The Rise and Fall of American Growth: The U.S. Standard of Living Since the Civil WarPrinceton University Press, 2016, 762 + xii pp., $39.95
Why Donald Trump? Why, for that matter, Bernie Sanders? Why have two economic populists from outside the American political mainstream set the tone for the presidential election of 2016? Part of the answer can be found in The Rise and Fall of American Growth by the Northwestern University economist Robert Gordon, a fact-filled survey of the major life-changing inventions of the past 150 years that, in all of its 760-plus pages, barely mentions politics.Gordon’s book deserves the adjective “encyclopedic” in two senses of the word. It is comprehensive, providing a full account of the changes in the way Americans have lived since the post-Civil War era. It is encyclopedic, as well, in that it is both long and dense, although clearly written and with helpful summaries at the beginning and the end of each chapter. The Rise and Fall of American Growth may be destined mainly to be a work of reference rather than read from cover to cover—a time-consuming but, as this reviewer can attest, rewarding experience. Whatever kind of readership it finds, however, The Rise and Fall of American Growth is a splendid achievement and a valuable contribution to the literature of economic history. Moreover, while encyclopedias consist of entries, this book includes arguments, three of which have particular significance for the politics of 2016.The first and most important argument is that, in what Gordon calls the “special century”—the years 1870 to 1970—an unprecedented series of inventions transformed the environment in which Americans lived and worked. The master innovations of this period were electricity and the internal combustion engine. These two and a few others made possible the networks to which homes became connected during these decades, networks that gave them reliable supplies of electricity, clean water, access to safe sewage systems, gas for heating and cooking, and, somewhat later, telephone service. The inventions of the special century also made possible radical improvements in the quantity and quality of the food Americans consumed and in the comfort of the houses in which they passed the time not spent at work. Work, too, became far less physically taxing and dangerous. A revolution in transportation took place with the introduction of the automobile. The period included, as well, the transformation of popular entertainment through the appearance of motion pictures, radio, and television. In the special century public health and life expectancy took giant steps forward, with a steep reduction in the rate of infant mortality (the availability of clean water had a great deal to do with this) and the virtual elimination of deadly plagues of infectious diseases. Gordon recounts all these changes in detail, and the story he tells is a remarkable one. Together the changes he documents have a claim to being the most sweeping and beneficial development in all of human history.Despite all these material changes, what might be called the software of life—attitudes, emotions, and personal relations—has remained remarkably consistent for many centuries. That is why Shakespeare’s plays still speak to a 21st-century audience. Shakespeare himself, however, would not recognize the “hardware”—the material features—of everyday experience with which everyone living in a rich country in the second decade of the 21st century is surrounded. Neither, for that matter, would Abraham Lincoln; no one who did not live to see the 20th century would. In the perspective of the multi-millennia sweep of human history, the great transformation Gordon records counts as a recent development.It is old enough, however, to have left a deep imprint on American public as well as private life. Generations of Americans have grown up with the expectation that their material circumstances would improve—that they would, to use the politically familiar phrase, be better off than their parents. That expectation forms the backdrop for the politics of 2016 when combined with the second major argument of The Rise and Fall of American Growth.That argument, supported by many illuminating charts and graphs, holds that U.S. growth since 1870 has followed an uneven pattern. The innovations with the greatest impact appeared between 1870 and 1940. Between 1940 and 1970 new inventions had a less substantial, although far from trivial, effect on the U.S. standard of living. The statistic called Total Factor Productivity, which is the best measure of the impact of technological progress on economic growth, reached its highest levels between 1920 and 1950. Gordon follows other economic historians in attributing this, counterintuitively but persuasively, at least in part to the economic consequences of the Great Depression and World War II.Since 1970 the pace of innovation and improvement in daily life for most Americans has tapered off. An uptick occurred between 1994 and 2004, the result of workplaces incorporating new digital technologies. Thereafter, however, the post-1970 trend resumed. Moreover, in recent decades economic inequality in the United States has increased: The rewards of the U.S. economy have gone disproportionately to those who were already well-to-do, or to those few whose brains, education, or good luck gave them an advantage in the technological competitions that have defined change in recent decades. Stagnation and inequality have created the political discontent that Donald Trump and Bernie Sanders, the two insurgent populists, have tapped in their presidential campaigns.This raises a question: Since stagnation and inequality have marked, and marred, American economic life since 1970, why are the disappointed expectations they have created finding expression only now, almost half a century after the trends began? The question has at least four answers.First, the two trends unfolded gradually, stagnation was interrupted for a decade, and the popular recognition that the trends were unlikely to be reversed took time to sink in. Second, beginning just before 1970 women began to enter the labor force in increasing numbers, raising the total income of families with two earners even if the wages of the male worker stagnated. Third, economic conditions for some Americans worsened substantially only a full two decades after the trends began. After the end of the Cold War, the dramatic expansion of the global economy, in particular the full participation of China in trade and production, aggravated inequality. It penalized, through a reduction in wages or the loss of employment altogether, Americans with jobs requiring modest or low skills. It is no accident that both Trump and Sanders have made the trade agreements of the past quarter-century the targets of some of their fieriest rhetoric.Fourth, as the University of Chicago economist (and now governor of the Bank of India) Raghuram Rajan argued in his 2010 book Fault Lines, for a time easy credit, especially for the purchase of houses, compensated for reduced growth in the United States. The credit that the financial system provided, however, inflated a bubble that burst in 2008, destroying much of the paper wealth of millions of people. The financial crisis of that year, moreover, led to a deep recession and a sluggish recovery. The economic circumstances of millions of Americans have not improved much, if at all, since then.These adverse economic trends, piled on top of one another and contrasting sharply with what the historical experience of Gordon’s special century had led Americans to expect, has created a pool of potential recruits to the populist cause. Whatever the outcome of this particular election, moreover, Gordon’s third argument suggests that the discontent on which Trump and Sanders have drawn for their support will remain a force in American public life for many years to come.This third argument, presented in the final three of Gordon’s 18 chapters, holds that the prospects for a recurrence of anything like the economic advances of the special century are very poor indeed. Innovations comparable to those that transformed American life, and ultimately life in many other countries, in that era do not seem imminent and, in Gordon’s judgment, are not likely to appear at all. Electricity, the internal combustion engine, and their revolutionary offshoots and applications can only be invented once. Furthermore, the U.S. economy faces what the author calls headwinds that retard growth. He identifies as the chief culprits the rise in inequality, the shortcomings of primary and secondary education, the aging of the country’s population, and its growing government debt.Gordon’s pessimism about the American technological future can be, and has been, contested on two grounds. Those whom he calls techno-optimists believe that advances in digital technologies, and the effects of these advances in deepening the competence and widening the uses of artificial intelligence, will create new products and services, leading to higher economic productivity and renewed economic growth.The Second Machine Age, by MIT economists Erik Brynjolffson and Andrew McAfee, makes the best-known case for optimism of this kind. But similar arguments based on analyses of the history of technology preceded them—for example, Paul A. David’s exemplary 1991 study, “Computer and Dynamo: The Modern Productivity Paradox in a Not-Too-Distant Mirror.”1Others, notably George Mason economist and TAI editorial board member Tyler Cowen, in a review of the Gordon book in the March/April 2016 issue of Foreign Affairs, argue more modestly that the technological future is simply unknowable: Neither optimism nor pessimism about it has a firm empirical basis. What is really at issue here is not whether new inventions will appear—they surely will—but rather whether any will have an economic impact comparable to those of the special century. This is, indeed, unknowable, but Gordon does demonstrate that, with the exception of information technology, nothing comparable to the revolutionary inventions of 1870 to 1940 has arrived for almost fifty years.Ironically perhaps, the headwinds that Gordon identifies give some basis for modest optimism about the possibility of increasing the rate of economic advancement in the United States. While government policies cannot summon major innovations into being, they can address the problems that Gordon cites. In a postscript he suggests some remedies for the problems he has identified. His list is not altogether unfamiliar. It overlaps, for example, with proposals that Thomas L. Friedman and I made in our 2011 book That Used To Be Us: How America Fell Behind in the World It Invented and How We Can Come Back: Investing in infrastructure, upgrading education, streamlining business regulations to promote entrepreneurship, and reducing the country’s chronic budget deficits. (In that book we also suggested that an independent presidential candidacy might prove to be the appropriate vehicle for placing the needed policies on the national agenda. Donald Trump’s hostile takeover of the Republican Party does amount to a kind of independent bid for the presidency, but he is not, alas, the kind of candidate we had in mind.)None of these measures would bring back the heroic age of transformational innovation that The Rise and Fall of American Growth chronicles, but they would make for an improved U.S. economic performance, which would benefit the supporters of today’s economic populism and thus, perhaps, undermine the populist pulse we are witnessing now. Unfortunately, neither Donald Trump nor Bernie Sanders, nor any of the other presidential candidates, has championed anything like such an agenda, the elements of which have been all but inaudible and invisible in this election season. It may be necessary to wait until 2020, or thereafter, for a presidential candidate to take up the sensible suggestions that Robert Gordon proposes.
1David in Technology ad Productivity: The Challenge for Economic Policy (OECD, 1991).