Is the US becoming an economic backwater?

That is the question raised by the research of Northwestern University economist Robert Gordon.  He argues that long-term trends indicate that the US economy has already seen a significant drop in productivity growth over the last 40 years, and that this may only be a harbinger of a complete halt to productivity growth:

The analysis in my paper links periods of slow and rapid growth to the timing of the three industrial revolutions:

  • IR #1 (steam, railroads) from 1750 to 1830;
  • IR #2 (electricity, internal combustion engine, running water, indoor toilets, communications, entertainment, chemicals, petroleum) from 1870 to 1900; and
  • IR #3 (computers, the web, mobile phones) from 1960 to present.

It provides evidence that IR #2 was more important than the others and was largely responsible for 80 years of relatively rapid productivity growth between 1890 and 1972.

Once the spin-off inventions from IR #2 (airplanes, air conditioning, interstate highways) had run their course, productivity growth during 1972-96 was much slower than before. In contrast, IR #3 created only a short-lived growth revival between 1996 and 2004. Many of the original and spin-off inventions of IR #2 could happen only once – urbanisation, transportation speed, the freedom of women from the drudgery of carrying tons of water per year, and the role of central heating and air conditioning in achieving a year-round constant temperature.

According to his analysis, productivity in the US is 35 percent below what it would be had productivity growth not slowed down during the 1970s.  (Click on the image to see the full size graph.)

The Free Exchange blog at the Economist takes exception:

Mr Gordon’s fundamental argument is not new. It always seems to regain popularity whenever the economy is in a prolonged slump. In the late 1930s, Alvin Hansen was one of America’s leading economists. He claimed that the United States was doomed to endure a “secular stagnation.” Like Mr Gordon, he believed that his country’s past prosperity was due to a series of favorable developments that could only be exploited once. (He thought they were the settlement of the West and the development of “great new capital-consuming industries.”) More recently, Tyler Cowen, an economist at America’s George Mason University, argued in early 2011 that the United States was in the midst of a “great stagnation” that could last for decades because—wait for it—the “low-hanging-fruit” of an uneducated populace and uncultivated natural resources had already been picked. Hansen was wrong then. Messrs Gordon and Cowen are likely to be wrong now.

We’ll see. . . .

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