At 01:56 01/08/2013, Arthur wrote:
Subject: FW: Is economic growth a continuous process that will persist
forever?
Hardly! In truth, economic growth as we know it, depended on a fluke. This
was due to the availability of limited liability banks in 18th century
England which hadn't occurred anywhere else in the whole of pre-history.
(Such banks, able to accumulate large amounts of cash was the only
necessary innovation needed for industrial take-off. It was no particular
virtue of Englishmen that the IR started here and not anywhere else. More
than 2,000 years previously, man was innovating other important elements --
the Greeks could do precision engineering, the Indians practical
mathematics, the Romans steam-powered automata and the Chinese making
steel. If they had had banks then any or all of these past civilization
could have could have led to IR.
All the above possibilities petered out very soon when some vital lynch pin
of their cultures gave way. In contrast, ours has been going on for much
longer. Something like 350 years. Until the mid-1980s. But also, since
then, the real median wage for what I call the 80-class of the population
has been reducing. Nominal wages have been going up. Since then, and just
as well perhaps, there hasn't been any domestic good which has had the
power of the television or the car in the past, in causing people to work
harder and longer, or to save money.
Keith
ABSTRACT
This paper [written in August 2012 and 25 pages] raises basic questions
about the process of economic growth. It questions the assumption, nearly
universal since Solows seminal contributions of the 1950s, that economic
growth is a continuous process that will persist forever. There was
virtually no growth before 1750, and thus there is no guarantee that
growth will continue indefinitely. Rather, the paper suggests that the
rapid progress made over the past 250 years could well turn out to be a
unique episode in human history. The paper is only about the United States
and views the future from 2007 while pretending that the financial crisis
did not happen. Its point of departure is growth in per-capita real GDP in
the frontier country since 1300, the U.K. until 1906 and the U.S.
afterwards. Growth in this frontier gradually accelerated after 1750,
reached a peak in the middle of the 20th century, and has been slowing
down since. The paper is about how much further could the frontier growth
rate decline?
The analysis links periods of slow and rapid growth to the timing of the
three industrial revolutions (IRs), that is, 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 urbanization, transportation
speed, the freedom of females 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.
Even if innovation were to continue into the future at the rate of the two
decades before 2007, the U.S. faces six headwinds that are in the process
of dragging long-term growth to half or less of the 1.9 percent annual
rate experienced between 1860 and 2007. These include demography,
education, inequality, globalization, energy/environment, and the overhang
of consumer and government debt. A provocative exercise in subtraction
suggests that future growth in consumption per capita for the bottom 99
percent of the income distribution could fall below 0.5 percent per year
for an extended period of decades.
Robert J. Gordon
Department of Economics
KateNorthwestern University Evanston,
IL 60208-2600
and NBER
<mailto:r...@northwestern.edu>r...@northwestern.edu
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