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Robert Gordon’s technological pessimism (revised)

It is mainly during the last 300 years that sustained economic gains to certain people have occurred.  For the most part these people were living in industrializing Western-style, market-based economies.  From the longer-term historical perspective of human existence over 50,000 years this sustained, broad-based economic progress has been a relatively short-lived aberration.

AS M.C.K. notes: “Before 1750, the standard of living improved at a glacial pace, if at all. Farming in the early 18th century was not that different from farming in Biblical times. The Romans had invented plumbing before the very concept was forgotten for millennia. Then, something happened. Within two centuries the biggest material problems of pre-industrial life had been solved: food was plentiful, water was clean, indoor temperatures were controlled, and distance no longer prevented the speedy transit of goods and messages. Devastating wars and deep depressions did nothing to slow this forward march of progress”.

The question as to whether the rapid economic growth in per capita consumption established on the basis of the industrialization will continue into the indefinite future or whether growth will regress toward its longer-term low trend amounts to whether technical progress and innovation will continue into the future.  The implicit assumption of most – not all* – economics texts is that growth will continue indefinitely. An intriguing, pessimistic answer to the issue of ongoing growth for the US economy, is given in a paper by Robert Gordon (2012), published as an NBER Working Paper.  Gordon claims that US productivity growth did slow markedly after the early 1970s. He further forecasts that growth is likely to decelerate further over the next century to negligible levels –to below 0.5 per cent annually.  In short, Gordon’s claim is that US economic growth will almost end.  This claim is made only for the US but, in a globalized world, a forecast slowing of technical invention and innovation has broader relevance for a world community whose living standards are, in the main, converging to US levels.

Gordon’s core argument is that a “Second Industrial Revolution” drove sustained growth in the US from 1870-1900. This involved the discovery and use of “general purpose technologies” for example, electricity, the internal combustion engine, running water and sewerage (the flush toilet was a significant innovation that greatly improved human health), radio and telephone communications, chemicals and petroleum.  Machines displaced animal and human muscle in a major way. This ‘Revolution transformed life in deep and broad ways – indeed, in ways that were much more profound than the First Industrial Revolution (the age of steam and the steam-powered railway from 1750-1830) and the Third Industrial Revolution (the age of information – computers, semi-conductors and the internet that began around 1960 but which really took off in the 1990s).  The depth and broadness of the Second Revolution can be tested subjectively by asking whether people would prefer to do without their computers or without running water and inside lavatories.

Non-subjectively Gordon assembles evidence of a gradually slowdown in economic growth over recent decades. According to him, innovation during this time has been slower and narrower in its impact. As examples Gordon claims that transport and energy technologies have barely changed in half a century.

Other future hurdles to US growth include population aging and loss of the demographic dividend, leveling of US educational standards along with increasing education costs, increasing inequality with most growth in incomes accruing to the top 1 per cent of earners, globalization and consequent factor price equalization, increasing resource usage and resource management costs (with global warming being a “payback” for past growth) and finally with high public and private debt.

To conclude these are real problems and many have a sense of inevitability associated with them.   But perhaps things are not as black as Gordon suggests. A possible offsetting policy for the demographic problems identified is to substantially increase the level of skilled immigration. The endogenous growth theorists would argue that such things as resource constraints will direct technical progress into sought resource-conserving areas while problems of rising inequality and poor management of the environment can, again, be addressed by using public policies.  Moreover, provided the associated environmental problems in emerging economies are addressed it is difficult to see globalization as anything other than a force for mutual economic advantage – in the absence of spillovers that is what classic “gains-from-trade” arguments tells us.

The really difficult issue to evaluate is whether technological discoveries and innovations already made have picked most of the “low hanging fruit” leaving only less significant technological opportunities in the future.  The hypothesis of overall diminishing returns to such efforts is plausible but seems to involve the same act of a priori faith as the unrestrained optimism of those who believe that substantial technical advances will occur indefinitely.   It might be that Gordon simply suffers a lack of imagination! Might it be that solar or electro-magnetic devices might be devised which provide abundant clean energy at close to zero cost, that travel might become instantaneous through technologies that scramble and reassemble humans, that replicator technologies might be developed that lead to the low cost manufacturing of anything, that communication costs might feel to almost zero and that medical technologies might provide cures for most diseases and potentially lengthen human life indefinitely.  This sounds like science fiction

One set of arguments deduced to show that innovation will get harder is due to Jones (2009).   The gist of this argument is:

  • If knowledge accumulates as technology advances, successive generations of innovators face an increasing educational burden.  While innovators can compensate by lengthening educational investments and narrowing expertise, these responses come at the cost of reducing individual innovative capacities because of a greater reliance on teamwork. This has negative implications for economic growth.

This explains why productivity growth rates did not accelerate through the 20th century despite an enormous expansion in collective research effort. Upward trends in academic collaboration and lengthening doctorates, which have been noted in other research, can be similarly explained. The knowledge burden mechanism suggests that the nature of innovation is changing, with negative implications for long-run economic growth.

Finally, an important issue is whether a slowdown in technical advance matters much.  Provided that globally population and natural resource usage issues can be addressed, perhaps the world can (after some urgent intra-national and inter-national redistributions) simply enjoy itself by consuming more services (the arts, education) without necessarily much more growth in material outputs.  This of course does not nullify the Gordon argument but it does make us worry less about its implications.

The requirement that resource scarcity issues be addressed in a world economy where emerging nations such as the BRICs are developing rapidly in terms of living standards is crucial.  This is particularly important with respect to the issue of climate change.  Indeed while Gordon focuses on the costs of addressing climate change it is also important to examine the consequences of not successfully addressing it.  Part of the issue here is to devise policies around the world to do this. The record so far does not inspire overwhelming confidence since the two largest Greenhouse gas emitters (China and the US) have not so far agreed to comprehensively limit their emissions.   Another part of the issue is technological and relates to the role of new non-polluting secondary energy generation technologies that will power homes, industries and transport.   This type of innovation will not necessarily increase consumption per head greatly – the Gordon issue – but will prevent living standards from falling markedly if the effects of unmitigated climate change would have proven as severe as many anticipate.   The key possible technological advances here lie in the area of new nuclear, solar cell and wind power technologies.   Here very significant breakthroughs are being made in terms of providing cost-efficient new energy technologies in areas such as photovoltaics.   Through learning-by-doing and other efficiency improvements the costs of producing photovoltaic cells has fallen markedly since 2008 – in many situations to at or below grid parity (Bazilian et al., 2012).

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*Interestingly the main preexisting pessimistic school of thinkers about growth are the neo-Malthusians, such as the Club of Rome “Limits to Growth” thinkers. They combined hypothesis of continuing population and economic growth in the face of resource constraints as drivers of a future where society will overshoot its capacity to sustain growth and will hence collapse driving down both population size and consumption standards.   Implicit in their argument is a particular form of “technological pessimism” as discussed in this post.  Other growth skeptics include Cowen (2012), who has similar views to Gordon, and Jones (2009) whose theoretical and empirical arguments are discussed below. .

References

M. Bazilian, I. Onyeji, M. Liebreich, I. MacGill, J. Chase, J. Shah, D. Gielen, D. Arent, D. Landfear & S. Zhengrong, “Re-considering the Economics of Photovoltaic Power, mimeographed, Bloomberg New Energy Finance, 2012.

T. Cowen, The Great Stagnation; How America Ate All the Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better, (e-book), January 2011

R. J. Gordon, “Is U.S. Economic Growth Over? Faltering Innovation Confronts the Six Headwinds”, NBER Working Paper 18315, August 2012

B. Jones, “The Burden of Knowledge and the “Death of the Renaissance Man”: Is Innovation Getting Harder?”, Review of Economic Studies, 2009.

M.C.K. “Productivity and growth. Was that it?”, The Economist, September 8, 2012. (3191)

15 comments to Robert Gordon’s technological pessimism (revised)

  • Jim Rose

    Ben Jones approached the innovation is getting harder issue from a human capital perspective. he wanted to explain why productivity growth rates did not accelerate over the 20th century despite an enormous expansion in educational attainment and the number of R&D workers:
    • If knowledge accumulates as technology advances, then successive generations of innovators may face an increasing educational burden.

    • Innovators can compensate through lengthening educational phases and narrowing expertise, but these responses come at the cost of reducing individual innovative capacities, with implications for a greater reliance on teamwork

    • Using data on Nobel Prize winners and great inventors, Jones found that the age at which noted innovations are produced increased by 6 years over the 20th Century. These later starts to careers are not compensated for by increasing productivity beyond early middle age.

  • hc

    Thanks Jim. The Jones paper interesting.

  • Jim Rose

    thanks HC, A lot of people say we should invest in education and skills to increase the growth rate or quicken technological absorption.

    A big reason to invest in education and skills and better universities etc., is to stop the growth rate falling!

    Look at economics. Specialisation is becoming rampant and unavoidable.

    The giants of mid-20th century economics were polymaths that ranged across the whole discipline. Less so today?

    Fields such as macroeconomics, labour economics and industrial organisation are so large and fast moving that full specialisation is necessary to pursue a career and keep with the pace.

    PhDs are longer and must be at a top US university to hope tp play in the first division.

    Do people write articles on their own any more? No co-author?

  • conrad

    I’ve thought about this too. I don’t agree that things like transport are useful — the reality is that if we wanted, we’d need it less due to other technology, so things are simply getting displaced. Alternatively, I’m not really sure the last 15 years or so has been thrilling. It seems things have got faster and more integrated, but it was nothing like the amazing changes between, say, 1960-1990. It will be interesting to see if some of the new biotech technology really makes life a lot different, although I’m betting it will be new energy technologies, and hope that nuclear fusion does a bit better than the last decade.

    Incidentally, speaking about going backwards and things that might be of interest to you, Lorenzo over a skepticlawyer has linked an article which shows low SES white females life expectancies are going down in the US, at least in part due to higher rates of smoking.

  • Jim Rose

    Schumpeterian growth theory also accounts for both growing technological complexity and the lack of an impact of population growth on economic growth.

    The scale effect debate is about how productivity growth has remained stationary during a 100 year period when population and the number of people engaged in R&D has risen dramatically.
    • As technology advances it becomes more complex.

    • The proliferation of product varieties reduces the effectiveness of R&D aimed at quality improvement by causing it to be spread more thinly over a larger number of different sectors. The development of new product lines fragments the economy into submarkets

    • There is a fishing out effect where the easy inventions come first.

    Society must make an ever-increasing expenditure on research and development just to keep innovating at the same rate as before.

    The coexistence of stationary TFP growth and rising population is due to the growth-enhancing scale effect of more R&D workers offsetting the growth reducing effect of product proliferation.

  • Jim Rose

    see too AGE AND GREAT INVENTION by Benjamin F. Jones, Review of Economics Statistics (2010). It some how opened for free at http://www.mitpressjournals.org/doi/pdf/10.1162/rest.2009.11724

    Jones documents how the great achievements in knowledge of the twentieth century occurred at later and later ages. there has been a large upward trend in the age at which innovators begin their active careers.

    Long-standing declines in the per capita output of R&D
    workers in terms of both patent counts and productivity
    growth have been documented as far back as Machlup (1962).

    Innovators spend some of their youngest and potentially brightest years undertaking educational investments.

  • rog

    The last decade or so has seen the emergence of the Internet which has, and is continuing to have, an enormous disruptive effect on how we do things. Other industries have benefitted from advances in technology; efficiencies in vehicle manufacturing and fuel consumption has had an enormous impact on existing utilities such as rail. And cell phones are continuing to bring revolution to emerging economies.

    People everywhere are struggling to keep pace with change.

  • hc

    Rog, The internet seems to have had more limited effects on productivity than expected. This is discussed in the Gordon paper. One economist quipped “computers are everywhere except in the productivity statistics”.

  • rog

    Gordon appears to argue that the Internet and subsequent IT will have marginal effect if any on productivity. I would argue that it is way too early to pass judgement. His analogy between plumbing and Facebook is cute; you could also say that technology has improved living standards globally and has helped to find enough food to feed a global population many times greater than previous.

  • derrida derider

    Good post , but one quibble:

    “A possible offsetting policy for the demographic problems identified is to substantially increase the level of skilled immigration ..”

    Err, when factor prices have equalised where is the surplus skilled labour to come from? I’m not saying we shouldn’t do this while we can, just that it is not a global or long-run solution.

  • derrida derider

    PS rog – for a detailed argument by Gordon on WHY he thinks that, go to http://www.nber.org/papers/w7833 (Harry could also have listed this in his References)

  • rog

    Of course the discussion of the productivity paradox may soon be overwhelmed by external factors not previously factored eg pollution and climate change.

  • hc

    Derrida, I think no-one is forecasting an equalization of skilled factor prices across countries for at least the next 100 years. but you are right – sources of skilled migration are being targetted by almost every country – Australia in the past has even targetted skilled hairdressers!

  • [...] a recent post I referred to Ben Jones’ work on innovation.  Jones claims that technological innovation in society, more generally, can be expected to become [...]

  • [...] an earlier post I discussed Robert Gordon’s argument that the big technological innovations (for example the discovery of the flush toilet) had already [...]

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