Dr.Paul Krugman Reviews ‘The Rise and Fall of American Growth’ by Robert J. Gordon


February 2, 2016

NY Times Sunday Book Review

Dr.Paul Krugman Reviews ‘The Rise and Fall of American Growth’ by Robert J. Gordon

by Paul Krugman

http://www.nytimes.com/2016/01/31/books/review/the-powers-that-were.html?ref=books&_r=0

Back in the 1960s there was a briefly popular wave of “futurism,” of books and articles attempting to predict the changes ahead. One of the best-known, and certainly the most detailed, of these works was Herman Kahn and Anthony J. Wiener’s “The Year 2000” (1967), which offered, among other things, a systematic list of technological innovations Kahn and Wiener considered “very likely in the last third of the 20th century.”

Unfortunately, the two authors were mostly wrong. They didn’t miss much, foreseeing developments that recognizably correspond to all the main elements of the information technology revolution, including smartphones and the Internet. But a majority of their predicted innovations (“individual flying platforms”) hadn’t arrived by 2000 — and still haven’t arrived, a decade and a half later.

The truth is that if you step back from the headlines about the latest gadget, it becomes obvious that we’ve made much less progress since 1970 — and experienced much less alteration in the fundamentals of life — than almost anyone expected. Why?

 Robert J. Gordon-2015

Robert J. Gordon, a distinguished macro­economist and economic historian at Northwestern, has been arguing for a long time against the techno-optimism that saturates our culture, with its constant assertion that we’re in the midst of revolutionary change. Starting at the height of the dot-com frenzy, he has repeatedly called for perspective: Developments in information and communication technology, he has insisted, just don’t measure up to past achievements. Specifically, he has argued that the I.T. revolution is less important than any one of the five Great Inventions that powered economic growth from 1870 to 1970: electricity, urban sanitation, chemicals and pharmaceuticals, the internal combustion engine and modern communication.

In “The Rise and Fall of American Growth,” Gordon doubles down on that theme, declaring that the kind of rapid economic growth we still consider our due, and expect to continue forever, was in fact a one-time-only event. First came the Great Inventions, almost all dating from the late 19th century. Then came refinement and exploitation of those inventions — a process that took time, and exerted its peak effect on economic growth between 1920 and 1970. Everything since has at best been a faint echo of that great wave, and Gordon doesn’t expect us ever to see anything similar.

Is he right? My answer is a definite maybe. But whether or not you end up agreeing with Gordon’s thesis, this is a book well worth reading — a magisterial combination of deep technological history, vivid portraits of daily life over the past six generations and careful economic analysis. Non-economists may find some of the charts and tables heavy going, but Gordon never loses sight of the real people and real lives behind those charts. This book will challenge your views about the future; it will definitely transform how you see the past.

Indeed, almost half the book is devoted to changes that took place before World War II. Others have covered this ground — most notably Daniel Boorstin in “The Americans: The Democratic Experience.” Even knowing this literature, however, I was fascinated by Gordon’s account of the changes wrought by his Great Inventions. As he says, “Except in the rural South, daily life for every American changed beyond recognition between 1870 and 1940.” Electric lights replaced candles and whale oil, flush toilets replaced outhouses, cars and electric trains replaced horses. (In the 1880s, parts of New York’s financial district were seven feet deep in manure.)

Meanwhile, backbreaking toil both in the workplace and in the home was for the most part replaced by far less onerous employment. This is a point all too often missed by economists, who tend to think only about how much purchasing power people have, not about what they have to do to get it, and Gordon does an important service by reminding us that the conditions under which men and women labor are as important as the amount they get paid.

Aside from its being an interesting story, however, why is it important to study this transformation? Mainly, Gordon suggests — although these are my words, not his — to provide a baseline. What happened between 1870 and 1940, he argues, and I would agree, is what real transformation looks like. Any claims about current progress need to be compared with that baseline to see how they measure up.

And it’s hard not to agree with him that nothing that has happened since is remotely comparable. Urban life in America on the eve of World War II was already recognizably modern; you or I could walk into a 1940s apartment, with its indoor plumbing, gas range, electric lights, refrigerator and telephone, and we’d find it basically functional. We’d be annoyed at the lack of television and Internet — but not horrified or disgusted.

By contrast, urban Americans from 1940 walking into 1870-style accommodations — which they could still do in the rural South — were indeed horrified and disgusted. Life fundamentally improved between 1870 and 1940 in a way it hasn’t since.

Now, in 1940 many Americans were already living in what was recognizably the modern world, but many others weren’t. What happened over the next 30 years was that the further maturing of the Great Inventions led to rapidly rising incomes and a spread of that modern lifestyle to the nation as a whole. But then everything slowed down. And Gordon argues that the slowdown is likely to be permanent: The great age of progress is behind us. But is Gordon just from the wrong generation, unable to fully appreciate the wonders of the latest technology? I suspect that things like social media make a bigger positive difference to people’s lives than he acknowledges. But he makes two really good points that throw quite a lot of cold water on the claims of techno-optimists.

First, he points out that genuinely major innovations normally bring about big changes in business practices, in what workplaces look like and how they function. And there were some changes along those lines between the mid-1990s and the mid-2000s — but not much since, which is evidence for Gordon’s claim that the main impact of the I.T. revolution has already happened.

Second, one of the major arguments of techno-optimists is that official measures of economic growth understate the real extent of progress, because they don’t fully account for the benefits of truly new goods. Gordon concedes this point, but notes that it was always thus — and that the understatement of progress was probably bigger during the great prewar transformation than it is today.

So what does this say about the future? Gordon suggests that the future is all too likely to be marked by stagnant living standards for most Americans, because the effects of slowing technological progress will be reinforced by a set of “headwinds”: rising inequality, a plateau in education levels, an aging population and more.

It’s a shocking prediction for a society whose self-image, arguably its very identity, is bound up with the expectation of constant progress. And you have to wonder about the social and political consequences of another generation of stagnation or decline in working-class incomes.

Of course, Gordon could be wrong: Maybe we’re on the cusp of truly transformative change, say from artificial intelligence or radical progress in biology (which would bring their own risks). But he makes a powerful case. Perhaps the future isn’t what it used to be.

Nobel Laureate in Economics Paul Krugman (above) is a Distinguished Professor at the CUNY Graduate Center and an Op-Ed columnist for The New York Times.

10 thoughts on “Dr.Paul Krugman Reviews ‘The Rise and Fall of American Growth’ by Robert J. Gordon

  1. An interesting hypothesis and a book which sounds enlightening. However, I beg to differ about technology change. I believe tremendous change has happened on more sophisticated levels which are not readily apparent to the consumer. It is like the people of the 19th century who thought that the way to go faster was to add more horses to the cart – until the car came along. The dotcom bust was not a problem with the technology – it was a problem with corporations bringing old-school marketing practices into the Internet environment which was completely different. The huge revolution is that the application of the binary formula – the manipulation of 1s and 0s, or switches – also called computer programming, has been developed to the mind-blowing level of creating virtual connection throughout the world. As we have explored this connection, it has become more and more “real,” it has enabled political expression amongst the “masses,” it has given more power to the consumer. Perhaps the increasing political oppression we see worldwide is the backlash to this new-found freedom to unveil and criticise the religio-political-corporate status quo.
    ________________
    Thanks,Gerald for your comments. The points you made are valid. I, however, think the impact of technology is overstated. The next phase of change will likely come in the way we harness the power of computer and ideas to enhance productivity to enable us to work and utilise less but produce more.This is essential to sustain economic growth and protect our environment. Also people want more time for themselves and their families.

    In politics, I think it is going to be the era of empowerment of the individual and that is unstoppable as basic education and lifelong learning become more accessible and affordable to ordinary people. It is already happening. Politics will be transformed too, and government has to listen more to the concerns of citizenry and be more accountable if it is to survive. It is unfortunate that this reality is lost on Najib and his people in Malaysia.

    There will be greater openness and accountability in public affairs, especially in international relations. Diplomacy has regained its relevance.Trade not war is what my doctoral students at The Techo Sen School advocate. We are tired of war. Any comments, Gerald and friends.–Din Merican

  2. I’ve just finished reading Gordon’s book three days ago. My first reaction was I wanted to go back to Barnes & Noble to ask for my money back. Gordon reminds us that the US economy really has gone through a protracted slowdown and that this decline has been caused by the stagnation in technological progress. But I do not share his pessimism over the economic future. He focuses on the demographic challenges the US faces, he never considers that today, in a global economy, more individual geniuses have the potential to contribute to global innovation than ever before.

  3. Robotization — would the net effect of this be more jobs or fewer jobs?
    Many unskilled jobs would be threatened or even disappear e.g. driverless vehicles resulting in loss of jobs for taxi drivers and lorry drivers.
    Skilled jobs that can be automated or robotized would also be threatened.

    Finland has started small scale experiments with the “Basic Income”. This is radical and interesting — all citizens would be guaranteed a basic income (and therefore basic standard of living). This would compensate for unemployment or unemployment brought about by automation, shifting of jobs to low wage countries etc.

  4. Somehow, the “Just perceptions, how perceptive” thing keeps getting into my comments. I wonder why. (I’m no IT or tech genius 🙂 )

    Phua Kai Lit

  5. Some great points of view stated here! Perhaps what I meant to say is that technology advance is not as perceptible now as in the industrial age and mid-20th century. This is because technology is so sophisticated that it has become invisible. For example, in the 1960s people envisaged 21st century cars with fins and big wings and glass bubbles. In the 21st century, cars haven’t changed much in appearance, but the internal technology is super-sophisticated. The average modern smartphone – just a rectangular block – has processing power exceeding the computer systems that sent man to the moon. Technology is becoming a means rather than an end in itself. Modern technology, among other things, is enabling people around the world to tap into a global market to sell an infinite number of niche products and services. We are in the Age of Startups, with 3rd world young people engaging in international commerce from their back rooms – and some of them becoming millionaires.

    The mistake Malaysian policy makers have made is to educate people to become mindless workers. What is really needed is to empower young Malaysians to question the status quo (this is the basis of innovation), to develop confidence in their creativity (by encouraging breaking of design rules and thinking outside the box), and to be able to communicate globally (throw out the parochial emphasis on Bahasa Malaysia and teach English as a first language). Apart from their stifling and disempowering cultural indoctrination, there is absolutely no reason why Malaysians cannot confidently take a place in the global economic revolution.

    I believe religious extremists are also to blame for our lack of competitiveness. By encouraging hatred of “evil western culture” through a paranoid form of ethnocentricity, they are trying to create a feeling of moral supremacy without any basis in reality. This is dangerous, leaving many Malaysians economically impotent and creatively unproductive. Their only option then is to participate in the corruption and cronyism game to improve their lot, and indulge in petty political bickering while the rest of the relatively-free world is making giant strides.

    With all due respect, I cannot believe that the author, a middle-aged professor of economics, can really understand the revolution that is taking place. The change is just too fast for old minds to fathom. Only our young have a handle on it. I believe our responsibility is to support them as much as possible while staying out of their way, trying our best to tidy up the mess we have made through our own ignorance and short-sighted greed.

  6. Just a couple of days ago, I was discussing with a brilliant (local) polymer scientist (yeah, we have a few of those around still) about the immense difficulties in synthesizing or fabricating pure graphene sheets in industrial quantities – that will have a host of fantastical applications. He was totally absorbed by the process, not the result. To me, that was the epitome of intellectual masturbation.

    Many of us live with a very narrow world view – and hardly ask the Self-Reflecting (Enlightenment) Kantian Questions:
    1. Who am I?
    2. What can I know?
    3. What shall I do?
    4. What dare I hope?
    That is Humanity, which is not a Technicality.

    Therefore, my Question remains: Does technology really make Life worth living? Or does it merely makes it easier to Live. Technology when viewed this way, can never be Egalitarian nor Democratic. It is autocratic or despotic – where the rich have more toys and access to ‘conveniences’, and the poor grovel in the dirt, struggling with their worms.

    As an aside, the Greek Economic meltdown was actually precipitated by a couple of ascetic Monks, who just wanted to wanted to rebuild their ruined church called Vatopaidi in the ‘Holy Mountain’ of Athos, near Thessaloniki. They were way more intelligent and manipulated ‘modern’ technology and human greed much more efficiently, than all the gurus, wizards and geniuses in Goldman Sachs, Merrill lynch etc and in Wall Street.

    A definition of ‘intelligence’ is then required. Any takers?

  7. I think some of the commentary here does not do justice to Gordon’s work. He is not saying that current technological progress is not going to drive future growth. What he is actually saying is that it is not as revolutionary a driver as what occured in the roughly 100 years to the 1960s.

    During this period, industrialisation took root in the developed countries, and the world discovered/invented trains-electricity-automobiles-telephone-planes-synthetic chemicals-antibiotics-modern medicine- in-door plumbing -radio etc. As Krugman mentions in his review, a person today who stepped into an apartment in 1940 New York or Chicago or Boston would not feel uncomfortable (and mind you, Gordon is talking about the US here). All the rudiments of modern life would be available by then, except for TVs or the Internet. But a 1940 American who stepped into a pre-Industrial living quarter (say from the 1850s) would likely be very uncomfortable with the standard of living.

    Also, the modern workplace from the 1930s would also be familiar to a person today – with factories organised along division of labour and modern offices generating loads of reports and memoranda. Remember that most people in the US (or even France and Canada) were still living in rural areas just a 100 years ago, and half of the entire workforce was involved in agriculture. Today very few Americans (relative to the workforce) work in a farm anymore and most live in towns/cities. Basically the world changed totally in the decades to WWII and into the 1960s. The entire socio-economic order of society (in developed countries) was reshaped into the modern world we know today.

    In Gordon’s view, remarkable as technological progress has been in recent years, it cannot compare to what happened before, which was truly revolutionary. And it is correct to say that the contribution of the Internet and mobile computing to the future long-term conomic growth rate is yet unclear at this point. Again, Gordon is not saying that there won’t be growth going forward, merely that the growth rate is likely to be markedly lower than what happened previously. Personally, I am not quite sure I agree with him on this, but it is a compelling argument in my view.

    Moreover, it is possible that modern technology contributes to greater inequality because modern tech-driven companies operate on much smaller workforces than previous large corporations. Tech savvy professionals are paid very well, but the pool is much smaller when populations have become larger. In the late 1940s, General Motors was the most valuable company in the US and it employed about half a million Americans. Apple is the most valuable company in the US today and it employs about 60K people in the US (plus another 30K or so outside US). So whatever growth occurs in the future, the rewards are likely to be less evenly distributed than, say compared to the 1950s and 1960s.

  8. Actually veritas, Gordon is keeping to his sense of reality, and perhaps ours.
    But the world is awaiting the next Great Leap in Physics and so on, without understanding the consequences to our ‘archaic’ analogue psyche.

    Michio Kaku has written 2 informative books on the not too far away tech future:
    * Physics of the Future: How Science Will Shape Human Destiny and Our Daily Lives by the Year 2100. (2011)
    * The Future of The Mind: The Scientific Quest to Understand, Enhance and Empower the Mind (2014)

    But these must be contrast with E.F. Schumacher’s “Guide for the Perplexed” and Norman Bowen’s “The Place of Mystery in the Life of the Mind.”The latter of which has this:

    “There comes a time when civilization has to be renewed by the discovery of new mysteries, by the undemocratic but sovereign power of the imagination. by the undemocratic power of poetic power which makes poets the unacknowledged legislators of mankind, the power which makes all things new.”

    Cheers.

  9. “A definition of ‘intelligence’ is then required. Any takers?”

    To me it’s kind of funny. All these scientific wonks attempting to define intelligence in the pursuit of the artificial. Consumer media tell us that Living is easier with technology but then why has Living become harder ? This inveiglement distracts us from the reality that easier does not mean meaningful.

    Discovering meaning used to be instinctual. Technology has anesthetized that part of our being. Maybe it’s not about defining intelligence. Maybe its about defining wisdom.

    Also, good summation , veritas.

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