, roughly 1% of the labor force is able to grow enough food to supply the entire population with sufficient calories and essential nutrients, which are transported and distributed by another 1% of the labor force. That does not account for the entire food industry, of course. But most of what is being done by the remaining 14% of the labor force dedicated to delivering food to our mouths involves making what we eat tastier or more convenient – jobs that are more about entertainment or art than about necessity.
Which raises the issue service industries. Tourism, for example, exploded in Europe from about 1960, when the population at large became wealthy enough to take trips away.
Finally, we have to remember that all these people are talking about America. For a quick snapshot here, have a look at this piece from the Courier Mail, which highlights then and now 48 years ago, when our population was half the size. (Thanks to John D for the link.) Get a look at this:
- 12. The male average hourly wage was $1.22 and the weekly full time wage was $48.93 which in today’s dollars is $567. The current average weekly full time earnings is almost three times this at $1,484.50.
Before we get too excited, remember this:
- 18. Homes cost five times more. The median Sydney house price was around $18,000 (in today’s dollars this equates to $195,300) compared to the current Sydney median house price which exceeds $1 million.
I liked the two postal deliveries per day back then.
But Gordon would say we had cars, electricity, refrigerators, washing machines, the phone and much else. Unless you lived in Brisbane you probably had an indoor loo.
I tend to think that changes like 3D printing, nanotechnology, genetic manipulation, driverless cars, universal digital connectedness, the whole human-technology interface (that’s just off the top of my head) will amount to something significant.
However, there’s something else going on. At the end of this article, which does my head in a bit, we are told:
- After all, globally, standards of living are continuously improving and converging. (Emphasis added)
Seems for real incomes growth we’ll have to wait for the Indians and Chinese to catch up.
If Mason and Gordon are concerned about growing inequity and Mason thinks the economic rules need changing, they might consider the ‘Nordic model’ (thankyou zoot!) It’s about civilising capitalism.