Robert Gordon: The death of innovation, the end of growth

143,630 views ・ 2013-04-23

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Translator: Joseph Geni Reviewer: Morton Bast
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That's how we traveled in the year 1900.
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That's an open buggy. It doesn't have heating.
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It doesn't have air conditioning.
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That horse is pulling it along
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at one percent of the speed of sound,
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and the rutted dirt road
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turns into a quagmire of mud anytime it rains.
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That's a Boeing 707.
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Only 60 years later, it travels
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at 80 percent of the speed of sound,
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and we don't travel any faster today
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because commercial supersonic air travel
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turned out to be a bust.
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So I started wondering and pondering,
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could it be that the best years of American economic growth
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are behind us?
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And that leads to the suggestion, maybe economic growth
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is almost over.
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Some of the reasons for this are not really very controversial.
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There are four headwinds that are just hitting
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the American economy in the face.
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They're demographics, education, debt and inequality.
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They're powerful enough to cut growth in half.
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So we need a lot of innovation to offset this decline.
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And here's my theme: Because of the headwinds,
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if innovation continues to be as powerful as it has been
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in the last 150 years, growth is cut in half.
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If innovation is less powerful,
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invents less great, wonderful things,
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then growth is going to be even lower than half of history.
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Now here's eight centuries of economic growth.
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The vertical axis is just percent per year of growth,
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zero percent a year, one percent a year, two percent a year.
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The white line is for the U.K., and then the U.S.
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takes over as the leading nation in the year 1900,
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when the line switches to red.
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You'll notice that, for the first four centuries,
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there's hardly any growth at all, just 0.2 percent.
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Then growth gets better and better.
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It maxes out in the 1930s, '40s and '50s,
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and then it starts slowing down, and here's a cautionary note.
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That last downward notch in the red line
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is not actual data.
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That is a forecast that I made six years ago
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that growth would slow down to 1.3 percent.
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But you know what the actual facts are?
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You know what the growth in per-person income has been
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in the United States in the last six years?
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Negative.
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This led to a fantasy.
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What if I try to fit a curved line to this historical record?
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I can make the curved line end anywhere I wanted,
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but I decided I would end it at 0.2,
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just like the U.K. growth for the first four centuries.
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Now the history that we've achieved is that we've grown
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at 2.0 percent per year over the whole period,
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1891 to 2007,
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and remember it's been a little bit negative since 2007.
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But if growth slows down,
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instead of doubling our standard of living every generation,
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Americans in the future can't expect to be twice as well off as their parents,
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or even a quarter [more well off than] their parents.
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Now we're going to change and look at the level of per capita income.
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The vertical axis now is thousands of dollars in today's prices.
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You'll notice that in 1891, over on the left,
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we were at about 5,000 dollars.
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Today we're at about 44,000 dollars of total output
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per member of the population.
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Now what if we could achieve that historic
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two-percent growth for the next 70 years?
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Well, it's a matter of arithmetic.
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Two-percent growth quadruples your standard of living in 70 years.
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That means we'd go from 44,000 to 180,000.
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Well, we're not going to do that,
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and the reason is the headwinds.
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The first headwind is demographics.
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It's a truism that your standard of living
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rises faster than productivity, rises faster than output per hour,
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if hours per person increased.
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And we got that gift back in the '70s and '80s
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when women entered the labor force.
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But now it's turned around.
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Now hours per person are shrinking,
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first because of the retirement of the baby boomers,
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and second because there's been a very significant
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dropping out of the labor force of prime age adult males
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who are in the bottom half of the educational distribution.
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The next headwind is education.
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We've got problems all over our educational system
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despite Race to the Top.
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In college, we've got cost inflation in higher education
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that dwarfs cost inflation in medical care.
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We have in higher education a trillion dollars of student debt,
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and our college completion rate
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is 15 points, 15 percentage points below Canada.
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We have a lot of debt.
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Our economy grew from 2000 to 2007
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on the back of consumers massively overborrowing.
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Consumers paying off that debt is one of the main reasons
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why our economic recovery is so sluggish today.
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And everybody of course knows
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that the federal government debt is growing
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as a share of GDP at a very rapid rate,
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and the only way that's going to stop is some combination
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of faster growth in taxes or slower growth in entitlements,
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also called transfer payments.
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And that gets us down from the 1.5,
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where we've reached for education, down to 1.3.
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And then we have inequality.
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Over the 15 years before the financial crisis,
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the growth rate of the bottom 99 percent
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of the income distribution was half a point slower
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than the averages we've been talking about before.
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All the rest went to the top one percent.
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So that brings us down to 0.8.
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And that 0.8 is the big challenge.
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Are we going to grow at 0.8?
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If so, that's going to require that our inventions
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are as important as the ones that happened
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over the last 150 years.
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So let's see what some of those inventions were.
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If you wanted to read in 1875 at night,
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you needed to have an oil or a gas lamp.
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They created pollution, they created odors,
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they were hard to control, the light was dim,
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and they were a fire hazard.
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By 1929, electric light was everywhere.
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We had the vertical city, the invention of the elevator.
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Central Manhattan became possible.
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And then, in addition to that, at the same time,
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hand tools were replaced by massive electric tools
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and hand-powered electric tools,
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all achieved by electricity.
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Electricity was also very helpful in liberating women.
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Women, back in the late 19th century,
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spent two days a week doing the laundry.
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They did it on a scrub board.
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Then they had to hang the clothes out to dry.
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Then they had to bring them in.
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The whole thing took two days out of the seven-day week.
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And then we had the electric washing machine.
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And by 1950, they were everywhere.
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But the women still had to shop every day,
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but no they didn't, because electricity
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brought us the electric refrigerator.
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Back in the late 19th century, the only source of heat in most homes
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was a big fireplace in the kitchen that was used for cooking and heating.
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The bedrooms were cold. They were unheated.
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But by 1929, certainly by 1950,
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we had central heating everywhere.
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What about the internal combustion engine,
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which was invented in 1879?
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In America, before the motor vehicle,
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transportation depended entirely on the urban horse,
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which dropped, without restraint,
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25 to 50 pounds of manure on the streets every day
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together with a gallon of urine.
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That comes out at five to 10 tons daily
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per square mile in cities.
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Those horses also ate up fully one quarter of American agricultural land.
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That's the percentage of American agricultural land
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it took to feed the horses.
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Of course, when the motor vehicle was invented,
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and it became almost ubiquitous by 1929,
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that agricultural land could be used for human consumption
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or for export.
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And here's an interesting ratio: Starting from zero in 1900,
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only 30 years later, the ratio of motor vehicles to the number of households
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in the United States reached 90 percent in just 30 years.
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Back before the turn of the century,
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women had another problem.
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All the water for cooking, cleaning and bathing
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had to be carried in buckets and pails in from the outside.
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It's a historical fact that in 1885,
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the average North Carolina housewife
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walked 148 miles a year carrying 35 tons of water.
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But by 1929, cities around the country
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had put in underground water pipes.
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They had put in underground sewer pipes,
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and as a result, one of the great scourges of the late 19th century,
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waterborne diseases like cholera, began to disappear.
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And an amazing fact for techno-optimists
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is that in the first half of the 20th century,
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the rate of improvement of life expectancy
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was three times faster than it was
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in the second half of the 19th century.
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So it's a truism that things can't be more than 100 percent of themselves.
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And I'll just give you a few examples.
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We went from one percent to 90 percent of the speed of sound.
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Electrification, central heat, ownership of motor cars,
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they all went from zero to 100 percent.
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Urban environments make people more productive than on the farm.
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We went from 25 percent urban to 75 percent
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by the early postwar years.
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What about the electronic revolution?
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Here's an early computer.
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It's amazing. The mainframe computer was invented in 1942.
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By 1960 we had telephone bills, bank statements
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were being produced by computers.
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The earliest cell phones, the earliest personal computers
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were invented in the 1970s.
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The 1980s brought us Bill Gates, DOS,
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ATM machines to replace bank tellers,
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bar code scanning to cut down on labor in the retail sector.
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Fast forward through the '90s,
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we had the dotcom revolution
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and a temporary rise in productivity growth.
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But I'm now going to give you an experiment.
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You have to choose either option A or option B.
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(Laughter)
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Option A is you get to keep everything invented up till 10 years ago.
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So you get Google, you get Amazon,
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you get Wikipedia, and you get running water and indoor toilets.
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Or you get everything invented to yesterday,
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including Facebook and your iPhone,
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but you have to give up, go out to the outhouse,
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and carry in the water.
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Hurricane Sandy caused a lot of people to lose the 20th century,
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maybe for a couple of days,
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in some cases for more than a week,
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electricity, running water, heating, gasoline for their cars,
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and a charge for their iPhones.
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The problem we face is that all these great inventions,
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we have to match them in the future,
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and my prediction that we're not going to match them
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brings us down from the original two-percent growth
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down to 0.2, the fanciful curve that I drew you at the beginning.
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So here we are back to the horse and buggy.
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I'd like to award an Oscar
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to the inventors of the 20th century,
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the people from Alexander Graham Bell
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to Thomas Edison to the Wright Brothers,
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I'd like to call them all up here,
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and they're going to call back to you.
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Your challenge is, can you match what we achieved?
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Thank you.
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(Applause)
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