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 here.)

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 We had portable music in the form of CD players, that’s been replaced by the iPod.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.”


web design

best not say any of that around any union supporters though…

Joe

As an engineer, people expect me to get excited by technology, but I usually could care less. For a while I've been saying what Gordon is saying about "incremental improvement". There has been nothing really new since the internet, in my estimation, and therefore nothing to get excited about.

Thalia

Suggesting that the mobile phone was just a minor improvement on existing pay phones is like suggesting that the car was a minor improvement over the horse and buggy. Both got you there faster than walking, after all. Was it an incremental improvement? I don't think so. And, of course, the true development by Ford wasn't the motorized carriage, that already existed, but the manufacturing mechanisms that made it affordable by the average man. Those types of improvements have been happening regularly.

But the last truly big leap was the Internet. The one that is least recognized but was a leap (though whether it was forward is debatable) was robotics. While we don't yet have household robots, almost all industrial manufacturing relies on robotics. I expect customized biology is on the cusp for a real breakthrough as well.

J1

Does Gordon write peak oil articles or sell gold under another name?

Alex F.

This podcast is politically motivated.
Its idea is that the economic slowdown is inevitable and as such it is not Obama's fault.

Tung Bo

Gordon writes: "If you think about the great inventions of the last ten years, you think of iPods.." Right there, you can see why he reached the wrong conclusion - because he doesn't understand what are the real great inventions of the information revolution. A better list should include:
E-Mail
WWW
Cellphone
GPS
Air Traffic Control
Seismic mapping - enabling oil/gas discovery
Medical imaging
Manufacutring automation - including robots
...

The information revolution is NOT about the Internet bubble. We are in the middle of it and it has a long way to run. We just literally can't see the forest for the tree right now.

Bill Reiswig

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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FPA von Dreger

Good on 'ya, Bill. Well put !

FPA von Dreger

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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Interesting

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 ......