The Rise and Fall of Western Growth

A couple weeks ago I finally finished reading the eponymous book by Robert Gordon (focused exclusively on the USA, but easy to extrapolate to the rest of our civilizational milieu) and wanted to share with readers my take on its main argument. As it has been widely publicized, it takes the very contrarian view that the golden age of technological progress and economic growth of the title happened mainly between 1870 and 1970, and that since then the pace of innovation has significantly diminished. Such view was originally put forth by him in a much commented article from 2012, “Is U.S. Economic Growth Over? Faltering Innovation Confronts the Six Headwinds”, an article that I read back then and that has considerably influenced my own thinking about the likely evolution of our socioeconomic system.

Indeed, I am such a convinced fan of that article that I approached the book with some trepidation, as major works born from the seed of academic papers normally flounder between the Scylla of altering the main tenets of the original piece of writing until they have been disfigured beyond recognition and the Charybdis of barely repeating the original ideas in a more florid, more bombastic prose and with a flourish of unnecessary circumstantial evidence that doesn’t add a iota to what had been already presented to the public. I can gladly assure that in this case the author navigates deftly between such antagonistic dangers, and triumphs in the delivery of a lively piece of academic scholarship that significantly expands and buttresses his original insight of 2012, whilst keeping faithfully to his main conclusions.

The book is divided in two parts, a first one covering the changes in everyday life (and the economic undercurrents that shaped them) between 1870 and 1940, and a second one that follows the period between 1940 and our days (the book was roughly finished by 2015), with a final chapter dealing with how things are likely to go in the decades to come given the “headwinds” the author already had identified in his 2012 paper. According to the author, not much had happened between the first primate in Africa walking erect on his hind legs and 1750 (the famous “hockey stick figure” of human development that I myself used in my dissertation): people lived on an average income between 400 and 600 USD/ year (2010 dollars). Some societies rose, and could do for some time with a bit more until population growth erased their gains and made them revert to the mean, some societies stagnated or were run over by neighboring enemies and had some miserable decades until they went extinct or could somehow recover, but they never managed to consistently grow much above a paltry 0.05 per cent per year on the good years, that was over time compensated by some negative growth in the bad ones (caused by any systemic shock like wars or plagues or bad harvests).

As is well known, all of that changed with the first phase of the Industrial Revolution (IR #1) that started around 1750 in Europe (and soon spread to North America) enabled by the invention of the steam engine and the textile manufactories that inaugurated an era of annual growths around 5%-7% that allowed for a doubling of the material goods available to the average citizen every thirty years. Even that stupendous historical anomaly was dwarfed by that wrought by the second phase (IR#2), enabled by the discovery of industrial applications of electricity and the internal combustion engine, that started around 1850 and directly impacted the way people lived. Thanks to such technological advances people massively moved from rural areas to cities, started living in “networked” homes (with electric light, gas-powered kitchens, washing machines, running water and waste disposal) which demanded much less work and were much more comfortable and healthy, defeated infectious disease (thus increasing substantially  life expectancy and reducing infant mortality at birth to practically zero) and gained a new sense of freedom thanks to the extension of mass-produced cars (which eliminated horses from the urban scene, along with their feces and urine) that were owned by more than 90% of American families as early as 1929. The means to put the mass produced goods in the hands of the customers also advanced, with the appearance of big department stores in cities and mail order catalogs to tend the rural population. To top it off, communications and entertainment were similarly revolutionized by the invention and rapid extension of the telephone and radio.

I’ve noted elsewhere that this prodigious period is when the idea of “unavoidable progress” was born, as for the first time people could see how their lives changed substantially in the span of a generation. Every 40-years old in America in the 1920 remembered his rural youth with no cars, no electric light, no radio, no running water and no gas, when the only warm room in winter was the kitchen, thanks to a coal-fired hearth that had to be kept lit 24-hours, when a full day had to be devoted to doing the laundry (and most clothes were only washed monthly), water was entered in pails, and taking a bath (in that same kitchen) was so cumbersome that it was only done every other week, whilst every visit to the privy implied freezing cold or, in warmer weather, an insufferable stink while one did his business…

Not that we were done progressing yet, as the second half of the century still brought some significant novelties: TV, nuclear energy and commercial air travel kept the illusion of perpetual, unstoppable progress alive and well in most people minds, although their impact in the day to day lives of the majority was much more subdued. And of course, that was not the last revolution we have experienced, as there was still a third iteration of the Industrial Revolution trope (that Gordon calls IR#3) enabled by the application of computers, mobile telephony and the internet to business and private consumers. However, the impact of such revolution was much smaller, and it only registered as a modest blip in productivity gains between 1995 and 2005, that has since vanished. Since then (in the mid-noughts, more than a decade ago) productivity has gone back to not growing much at all, and the same can be said of the whole of the economy. Even that most cherished of the techno-optimists fetishes, Moore’s law, seemed to be exhausted by that date (you won’t find that piece of information around, and it was one of the most surprising lessons of the book, but by 2006 the average time to double the number of transistors per unit of area –or to double the power of computer chips- had gone from two years to five years!).

Nothing new or surprising here for regular readers of this blog: the Twentieth Century was an astonishing anomaly in the history of our species, begat by an unrepeatable coincidence of discoveries that can only happen once. We can not reasonably expect to stumble inadvertently again onto something as big as electricity, the germ theory of disease, or the internal combustion engine, so we should resign ourselves to a period of feeble growth as long as the eye con see. But it gets worse: not only the great inventions that propelled past expansions seem difficult to replicate, but we face numerous “headwinds” (the name Gordon applies to well-entrenched tendencies that are too ensconced in our social system to easily dislodge them) that will further depress growth for decades to come, some of which I already analyzed in a previous post (Innovation is dead!). According to Gordon, we are doomed to a low growth scenario because of demography (not growing and graying), education (in its higher reachings it is not only not growing, but slightly contracting, burdening the fewer kids that still complete it with increasing mountains of debt and loosing competitiveness when compared with what they achieve in other countries), inequality (growing concentration of resources at the top, where there is less marginal tendency to spend and less dynamism), globalization (that incorporates to the job market a huge pool of cheap labor easily available, depressing salaries and thus the pressure to innovate in labor-saving devices), environmental degradation (through global warming and an increase in the frequency of infrastructure-damaging extreme events) and overleveraging (both consumers and governments have not yet recovered from the debt crisis of 2007-8 and, not having balanced their books are in a more vulnerable position to confront the next likely shock). Said with less words: we are royally screwed.

Indeed. I would even argue that the reasons that underlie most of Gordon’s headwinds are even deeper and subtler: we humans can only organize ourselves around a set of shared principles, required to set common goals we can collaborate to reach. And the set of principles we have collectively adopted (yes, I’m talking of the Dominant Reason of our age once again!) is both wildly successful (it has led us to the highest levels of material wealth ever achieved in this planet), unassailably stable (once they are adopted they reinforce themselves, drive out any potential alternative and perpetuate their grip on the citizenry by ever more insidious methods) and undeniably destructive (see my last post about how it can be at the same time the best set we have ever stumbled upon and an unacceptable moral evil we have to devote our efforts to ameliorate).

Interestingly, my only contention with Mr. Gordon exposition has to do with his optimism (an optimism that pits him against the likes of Erik Brynlofsson and Andrew McAfee, who should be more optimistic than him but result not to be, as we are about to see). The silver lining of the technological stagnation he sees everywhere is that we are not really on the cusp of being overtaken by robots, as so many people seem to be warning us. The capabilities of machines are relatively modest, and likely to improve at snail’s pace. We may end up having self-driving cars, in much more time than what current headlines would make you think, but it will take so many years, and they will be so clunky, unreliable and expensive initially, that most people will have enough time to adapt. Robots may end up doing a lot of things done today by humans (from picking fruit to erecting brick walls), but that’s so far in the future that current unskilled workers will probably have retired by then, and there aren’t so many youngsters rushing to take their place right now (that would be in turn liable to be replaced by the “imminent” wave of automation and thus condemned to technologically forced idleness). So for Mr. Gordon there is no “grave and present danger” of a massive wave of unemployment that threatens the very fabric of our society that would force us to decouple work from means of living, and he comes out explicitly against measures like a Universal Basic Income that I think is very much already warranted without the threat of robots surreptitiously stealing unskilled jobs.

On the other hand, maybe being screwed is not that bad after all. We are already pretty rich. Our lives are stupendously wealthy, varied and safe for any historical standard. It is not written in stone anywhere that the amount of goodies available to each person should be double what his parents enjoyed at his age, so maybe we should just kick back and relax, in the knowledge that we “never had it so good” (man, I love that sentence, uttered by Harold Macmillan to his fellow tories in Bedford in 1957… how much better they would still have it in years and decades to come was probably beyond his and their wildest dreams). But, but. Tell how good “we” have it to the half of Spanish kids that finish their university career with not much of a prospect of finding a job in the next five years, and that find it only to discover that it pays barely a subsistence salary and has no expectation of improvement or promotion. To the 40% of Americans age 25 to 55 that have entirely dropped out of the work force, many for reasons not of their choosing. To the Greek elders whose pensions are being cut again because their country wildly overspent in the boom years, and that in an economy in free fall for well over a decade now will never again be able to find a remunerated work. In what used to be called “the First World” the great equalizer and distributor of opportunity was growth. Industries needed it to keep on expanding and giving chances to more, newer workers. The state needed it to keep its intergenerational promises and pay the pensions to a ballooning number of retirees that had not “produced” enough descendants to take their place. Even individuals counted on it to find jobs that would overcompensate them and thus allow the repayment of the debt they incurred in to complete their studies in expensive private universities. No grow, and all of them are toast.

Let’s quickly remember that historically growth has had two sources: pure population expansion (more producers, but also more consumers to buy what factories and fields churned out) and innovation, that allowed to produce more from the same inputs. As Gordon reminds us, without innovation additional capital only buys one wooden plow to put above the old wooden plow, producing no gains whatsoever. What his superbly researched book abundantly shows is that innovation has indeed stalled, no matter what the techno-optimists say. Software and communications may be still progressing, but such progress has less and less impact in how people live their lives. Bill Gates famously said in a recent interview that Gordon is flat wrong, and in a few decades we (or our descendants) will look back to the title of his book with a quaint smile, seeing it as another example of wildly mistaken prognostications. I already expounded why I thought it was Bill who was misjudging what the future has in store for us (Bill, clever but dead wrong), but after completing my read of Gordon’s arguments, I know very well whose prediction’s I would place my bets with. It’s interesting to analyze why the likes of Mr. Gtes, and other notable techno-optimists have misread so blatantly our current predicament, and I would dare to say they have been dumbfounded by a relatively recent phenomenon which I’ve christened the “prototype effect”. But explaining such bias will take me another post.