The Rise and Fall of American Growth by Robert J. Gordon
Gordon has done a amazingly broad look at US economic history over a very eventful century and a half, amassing data from many sources, to document the overall standard of living over the period 1870 to the present. This period includes the unprecedented growth of the US economy, and the astonishing transformation of the “second industrial revolution” (electricity, cars, germ theory, etc.) His central theme is the effects of technology on the standard of living and economic growth.
The basic picture is clear: the rate of growth and improving standard of living rose in the period 1870-1942, exploded in the period 1920-1970, and reverted to earlier levels after 1970. Even with an uptick form 1994-2004 (the Internet revolution), the GDP and the standard of living seem to be growing very slowly.
The question, he says, is not real why growth is slow today, but what was so special about the high growth in the middle of the twentieth century?
His answer is, basically, there were a suite of technical innovations including internal combustion engines, electric power and light, pubic hygiene, and a swarm of lesser innovations (mail order catalogs, life insurance, movies). These technologies changed everyday life from top to bottom, but the changes could happen only once.
Much of the book is dedicated to documenting this case. This requires a preposterous amount of work, pulling together and harmonizing disparate sources—historical economics at its broadest.
One interesting point is the question of how well standard economic measures reflect the actual “standard of living”. In many cases, the GDP and other measures simply miss, and generally understate the benefits of new technology. Just as automobiles were not even counted in the GDP until millions were in use, and the quality of electric light is vastly better than kerosene or other alternatives, the actual improvements in life were far greater than any measure of cost or deployment.
Gordon musters evidence from many sectors, including housing, clothing, food distribution, education, and financial services. In each case, technical innovations made life better for almost everyone (even if the benefits arrived unevenly). His argument is that this “miraculous century” saw a flood of technical innovations (IR#2), which we should not expect to be repeated.
Our current period started approximately in 1970, and has seen much slower growth, and slower technological change. Gordon documents the relatively slow pace of innovation, even in “fast changing” areas such as medicine. Many innovations are relatively minor refinements and improvements—very valuable, but not as transformational.
There were, of course, historical events that contributed to the rapid growth form 1940-1970—the great depression and World War II produced profound social changes and massive technological investment. These effects were permanent (we don’t “forget” innovations), but, again, they could happen only once (thank goodness!)
The exception in recent years, obviously, is information and entertainment technology. The rapid evolution and convergence of telephony, television, and computers has certainly revolutionized business practices and many aspects of everyday life. But the economic bump appears to have been short lived—perhaps we have got most of the benefits we can hope for.
At the same time as w have “run out” of big technical changes, other changes have produced “headwinds”. The “miracle years” were characterized by a huge, unprecedented “great compression” of income, with many ordinary working people able to sustain a comfortable middle class life. Since 1970 (and especially since 1980), income distribution has reverted to historic patterns, with every increasing unequal distributions of income and quality of life.
Other headwinds include demographics—baby boomers entering retirement, plus low immigration, declining educational performance, and debt. Together, all these factors argue that growth will remain low, as before the big leap.
This is an important and useful book, that goes on my self right next to Piketty and Graeber. A long term view is critical in this case, and relying on our vague memories of “how much better things were when I was young”, is disastrously misleading. It is also critically important to remember that “little things matter”, including women’s work, public infrastructure, and, at times, innovations such as the mail order catalog or the grocery store.
I did have quibbles.
In some cases, Gordon is very confused, e.g., about the purpose of air port security, or just ignorant, e.g., his understanding of the last 30 years of IT evolution is shallow and sketchy. If he truly believes that the “poster boys” (Gates, Jobs, Bezos, Brin, etc.) are “lone innovators”, he’s badly, badly misinformed about where the technology came from. (Hint: publicly funded research at public research universities.) He also does not mention that the massive upsurge in US patents after 1994 was partly due to a bone-headed policy ruling that allowed millions of pointless software “inventions” to be patented, polluting the record with a flood of bogus “innovations”, and creating a whole business of patent trolling.
He also made me think hard about technology.
Chapter 17 is his important argument against “techno optimism”. If anything, he probably does not go far enough. Gordon points to the evidence that productivity growth spiked in he decade 1994-2004, but has dropped since. He notes, for instance that there is no evidence of productivity gains from smart phones (circa 2007 to present), and the productivity gains of the third industrial revolution (the digital age) “did not extend across the full span of human life as did IR#2”. (p. 601).
Thinking about this question, I can’t help but recall recent experiences in local restaurants. On two recent occasions I watched (and waited) while staff struggled to operate the newest upgrade of their system, and, in both cases, doing it over again in order to generate the correct bill for me to pay. These systems may well have improved the business operations of the restaurants in question, but they did nothing to improve the dining experience, and, if anything, decreased the productivity of the customer facing staff.
If this is typical (and I suspect it is—see the Inappropriate Touch Files), then it is clear that, thus far, the digital revolution hasn’t really happened yet at this level of the economy. I.e., it may have revolutionized accounting and inventory, but it hasn’t yet effectively reached customer service—the essence of these businesses.
It is also interesting to consider the reams of information we have on the negative effects of ubiquitous screens and media hare having on social life and productivity (e.g., Greenfield, Turkle, etc.): pervasive negative effects across the full span of human life. Whatever productivity gains that are happening may be counteracted by the drain on attention and the weakening of interpersonal skills and social connections. Perhaps “digital life” deserves to be included as another “headwind” in his Chapter 18, along with inequality, debt, and so on.
Gordon’s book is a clear a challenge to “technooptimists”, and even more to technologists. We need to think bigger about smaller things. If all we’ve got in our “innovation” is an Amazon style “recommender” function, then we’ve got pretty much nothing. Worse, technical “innovations” that improve profits (e.g., certain kinds of “smart metering”, Uber-style price fixing) are not going to be transformational, especially if they are fundamentally regressive.
Lot’s of food for thought, here.
- Robert J. Gordon, The Rise and Fall of American Growth: The U.S. Standard of Living Since the Civil War, Princeton, Princeton, 2016.