
New book argues we can’t expect new tech to rekindle rapid economic growth - petethomas
https://www.washingtonpost.com/opinions/technology-wont-save-us-from-slow-growth/2016/01/17/6fe2a1cc-bb9c-11e5-99f3-184bc379b12d_story.html
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npalli
The book author, Robert Gordon has been on this "economic growth is over"
Jihad since forever. I found a 1988(!!) paper where he is complaining that
productivity has been slowing down for 20 years (in 1988), that despite the
vast investments in computer technologies nothing is showing up in
productivity statistics etc. etc. For an advanced economy like the US,
economic growth boils down to productivity growth. Well, how did he fare since
then. Pretty sure no one is going to say we stagnated between 1988 and 2015.
It is clear that there was a huge burst of productivity in the period
1995-2005 when people figured out how to use computers to improve
productivity. Curiously, Bob Gordon became silent in this period.

But then it slowed down after 2005 and now Bob Gordon is back with his
theories about "productivity is over" and growth is finished etc. The new
twist is that he claims today's technologies are not as important to
productivity as the early 20th century were. Well, the 1988 paper has comments
by William Nordhus who shows that in the period from 1900 to 1917 productivity
growth was zero and it was very low between 1924 to 1937. For the whole period
the productivity growth came in a burst from 1917-1924 and then 1937 to about
1948. The reason is productivity is based on combining technologies in novel
ways and it doesn't proceed in a regular 3% manner like population growth or
investment. It is likely "bursty" and non-uniform. I fully expect to see
another explosion of productivity (and thus economic growth) as
mobile/cloud/AI/ML start infiltrating the general economic system.

[1]
[http://www.brookings.edu/~/media/Projects/BPEA/1988-2/1988b_...](http://www.brookings.edu/~/media/Projects/BPEA/1988-2/1988b_bpea_baily_gordon_nordhaus_romer.PDF)

~~~
akamaka
The 1995-2005 period that you say had "huge productivity growth" saw the TFP
growth rate temporarily rise from 1% to 2%. [1]

If that's the best level of productivity growth that we can expect in upcoming
technological revolutions, then I think the data you point to supports the
author's fear that we won't be getting back to kind of growth that we saw in
the past.

[1]
[https://www.imf.org/external/pubs/ft/wp/2015/wp15116.pdf](https://www.imf.org/external/pubs/ft/wp/2015/wp15116.pdf)

~~~
npalli
As productivity numbers go, 2% is huge!!. The actual number is 2.46% (from Bob
Gordon's own figures) [1]. To put this in perspective, this is one of the
highest growth numbers in the entire history of the US. Decade wise the only
period that had growth larger than 2.46% was the '30s. The economy has grown
about 15 times (in real times) since then. If we can get 2.46% on a 18
Trillion economy we will double our per capita in less than 30 years. This is
in real terms. A truly astonishing accomplishment.

More importantly though, Bob Gordon is predicting that this number will drop
to 0.2% due to six headwinds. In turn he suggests our per capita doubling will
take a CENTURY going forward.

[1] [http://www.voxeu.org/article/us-economic-growth-
over](http://www.voxeu.org/article/us-economic-growth-over)

~~~
akamaka
Thanks for your response, you make excellent points.

I agree that his worst case scenarios are silly, and would only happen in
unprecedented circumstances that are far outside the scope of a discussion
about productivity.

However, I think 2% is quite low compared to our expectations. It feels like
we should be living in a revolutionary age where productivity growth is
accelerating, and looking at the actual numbers has been sobering. We have
incredible technology like AI, 3D printing, and robotics, but we haven't been
able to leverage them to much effect. Much of our growth is coming from slowly
expanding on the same simple techniques that the generations before us
pioneered -- building ever bigger ships, creating larger marketplaces,
extending education.

With finite resources on this planet, there are only two possibilities: either
we can get used to overall economic growth slowing down, or we find a way to
massively increase productivity to make up for the slack. I want to see the
latter, but seeing the numbers convinces me that we won't get there on the
road that we're on.

~~~
lhopki01
I think the reason 2% is viewed as low compared to expectations is not
understanding how it compounds. 2% means a doubling of the economy in 35
years. 2% means that in the space of an average lifespan the economy will be
almost 5 times larger in real terms. Now granted it won't be distributed
evenly but if you told someone that the country will be 5 times more
productive by the time their baby is 80 they'll be impressed.

That's before you consider the fact many countries have not yet experienced
the productivity growth of electricity and computers to their full meaning
they can achieve much higher than 2% growth.

------
jmsdnns
I wish more folks would read Carlota Perez. We've had 5 tech revolutions
since, and including, the Industrial Revolution. It'll probably be another
10-15 before something as significant as a computer kicks off the next one.

Until then, there isn't reason to think a tectonic shift will easily happen.

Steamships and canals were a powerful revolution, opening up huge parts of the
country to international trade, captured well by how the Erie Canal opened the
midwest up to the Atlantic.

Rail was another powerful revolution, allowing people to be in New York City
and Chicago on the same day. Upon being in both cities on the same day, people
observed that the cities didn't have their clocks set the same way, as that
was never possible before.

Instead of a new human transportation revolution, the information age gave us
a way for ideas to travel rapidly. At the speed of light in some cases. This
is certainly profound, but consider how HUGE an idea this is. If we look at
the start of the information age as 1971 when Intel opened its doors, then
we're already 45 years into this one. A lot has been done. There's still more
left, but it's probably about upgrading the rest of the planet instead of
finding whatever US industries are left to be upgraded.

If I were to speculate, I might say the next revolution that could change
society in a comparably profound way would be self-driving cars and other
forms of automation. Perhaps around 2025-2030 society will be cool with cars
driving themselves and many, many businesses will be started to explore the
automation space. To compare, there were over 1800 car companies in the US
between 1896 and 1930, but today there are 2 US car companies. Another
comparison, there were once 500 US steel companies, but today there's
basically 2. So perhaps 2030 starts with self-driving cars moving the same
speed as human-driven cars and maybe by 2080 they go 300mph instead, which
would upgrade humanity's transportation capabilities in a similar manner to
when rail upgraded steamships or when cars upgraded rail. This would open up
huge amounts of land that is otherwise inconvenient and could give rise to new
housing technologies, as new houses would surely be built on this newly
accessible land.

We are 45 years into the information age. It's completely reasonable that it's
not blowing our mind asunder the way it did 10, 20, 30 years ago. I am VERY
excited for whatever comes next.

~~~
npalli
I totally believed Perez' thesis until the iPhone came along. So what
constitutes the current cycle

1\. Mainframes/Mini computers

2\. PCs

3\. Desktop internet

4\. smart phones

5\. Mobile broadband

6\. Cloud

7\. Machine Learning

8\. AI/IoT

Each one has a different investment pattern and each one is affecting
industries in a different way in a different time period in different
geographies. So why are all of them clubbed under "information revolution".
How is clubbing Mainframes with smartphones makes sense. According to Perez'
the peak investment in this phase happened during the dotcom period. This
can't be right. No smartphone, mobile broadband, AI, ML, IoT existed in a
investment form in 2000. I have seen some adjustments to her theory which seem
more like adding epicycles to ptolemy's. Not satisfying at all.

~~~
jmsdnns
They're all put under "information age" because all of them depend on the
microprocessor.

According to Perez, the peak investment phase in financial markets paying
attention to tech was during the dotcom boom. This definitely happened. The
amount of money invested in tech companies was gigantic compared to what we
see today. The dot com crash caused a loss of $5T. If we sum up the valuations
of all the unicorns that exist today, we're not even close.

~~~
npalli
Well, if it depends on the microprocessor then investments in that field
peaked in the '70s. So, we are way beyond the cycle at this point.

> The dot com crash caused a loss of $5T

Paper losses. Actual investment was in the 10's of billions. As a reference,
investment in mobile broadband globally in the next few years alone is going
to be about 10 times bigger than that.

~~~
jmsdnns
Not literally investments in microprocessors, but all of those things above
depend on microprocessors.

Regarding the paper losses... sure. But Perez's point was more that a huge
bubble would crash, which was the dot com, and then society would get mature
about what the actual tech could do. She then follows that by saying massive
companies would get created in the maturity phase, which your point about
mobile broadband investment agrees with.

~~~
jmsdnns
If we look at oil and mass production, we see similar. Same with rail. Huge
bubble, lots of folks go bust, then what's left matures and becomes a big
empire as consolidation takes place on a tech society legitimately cares
about.

It sounds like you really like this topic. I do too. Would love to talk more
about it either via email or in person (if you live in NYC). I am teaching
myself these topics and want to know as much as I can. My email is in my
profile in case that's interesting.

------
jernfrost
For a lot of the big things we don't have a lot of progress today. Diggers,
cars, railroad etc can't improve substantially.

I think in the short term we won't get a lot of economic growth. But I think
these things happen in phases.

We are waiting for the next big breakthroughs. I think Artificial
Intelligence, 3D printers, robotics and cheap sustainable power will be the
key things to create a new potential for high growth.

E.g. if we perfect the technology to 3D print large structures that should
bring down costs for house construction a lot. Companies are starting to do
this now. But we are in very early stages.

AI and more advance robotics will allow us to automate so many tasks we are
stuck with using humans now which really limits productivity growth. It is
very hard to increase output from a doctor, teacher, lawyer, cab driver, cooks
etc at the same rate as say a car factory.

This sort of development doesn't go in a gradual phase. As we develop AI we
are not gradually making medical diagnosis cheaper or driving cheaper. The
huge cost reductions will come when these technologies are completed and can
start replacing people at massive scale. Once cars, trucks etc can be driven
by and AI, transportation costs will get huge cost reductions.

Likewise with medical science. If an AI can diagnose you, one can save
enormous amounts of money.

------
vezzy-fnord
Not at all a new observation. The Cambridge Keynesians of the post-WWII era
deliberated various models of growth, income distribution and business cycles
that had the curious property of assuming that the rate of growth is actually
countervailed by the expansion of the capital stock. They assumed that modern
capital goods were more fixed than variable, durable but also factor-specific
and mostly inconvertible, hence a growing capital stock would actually lock
you into path dependence and a higher rate of depreciation. The more you grow,
the more you regress.

The Kaldor-Kalecki nonlinear dynamic business cycle model, the Kaleckian
profit equation and Robinson's growth model are probably the most interesting
results out of that era that still retain an influence on heterodox thinkers.

That said, one should be very wary of all such simplifying models since they
all carry contestable assumptions. Nonetheless, they do pose intellectual
curiosities.

I don't know if Robert J. Gordon explores this. The Post's review mostly
rehashes the more naive dystopian arguments, so I'll have to check.

------
marshray
> The book author, Robert Gordon has been on this "economic growth is over"
> Jihad since forever.

Let's not start saying everyone who maintains a position you don't like over a
long term is "on a Jihad".

> I found a 1988(!!) paper where he is complaining that productivity has been
> slowing down for 20 years (in 1988)

Which is consistent with the claim that 1870-1970 was a special century for
technology-driven productivity gains.

~~~
AnimalMuppet
And the growth stopped in 1970? The PC revolution didn't cause growth? Yeah,
I'm not buying it.

Take Google, for instance. I can now get at the world's information, for free.
This only shows up as Google's ad revenues in the GDP statistics, but it's
worth far more than that in terms of utility to everyone else. The real value
doesn't show up in the statistics because Google is capturing so little of the
actual value that they create.

~~~
marshray
Note that I didn't say growth stopped in 1970, only that the author's position
was consistent.

While I personally work in a field (cloud services) that is totally driven by
PC and internet productivity, I would probably look at the world a lot
differently had I grown up with family and a career in the manufacturing
sector post WWII.

~~~
dozzie
Consistent despite the circumstances proving him wrong again and again.
Holding up to one's position is only a virtue up to a point, after which it
becomes stupidity.

------
fsloth
I have this itch that the true productivity maximization by smartphones will
be in the future if/when more companies start operating in a more
decentralized manner.

-Most tools we still have for enabling productivity are such crap - trying to emulate paper document based workflow, instead of offering a task oriented one.

\- AI:s can probably observe employee patterns and raise red flags if someone
seems to be goofing off. Less need to spend time in reporting, more time for
value creation.

~~~
eli_gottlieb
>\- AI:s can probably observe employee patterns and raise red flags if someone
seems to be goofing off. Less need to spend time in reporting, more time for
value creation.

So, hold on, let me get this straight. As artificial intelligence advances,
the really productive application for it is going to be _haranguing people
into working harder?_

What in the world!?

~~~
hueving
That's a depressing thought. The AI revolution replaces management instead of
the workers. :(

------
_fizz_buzz_
I am not too convinced. In my opinion the most impressive growth of any
industry happened right after Gordon's "special century": the semiconductor
industry.

~~~
lkrubner
Remember that a country can have an incredibly dynamic and innovative industry
that is growing at a fast pace, yet that country can still be in economic
decline. See here for details:

[http://www.smashcompany.com/business/if-the-usa-is-the-
most-...](http://www.smashcompany.com/business/if-the-usa-is-the-most-
innovative-nation-on-earth-then-how-can-it-have-a-period-of-economic-decline)

~~~
Apocryphon
Just look at Japan.

------
banku_brougham
" The competition for scarce funds will intensify..."

That's a bold misreading of the macro environment. Competition for funds
expresses itself in higher rates, not lower. If the author's "competition for
funds" intensifies further I think we may be in danger of being crushed under
piles of money.

------
x5n1
Did they actually think that growth would happen forever, that it was
infinite. Time to switch to non-growth economic models and assume that the
markets have reached equilibrium.

~~~
marincounty
I'm with you. I don't see much growth. It's time to batten the hatches.

I'm not a Rebublican, but we have too many laws, and regulations. It's
stifling in business, and on a personal level. Every day, I think, "What law,
or potential fine will I possibly get today. Ever business decision is made
with the legality of the move front and center. I don't like living like this.
It's like they castrated me. I never thought America would turn into this.

~~~
cmurf
The Death of Common Sense, Philip K Howard (1994). So not exactly the newest
idea, by HN standards anyway.

