While Americans may regard a rising standard of living as their birthright, a provocative new academic paper suggests economic growth may be a thing of the past.
The paper, by Robert Gordon, a professor at Northwestern University and research fellow at the U.K.’s Centre for Economic Policy Research, argues that it is incorrect to assume that economic growth is an indefinite, continual process. To the contrary, Gordon asserts there was no economic growth from the year 1300 to 1750, and therefore suggests it is possible there will be none in the centuries ahead.
Americans can be forgiven for assuming the persistence of economic growth because it has coincided with most of our history. But, according to Gordon, that growth has been fueled by technological innovation, and we may now be at a point of diminishing returns from those gains.
Gordon, who declined an interview with AdvisorOne, is a member of the National Bureau of Economic Research’s committee that determines start and end dates for U.S. recessions, and therefore has considerable experience tracking economic cycles.
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His key insight is that U.S. growth phases are linked to three “industrial revolutions,” whose innovations fueled a period of productivity growth that would eventually dissipate. Many readers would be surprised to learn that the last of these revolutions—the computer and Internet revolutions—has been relatively weak in its contribution to economic growth, fueling a mere eight-year growth spurt.
Writes Gordon: “The computer and Internet revolution…began around 1960 and reached its climax in the dot-com era of the late 1990s…Invention since 2000 has centered on entertainment and communication devices that are smaller, smarter and more capable, but do not fundamentally change labor productivity or the standard of living in the way that electric light, motor cars or indoor plumbing changed it.”
It was the second industrial revolution, which brought airplanes, air conditioning, interstate highways and indoor plumbing, that fueled the biggest gains in economic growth, but whose benefits were quite finite.