« Freakonomics Radio

240. Yes, the American Economy Is in a Funk -- But Not for the Reasons You Think

2016-03-17 | 🔗
As sexy as the digital revolution may be, it can't compare to the Second Industrial Revolution (electricity! the gas engine! antibiotics!), which created the biggest standard-of-living boost in U.S. history. The only problem, argues the economist Robert Gordon, is that the Second Industrial Revolution was a one-time event. So what happens next?
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We should be growing at four percent, not this new normal. This country is in big trouble. We don't win any more. We lose the China, we lose the Mexico, both in trade and at the border. We lose that everybody. We must raise incomes for hard. working Americans, so they afford a middle class life There is a long list of potential diagnoses and an even longer list of potential causes. It's like when you catch cold, and then you try to figure out of order. sneezing sniffling, snotty people you saw recently- who did this to you? The greed of the billiard, our class, the greed of Wall Street is the straw. This economy. Sad reality is big government, massive taxes, masses regulation doesn't work and even though the? U S economy is
Our healthier than most countries economies and also, it should be said way healthier than most economies throughout history. The prognosis given by the candidates is usually somewhere between dire and fatal this country's running out of time, we can afford to have another four years like the last eight years. We're on the verge of economic lapse. Most presidential candidates are, of course, not mds, but nor Are they a communists which you might think would be kind disorder helpful for a job that seems to have so much to do with the economy so today and economics? Radio, let's To someone who is an economist, I'm just a regular economist who, as a fancy, title to someone who spent his career, giving full answers to the questions that presidential candidate spend a sound bite on that
about right and let's provide an order of magnitude and his diagnosis may surprise. The data given unambiguous answer that well well! Well! Well! Well, you gotta, listen to show it to get that right after the here with me, I want one that one from W and Y see studios. This is free economic, radio, the podcast that explores the hidden side of everything. Here's your host, Stevens Abner, Robert Gordon, is economists at Northwestern University and the author of a book called the rise and fall of american growth. Think about that title for a moment. The rise and fall of american growth
though Gordon's view may be as dark as all those presidential candidates views, but what politicians generally look for easy villains, immigrants or China are wall. Street Gordon takes a less, shall we say hysterical view of things. It is a view based on how innovation and inventions affect the economy. Especially the inventions of the past few decades. The big debate is about how important these New inventions will be how rapidly they will be defusing throughout the economy, and that's where we get into some of the controversy this been caused by my book anyway. Like I said Gordon, is an the dynamic I'm Stanley G Harris, Professor, the Social Sciences at Northwestern University, professor social science is not professor of economics. Wiser. That sounds better and it wasn't my idea, I didn't
it myself that title it was made up for me, so you're not on the side and anthropologists than psychologist, and all that no. But I have gotten deeply into history. Gordon does indeed go deep into history, examining the trajectory of economic growth over the last few millennia we had virtually no progress in human life between the roman empire and the late middle age, studies of England, where they have some of the best data and statistics, show that over four hundred years before in thirteen hundred and seventeen hundred economic It- was only at a rate of zero point- two percent a year and to put that into concrete terms, so growing that slowly at zero point. Two percent requires three hundred and fifty years to double not only was growth extraordinarily slow, but even
As new inventions came along steam, powered railroads and broader network of food distribution, they didn't exactly transform society overnight. one of the things that keyed my trust in the great intentions. Was a paper backbone that I found in a bed and breakfast in Michigan, where guess were invited to leave books and pick them up, and so I picked up this book. It was a book by Otto Betterment of the fame specimen photographic archives- and it was full of wonderful line, drawings and cartoons of the horrors of railroads in the late nineteenth century, with boilers that would blow up of milk. Was adulterated and mix. With water or chalk thief. Please lack of protection of the quality of the food and so this set of horrors of how terrible life was in the old days.
led me naturally down the path of exploring what were the things that changed us in an improved. Gordon looked hard at, what's generally called the first industrial revolution which began in the MID eighteenth, when we the invention of steam engines, steamships locomotives factory making cotton fabrics. Then the telegraph all those things were invented in the century, between one thousand seven hundred and seventy and one thousand eight hundred and seventy, and they set the stage for the pensions that happened after eighteen, seventy and that's when the second industrial revolution would begin we'll get there but is Gordon was saying about the stage setting inventions of the first industrial revolution, example setting the stage was the telegram which was the single biggest invention in human history. In short,
named the time it took to communicate a fact. Or a piece of news before the telegraph, which was invented in eighteen, forty, four, the fast is that news could travel was by the head of a horse or assailing ship, and indeed we have a famous example. Battle of New Orleans. One by Andrews action in January, eighteen fifteen, which took place three weeks after the peace Treaty was signed between Britain and the United States, ending the war of eighteen, twelve. So after telegraph, of course the human mind started imagining what if we could find a way of allowing people to talk over these wires instead of just sending dot dot stash Morse Code and that dream was realized fairly promptly. Eighteen, seventy six by
example. Graham Bell and his competing inventor Bell B the competitor. name was Eliza Gray, they'll be to the U S patent office by about three hours. if it had not been for that, we would have had the gray telephone system instead of the Bell telephone system. As we all know, the telephone, but one of many many many inventions produced during the second industrial revolution. Second, the dust Revolution included electricity. The internal combustion engine chemicals blast Ex running water, the conquest of Fatuous diseases, the conquest of it mortality. They develop a process food. The fact that Women no longer had to make their close at home, but could buy them either in Japan stores are in mail order catalogues. So all of those things as every dimension of human life was effected on the second industrial revolution with the invention
this mainly taking place between, Eighteen, seventy and the early nineteen hundreds and in their big impact on such economic me measures as productivity during the Middle EAST. of the twentieth century, especially from nineteen twenty? Eighteen, seventy now remember what Robert Gordon said about the rate of growth between thirteen huh in seventeen hundred something growing that slowly at zero point. Two percent requires three fifty years to double, and how did that? Compare to the second industrial rebel since eighteen. Seventy the of time that it's taken for the standard of living to double has been more.
Five hundred and thirty years, not three hundred and fifty years. Wow. Think about that. If you had the good fortune to be born in the early 20th century, let's say rather than the early 19th century. That was a lot of good fortune. Okay, but wait a minute as lucky as you might have been to be born in the the twentieth century. How much luck you're still would it be too have been born in the MID relate twentieth century, because that's when we got the third industrial revolution, the one that's been so helpful if someone wants to say, make and distribute a radio program that you can carry around with you and sticking your ears when every want the thirty days revolution started off around eighteen sixty with the first mainframe computer and went for into the many computer, the personal computer in the nineteen eighty and then follow the marriage of communications with computers that we call the internet or the dot TK.
Revolution- that happened in the late I d nineties so, of these changes radically changed our ability to process information along the way we had a similar, Revolution in entertainment, also, These do invest. Revolution includes entertainment, informations computers and the communication, as we move from landline phones to what we can call dumb ma. Phones and then ninety nineties then enter Smart mobile phones in the last ten to fifteen years now there's nothing wrong with the third industrial revolution, each of those few was dramatically and completely change, particularly the information processing by the computer and invention of such things as e commerce and search engines and email and web browsing, but those Inventions is monumental, as they were we're taking place. asked in a near slice of of human life. In terms
so the economy, and this brings to the central argument of Robert Gordon's book. The argument that many economists and others are not willing to accept without a fight believes that as right, shiny and wonderful, as the many manifestations of this third industrial revolution may be well, they can't compared to the more essential inventions of the second industrial revolution when it comes to increasing the average person standard of living. Moreover, Gordon has come to light that the great inventions of the second industrial revolution were a one time event and that the resulting spike in american prosperity is therefore also a one time event which may account for all the gloom and doom on the presidential campaign trail
even though you can easily argue that more people around the world are better off today than they have ever been. We all know that leaping forward feels a lot better than inching for especially when the nature of the inventions that we ve been given these last few decades make it seem as if we are leaping forward our total spending on all electronic locations in computer devices, entertainment on the services, the providers with internet services and telephone services, you add that up in its only about seven percent of the economy that we the other ninety three percent of the economy that is I've been nearly so profoundly affected by the industrial revolution, on the other hand, I could say my goodness- for seven sense of every dollar, I earn look, how much stuff I'm getting right, because partly appeal of this is as its scalable. It's also, presumably potentially really cheap
right. Why would you spending is a proxy for the lack of significance in our lives as opposed to the affordability of it? Well, when you think for instance, of e commerce, the convened to be able to buy things from the comfort of our home is indeed a great step for some things that are a me. both to that kind of buying, but so far We look at total retail sales commerce only accounts for sixty seven percent. total retail sales, there still lots of things that people like to buy in person and clear clothing that they want to. Try on things like automobiles. Lots of things we're still purchased from traditional kinds of outlets. It sounds as though your argument is essentially that any of the inventions provided by the digital revolution. While exciting and appealing and sexy, and maybe because they are so sexy, they they gain more more attention than they warrant that
as exciting and sexy, etc, as they are that they are primarily refinements of previously existing things, so they make transportation more portable or convene an or communication more of the same shopping more the same, but that they don't stand at all in comparison to the breakthroughs of the earlier technological revolution. I think they're breakthroughs, and indeed, if we look at business practices and procedures. We had a complete change from. Her entire cabinets, calculating machines and typewriters into the modern world, a flat screen and search engines and Electra. storage and electronic catalogues that was a profound The transformation that affected the lives of almost everybody who works in an office and it took place for the twenty, five years or sell between nineteen eighty and two thousand five. Yes, during the hay day of the dot com revolution,
We had our nation wide measures of progress, namely productivity growth, catching up briefly, about a decade The kinds of measures apply grace that we had back in the second industrial, a revolution, so it was transformative. But it didn't last long the revival productivity growth occurred only between ninety ninety five and two thousand and five in contract to the similar big surge of productivity growth, created by the second Adele Revolution that lasted for a full fifty years from now in twenty two nineteen, seventy. So it's a matter not of whether we had breakthroughs but how big an import. they were and how much they boosted the about people could produce per our work This brings us really. I guess, to part of the controversy of your book, which is also brings us to the title of your book. The rise and fall of american growth
as much as one can get excited about the inventions and the technology of the past with say forty years you're Yemen is much broader than that, which is that growth has peaked as we know it, and that, if I understand, correctly. In your view, it will never resume, as we had it before said, about right. that's about right and let's provides an order of magnitude. We have a measure of the IMF, of innovations that economists call total factor productivity and that tells us how much address our economy is making relative to the hours of work that we put in an relative to the number of machines that we use and so improvements in efficiency per unit of late and per unit of machine is called total that productivity and need my just try,
flight that into simple words the impact of innovation, while our accounts Most measures of that growth rate were to three times as fast between one thousand nine hundred and twenty, and one thousand nine hundred and seventy, as they have been in the war five years since nineteen? Seventy that's the sense which the data given unambiguous answer that we had the rise of economic growth through the middle of the twentieth century and then a falling off a slackening of the pace of innovation in economic growth since then coming up on economic failure. If you dont like what Robert Gordon has to say about past. You almost certainly won't like what he has to say about the future. It means is meant People will be falling back as those who were moving ahead and you can find every single for economic a new episode ever made on free economics, dot com- you can also subscribe to this Pont cast on Itunes, a reverie get your part guests and are you
HU, a soccer, not where'd, you know someone who is, if so, you may want, took out a brand new podcast called fifty four to its stars. Fifteen year old Solomon Donor, who happens to be my kid and, as you can probably guess, He is a soccer not now we trying to turn me into one. Also, that's why it's called fifty four to find it Itunes and elsewhere the northwestern economists, Robert Gordon, is written a book called the rise and fall of american growth. It argues that we should expect to have the same economic growth rates we ve had in the past in large part, because recent invent funds are not transforming our lives as much as we think this is the same,
Bing to some people, including the political class, because there has been a foundational belief that future growth should mirror at least to some degree, the past most people when discussing the law of growth that you are now talking about gravitate not toward the economic structure through which you look at it, but more a political structures, or at least it strikes me they look to the Political Romany, look for scapegoats of fur. You know the policies that have destroyed jobs are created low, paying job, the expensive, better ones, or they look at policies that create many burdens on business, so your argument about our slowing growth or lack of growth overlap with those political points. Does it really lie outside it and is it different argument? Well, it's a little bit of both what makes my forecast more radical and more equally pessimistic heart for headwinds. Is I call them
and the first of those is inequality. Overlap. thirty five years, an amazingly high fraction of our economic progress has been opened into the incomes of the top one percent. Of the income distribution that. tremendously important feature that causes the slow down. It's not as the lack of innovation were seen plenty of innovation, but it's the fact that not everybody is sharing and the fruits of that innovation. We ve had, as the second had win a slowing in the pace of improvement of educational attainment disappear. True for american young men. So we have a lot of underage it'd males who were not able, through education to contribute to highly productive occupations and the rate of improvement- and that was a financial source of economic growth throughout most the twentieth century. Then we have the third headwind, which is
the graphics that simply the aging of the population retirement of the baby boom generation means that millions and millions of people are made, the transition from working, eating income to not working being dependent on it, I'm through Social Security and Medicare provided by the working generation. and then. Finally, we have the Firstly, recognised day of reckoning coming within the next ten to fifteen years, as so security and Medicare run out of money that can be fixed. only by raising axes were cutting benefits, to those in the over sixty five age group, and that raised of taxes were cutting a benefits, will reduce further what we
all the disposable income, the income the people actually have to use for consuming what they want. So between these four headwinds inequality, education, demography and the fiscal issue and or a view that the third industrial revolution is wildly over valued or at least over appreciated. I'm scared to ask you, but what are you then predicting and for the american economic future, and do you see that prediction as apply to the global economic future as well, how singular the american position of those are two different questions and first, if we Just wanna put some numbers on this: the grocer output per hour our productivity over the next one, five years is likely to be quite similar to what has been over the last ten to eleven years and that's about one Two percent a year, not bad, not that different from
What occurred back in the nineteen Seventys and eightys. We had a brief rest but in the late ninety nineties, when our productivity did better than that. But leaving aside the late ninety nineties, our productivity growth is gonna, be fairly similar, and so that means I'm not predicting the end of innovation or the end technological progress before the end of the world. We should say over. The end of the world are right, but then the one point: two percent has to be reduced because that's it the per hour, but we're having population is not working so many hours as the baby boomers retire. That cuts the one point two down to zero point: eight grows in output per person, and the inequality. The fact that so much This is going to the people at the top cuts the groves aid for the median income perverse and down from zero point? Eight zero point four and then they fiscal reckoning gets us down further to zero point three, so zero point three, percent growth and disposable income of the meat.
In person in America is hard any progress at all it mean as many people will be falling back as those who were moving ahead. You asked as a second point What does this mean for the rest, the world you have to do. the rest of the world into the developed countries, Western Europe, Japan, South Korea, Australia, New Zealand, Canada, that's the developed part of the rest of the world from the. urging markets, China, India, South EAST Asia and the IMF. The markets will continue to catch up to the standard of living that has been achieved by the developed nations but, as I look around the world, this slow down and productivity growth is pervasive oh they're, following our footsteps were not alone, where we are alone, is the prevail evidence of this. Increasing inequality is american phenomenon- that's not repeat,
everywhere are educational attainment is it is impressive and some other countries, so we're doing as well as anyone else on productivity, but worse off, ring from headwinds that are I shared equally elsewhere. If I'm listening this program, I'm trying to figure out whether I should kill me both now and get it over with or live out. This long, economic doldrums words what all this mostly terrible economic translate into a real in your view, at least, let's say in the rich countries widespread under employee, and perhaps unemployment are we looking economic chaos? Are we looking at anarchy and war? What do you foresee none of the above then? Let me go to the issue of him I met there is a concern
both divide in those that look forward over the next twenty five years: between those. I call the techno optimists, who think they were on the verge of revolutionary advances. In technology and innovation, and thus fear that robots and artificial intelligence will be taking away jobs and leaving mass unemployment compared to me where I think that new technologies are coming, but there hurry up an amazingly slow pace? Theirs, a lot of ordinary everyday human activity. That robots cannot come close to duplicating and so I see the the robot serve as my collaborating with and complementing human active, de as replacing it, I think the eye, the idea that a computer this can win it quickly. Oh games is very impressive, but the artificial. intelligence. Computers have not yet shown that they can match humans
judgments. These innovations are coming, but they're, not black Why they're not gonna arrive tomorrow, all in one fell swoop and because it won't happen in one fell swoop, rubber, Gordon, does he not so worried about employment, the economy will keep producing jobs as it has during past. Technical we no longer have encyclopedia salesman. We no longer have elevator operators, we no longer have blacksmiths. Machines, have been replacing humans throughout the EU, three of all three industrial revolutions and I see any reason why this should be any different. What is happening- and this is really part of the story of inequality in the evolution? the top incomes compared to the incomes in the middle and the bottom is that the jobs that are being created are in any cases, not as high paying and not requiring as much education as the job. that are being lost to not just
Automation, not just the computers, but we also have lost an enormous number of jobs to globalization, to trade. To the impact of imports, what we should worry about, I dont have a great answer, for this is the on shifting in the quality, YO jobs and they menial each year and jobs. So I'm worried about the quality jobs, not about us having enough jobs. We are draw down to five point: zero percent unemployment, so To summarize your overall argument, our rise and fall of american growth. Would it be an overstatement to say that there was a lot of low hanging fruit for go and labour and in all other kinds of fruit that we picked beautifully and eight hungrily
and we did really well with and that those things once used up will never. That kind of gain will never appear again As far as you can see, I think this, Two strong: it's not that other fruit- has been taken, without analogy is the fruit tree is continually growing new fruit and there's new fruit to be picked. The idea that many of the inventions were more fundamental importance could perhaps be seen. he's into the fruit analogy by saying that the pieces We were larger that were hanging in the lower part of the tree and the He is continuing to grow new fruit with self driving cars treaty, printing, it's an artificial intelligence. So the tree is not baron by any means, but the
new food is growing very slowly. It takes a long time to pick and the total amount of fruit the we wind up with it, as much as we did in the old days when the fruit was lower down and larger in size. You call the other camp, the Techno the mists. Are you inherently than a techno pessimistic? Do not go that far too. You know. It's really that the distinction is faster the slow. It's the speed of the change, the Tec. Optimists act as if we are going to have rapid revolution that within the next five or ten years is going. see universe the world of robots and man unemployment as a risk out of artificial intelligence. I just think that the best way looking into the future is to look at the the recent past. Let's break and we were talking back in the seventeenth century even early eighteenth century, say you know their heads
been much economic change and low these many centuries ago. The best price, she will be that more of the same and then boom. It did happen so who's to say or why are you to say that that is not going to happen, because that's one reason why dont forecast beyond twenty five years. It's possible things could be invented, fifty or for years. From now that we can't even imagine- but we ve got pretty I'd spread agreement on the inventions that are coming down the road over the next twenty five years and so is to have a disagreement over how fast rouse slow. That is is very different than the qualitative kind of stake that you were just imagining for the eighteenth century. Rubber Gordon's interpretation of our economic past and future is certainly open to your own. It
rotation. You may find it sobering even frightening, or you might find it comforting, because, while political conversations about the economy always look for escape, go a villain. Gordon's. Economic conversation tells different story that Our runaway growth of the past was essentially a golden age and it might be nice to repeat it now, like we're not still reaping the benefits every day, No one is taken away. Our luck, Christie, you're, clean water or refrigeration, and air conditioning antibiotics in cars and telephones. Smart were dumb phones and it may be- but once so many of these external concrete needs have been met. What's left is the really hard stuff. The internal means things like psychological and cognitive gains, learning to find true happiness, or perhaps better yet to be satisfied with what we have. If you can achieve that, then yes, it might make even
Christy, clean water and antibiotics seem like pretty basic stuff next week on economics, radio we are reaching into the archive to give you one the most popular episodes we ve ever made the economics of sleep part one, but until then we need your help, your voice, this aid, it is self improvement month at for economics, radio, and we want to hear what you would most like to improve about yourself and why and maybe what been doing to make that happen so record your based on whatever voice memo up. Your phone has an email us the file at radio at for economics, dot, com, pleasing your name where you live, and what you do, I'm lookin
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were worth cash Mihail image, Alison Hockenberry in Caroline English. You can find all our previous episodes at for economics dot com. You can also subscribe to this part guest on Itunes or wherever you get your podcast, hey, they're, Stephen dubbing, again, one more thing. If you like for economics, radio, I think you'll also like the latest episode of people, I mostly admire the podcast hosted by my free economic, spreading co, author, Steve Levin. Here's what it sounds like a guest today, Sue bird. She collects championships she's for W Nba championships. Five euro, the best about championships to ensure a championships for International Basketball Federation broke up and for liquid gold medals. I'd like to talk about the economics of professional basketball, so the average player in the NBA made eight point three million dollars into the nineteen, and
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Transcript generated on 2021-01-25.