January 25, 2016

NYSE

The New York Stock Exchange, the hub of our economy. Credit: Scott Beale / Flickr Creative Commons

For a long, long time, people have generally had a higher standard of living than their parents.

That general trend has been true since around 1750, when inventions like the steam engine and railroads jumpstarted economic productivity and radically boosted the average standard of living.

But according to Robert Gordon, author of “The Rise and Fall of American Growth,” this isn’t an immutable fact of economics. In fact, he believes that economic growth is slowing down.

He says that the growth in productivity and our standard of living over the past 250 years may, in fact, have been an aberration. It was due to three industrial revolutions: one from from 1750 to 1830, spurred by the steam engine and railroad; one from 1870 to 1900, spurred by electricity, the internal combustion engine, and sanitation; and the third beginning in 1960, spurred by computers and the Internet.

But Gordon says that after these three revolutions, there’s no clear route for increased growth. Many major social changes can’t be repeated. A country can only urbanize once, and women can only move (en masse) from home to the workforce once. Indeed, most of the new technology of the past 100 years has just built on work from the second industrial revolution.

Even the computer revolution was a brief blip for increased productivity.

He thinks “we’ve reached the limit of what the digital revolution [can] do for business.”

Despite the happy-talk of what Gordon calls the “techno optimists,” he says that “the only real innovation that has made a difference in the past 10 years has been the smartphone. And that’s more important for its effect on personal consumption and social networks than it is for the way businesses produce.”

Smartphones and Facebook simply don’t compare to the internal combustion engine:

“That wave of innovation that’s carrying us into the smartphone era with social networks, is affecting only a small slice of human life compared to the great inventions of the end of the 19th century. After all you need electricity to charge your smartphone.”

Gordon just doesn’t think that the economy will continue to grow that way it has been for a very long time.

But that doesn’t mean that everyone should give up hope and resign themselves to living in a dystopic wasteland.

Instead, Gordon still believes that productivity and standards of living can be raised.

He proposes universal preschool education, better funding for higher education, higher taxes on the rich in order to decrease inequality, and more generous parental leave.

In Gordon’s mind, economic growth might be slowing down, but
that doesn't have to mean that your children can't have a better life than you.

Business, Robert Gordon, death of innovation, economy

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