The End of Growth?

“Every drop of water for laundry, cooking, and indoor chamber pots had to be hauled in by the housewife, and wastewater hauled out. The average North Carolina housewife in 1885 had to walk 148 miles per year while carrying 35 tons of water,” writes Gordon. He added that the invention of running water and the spread of indoor plumbing in urban America a century ago was the key milestone in women’s liberation, and that the full effects of this revolution in productivity terms lasted about 100 years.

The first industrial revolution, Gordon writes, “centered in 1750-1830 from the inventions of the steam engine and cotton gin through the early railroads and steamships, but much of the impact of railroads on the American economy came later between 1850 and 1900.” This revolution, he writes, would play out in terms of productivity gains over 150 years.

The income effects of these revolutions may be the most interesting, even disturbing, findings of Gordon’s study. In the period between 1957 and 1988, income per capita doubled—in just 31 years. The biggest growth occurred in the period between 1929 and 1957, when income doubled in just 28 years, hardly slowed by the Great Depression and World War II. In contrast, it took centuries for income to double before 1800, and Gordon hypothesizes that it could take a century for income per capita to double in the years to come.

Gordon conjectures that diminishing gains from previous revolutions combined with current economic headwinds may bring the U.S. back to the 0.2% economic growth rate experienced by Britain in the four centuries from 1300 to 1700.

Those headwinds include unfavorable demographics, with retiring boomers reversing gains brought by women entering the labor force; declining educational attainment, which has now logged two decades in international comparisons and is likely to be worsened by the “cost disease” of college tuition rising in comparison to other goods; rising income inequality, which Gordon expects to substantially suppress economic growth; globalization, which suppresses U.S. wages via outsourcing; environmental problems, which Gordon sees as necessitating a growth-suppressing carbon tax; and finally, the overhang of consumer and government debt, which he says will reduce disposable income relative to real GDP.

Gordon concludes:

“The particular numbers don’t matter, and there is no magic in the choice of 0.2% as the long-run growth rate. That was chosen for “shock value” as the rate of growth for the UK between 1300 and 1700. Any other number below 1.0% could be chosen and it would represent an epochal decline in growth from the U.S. record of the last 150 years of 2.0% annual growth rate in output per capita.”