Why America’s Economic Growth May Be (Shh!) Over: a New Marketplace Podcast

With the Presidential debate finished, we are officially in the final lap of America’s second-favorite spectator sport. (Yes, football is better than politics.) Of all the talking that Barack Obama and Mitt Romney will do by Nov. 6, you can bet that a great deal of their breath will be expended on economic matters. Because that’s what the President of the United States does, right — runs our economy?

Well, actually, no. The President has far less influence over the economy than people tend to think — as we’ve pointed out not once, or twice, but three times.

That, of course, won’t stop the candidates from talking about their plans to “fix” or “heal” or “restore” our economy — all of which imply that we are in an economic doldrums that is sure to pass. But what if it doesn’t? What if the massive economic growth the U.S. has experienced through most of our history is a thing of the past?

That’s the topic of our latest Freakonomics Radio on Marketplace podcast. (You can download/subscribe at iTunes, get the RSS feed, listen via the media player above in the post, or read the transcript below.)

It is largely based on a recent paper by the Northwestern economist Robert J. Gordon, called “Is U.S. Economic Growth Over? Faltering Innovation Confronts the Six Headwinds” (abstract, PDF). It is an impressive and interesting piece of economic history; among the writers who have taken note of it are David Warsh and Tim Harford.

Gordon argues that we have essentially experienced three different Industrial Revolutions over the past couple centuries. The first (1750-1830) gave us steam power and railroads. The second (1870-1900) gave us electricity and all that went along with it; the internal combustion engine (and all that went along with it), running water and indoor toilets, communications, and much more. And the third, the digital revolution, has of course brought us computers, mobile phones, and the like.

Gordon’s central argument is that, as impressive as this third revolution has been, in terms of productivity and other concrete economic gains, it cannot hold a candle to the electric revolution:

GORDON: If you think about the great inventions of the last ten years, you think of iPods, you think of the iPad, iPhones, but each of those is an incremental improvement on what we already had. We had portable music in the form of CD players, that’s been replaced by the iPod. You can carry a lot more music in your pocket on an iPod than you could on a CD player, but it’s the same music. So that’s an incremental, small-scale improvement. We had garden-variety cell phones before that. We had pay phones that you had to walk up to and put a quarter in. And now smart phones combine computer power with the ability to make a telephone call. But we’re taking things that had already been invented and we’re just repackaging them in a more convenient form. So that’s the sense that these are not fundamental inventions on the scale of things like electricity or inventing the motor vehicle.

You’ll also hear from recurring guest Tyler Cowen, whose recent book The Great Stagnation echoes much of Gordon’s argument. But Cowen is more optimistic than Gordon that the U.S. can recapture its economic momentum, as the subtitle of his book spells out: “How American Ate All the Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better Again.”

Audio Transcript

 

Kai RYSSDAL: It’s that’s moment every couple of weeks, we talk to Stephen Dubner.  He is the co-author of the books and blog of the same name.  It is the hidden side of everything.  Dubner, welcome back, man.  I missed ya.

 

Stephen J. DUBNER: I missed you, too, Kai. Thanks for having me.  I’m guessing you’re going to be in front of your TV tonight for the debate?

 

RYSSDAL: I am, yes.  Of course I am.  In point of fact, also live tweeting and it’s on marketplace.org.  So, if you’re lonely, you know where you can go. 

 

DUBNER: Very good.  You know the focus of this first presidential debate as you know is domestic policy.  So I am assuming we’re going to hear an awful lot about the economy.  Yes?

 

RYSSDAL: One would certainly hope, right?  That’s what we’re waiting for – for these two men, who want to be the most powerful man in the world, to help us fix the American economy, right?

 

DUBNER: So, Kai, let me say two things about this. The first, which I have said on your program before -- and will probably say again --  is that the U.S. President has much less influence over the economy than we actually think.

 

RYSSDAL: Yeah, but we have to pretend.  Right?  Come on.

 

DUBNER: We have to pretend.  My second point is actually more heretical than that. My second point is this: There are people out in the world, who will argue with you that that the Great Age of American Economic Growth is … just … over. Here’s Robert Gordon, an economist at Northwestern:

 

Robert J. GORDON: We had a century of relatively rapid productivity growth between, say, 1870 and 1970. And then it slowed down. And a major puzzle for the economics profession was to figure out: why did it slow down?

 

RYSSDAL: OK.  A) Did they figure it out?  And B) what about computers and automation and technology and increased productivity?  Hello?

 

DUBNER: Excellent question.  So here’s the way Robert Gordon explains it.  There have been three Industrial Revolutions over the past couple of centuries. The first one was steam power and railroads.

 

RYSSDAL: Yeah, that was the Industrial Revolution.

 

DUBNER: That was a big one.  But the second one, that we’re most thankful for, included electricity, the internal combustion engine and the fuels to run it; clean water.  And his argument is that the computer revolution is just not as potent as the ones that came before it.

 

RYSSDAL: Hello!  Has this man never heard of the iPhone?  That changed my life, and there are people who will be amazed to hear me say that.

 

DUBNER: I’m glad it changed your life.  It has changed my life, too.  But his argument is this: what a lot of technology does is make things that already existed more portable and more flexible – our entertainment, our communication.  Obviously, we’re all thankful for that, but when you compare that to things like mass transportation and electricity, heating and air conditioning, the computer era does not produce those kind of gains.

 

RYSSDAL: OK, so not to get all downer on you here, but if the iPhone and all that it represents is what we have now to propel us forward, are we fundamentally doomed?

 

DUBNER: No.  And nobody’s saying that. What you are starting to hear, is that America’s Golden Age of Growth may have been exactly that – a Golden Age. Which, by its nature, cannot last forever. OK?  Tyler Cowen, an economist that you’ve had on this program before, has coined a name for the current U.S. economy.  He calls it “The Great Stagnation.” That said, Cowen is a big believer that new technology -- artificial intelligence, for instance -- will lead to further growth. He thinks that Robert Gordon’s prediction therefore is probably a little bit too grim:

 

Tyler COWEN: I think our ability to forecast future growth has never been all that great.  So, about the future I’m actually fairly optimistic.

 

RYSSDAL: Which is great.  But what if, Dubner, right?  What if Gordon’s right?  And what if you’re right?  And the greatest growth is behind us?

 

DUBNER: Well, look -- it may be.  Again, these are predictions.  And you know how I feel about predictions – they’re mostly worthless.  It may be, however, time to start thinking about the U.S. economy not so much in terms of never-ending growth, which we’ve been trained to do.  But in terms of a different word – which is sustainability, essentially. Which isn’t necessarily the worst thing in the world.            

 

RYSSDAL: And of course that’s what we’re going to hear the president and Governor Romney talking about tonight, right?  Not about growth at all?

 

DUBNER: Are you kidding me?  No.  First of all, they both need to preserve this fiction that the President controls the economy. But, beyond that, to get on TV and say, “My fellow Americans, our Great Age of Growth was wonderful.  And it’s over; welcome to the new Season of Sustainability.”  I do not see that as a big vote-getter. They will do what politicians always do -- they will promise a bigger and brighter economic future. Because if there’s one thing politicians are really good at, it’s making promises that they have absolutely no ability to keep. 

 

RYSSDAL: Stephen Dubner.  Freakonomics.com is the web site.  We will talk to you again in a couple of weeks.

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  1. Bill Reiswig says:

    This podcast only served to underline for me how ignorant and myopic economists are about what really influences the economy.

    Yes, economic growth will end, and perhaps in part due to the diminishing returns of technology and progress — but they have in this report completely ignored the real pressures causing the end of growth.

    Simply put, we are reaching limits to real growth because we are reaching limits in natural resources and because of the pushback of pollution in the system.

    We are not over fossil fuels, but we have consumed the best ones with the best return on energy investment (EROEI). Tarsands, deepwater oil, and fraced gas represent the end of fossil fuels, and they take massive debt and investment and energy to aquire. They will become more and more expensive.

    We are depleting the resiliency of almost any natural system you can think of… water, soils, forests, fisheries are all becoming more expensive as we deplete them.

    Climate change is real and causing more economic pushback than we think. Crises in Russia, Pakistan, the US grain belt, and other places have (along with speculation, admittedly) made food extremely expensive.

    We are depleting many minerals and metals quickly… the run-up in commodity prices reflects this.

    Our financial system, that pumps cheap credit in the system as a way to pay off our past debts, only serves to further inflate the costs of these commodities. We will not be able to pay back government, household, and corporate debt because of the diminished state of natural resources… this means deflation and a shrinking economy.

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  2. FPA von Dreger says:

    This isn’t about “predictions”, people – or “prophecies” ! This is about a thorough clear level-headed pragmatic intelligent (!) analysis of what’s going on and what’s goin’ down.
    Have a read of Richard Heinberg, “The End of Growth”, and then take issue with that – the best you can.

    http://richardheinberg.com/bookshelf/the-end-of-growth-book

    I wonder where, when, and who will be the first major national leader(s) to have the intelligence, understanding, and courage to stand up and say – clearly and unequivocally – that the period of ‘economic growth’ is at its end. And that societies must now, urgently, look at ways and means of transitioning towards a steady state economy.

    A very readable – short and spicy – paperback on that is Dmitry Orlov, “Reinventing Collapse” Dmitry is a great witty writer who shares his personal experiences, as well as thoughts and ideas, on how we might start looking at major ‘economic downturns’ — and ways to make them easier to ‘navigate’ and get through.

    Check him out at —> http://www.youtube.com/watch?v=x3rloGDFinM

    Cheers !

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  3. Interesting says:

    Interesting that there are just male members of the human species speculating on what’s going on and might be next ….
    …… perhaps there are things to be done ……

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