One of the more persistent economic ideas rattling through the intelligentsia is that the last 250 years of amazing innovation, productivity and growth —from the steam-engine birth of the first industrial revolution in the 1700s to last month’s launch of the iPhone 5 — have come to an end. The nations of the developed world, especially the United States, have seen their best centuries. Growth has peaked. The future is flatlined.
Serious economists are throwing their good names behind this speculative idea, the latest being Robert J. Gordon, at Northwestern University. In a U.S. National Bureau of Economic Research working paper, Prof. Gordon raises the possibility that the last 250 years “could well turn out to be a unique episode in human history.” The opening words of the paper’s le are designed to provoke: “Is U.S. Economic Growth Over?”
While Prof. Gordon is talking about the United States, his thesis would apply to the United Kingdom and other developed nations. Prior to 1750, growth rates were non-existent on a per capita basis over hundreds of years. Then, fed by three main waves of innovation — from the steam engine era to the dawn of electricity to the computer revolution — growth in Britain and the U.S. soared. But those spectacular rates of growth — averaging more than 3.5% over much of the last century — actually “peaked” in the middle of the last century, says Prof. Gordon, and have been in decline ever since, with worse to come.
Prof. Gordon’s analysis, about which more later, received world-wide publicity in the
Financial Times on Wednesday when economics columnist Martin Wolf endorsed the idea that the era of unlimited growth is over. “Get used to this,” he wrote a little too enthusiastically as he turned the slow growth theory into an Occupy theme. “For almost two centuries, today’s high-income countries enjoyed waves of innovation that made them both far more prosperous than before and farm more powerful than everybody else. This was the world of the America dream and American exceptionalism. Now innovation is slow…. The elites of the high-income countries quite like this new world. The rest of their population like it vastly less.”
Preposterous though that last bit about the elites being slow-growthers, Prof. Gordon may have prompted Mr. Wolfe’s little aside with his experimental calculations that future U.S. growth might average 0.2% in future. This suggests, wrote Prof. Gordon, “that future growth in consumption per capita for the bottom 99% of the income distribution could fall below 0.5% per year for an extended period of time.”
Another economist who has been trumpeting a long-term decline in U.S. growth is John Ross, Visiting Professor at Antai College of Economics and Management, Jiao Tong University, Shanghai. He sees a “long-term deceleration” in U.S. economic performance, a trend he pins in part on the failure of “Reaganite/neo-Liberal policies.”
In Prof. Ross’s view, this entrenched decline in growth rates should be the dominant focus of current economic analysis and forecasting. It is folly, in this context, to constantly view quarterly U.S. growth data as “disappointing” when in fact the much-lamented slow growth of GDP they may be the new normal. “Analysts are surprised by the new data only when they have no internalized or built into their models this long term deceleration of the U.S. economy.”
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