Weinberg College
of Arts & Sciences

The End of Progress?

In a provocative paper, economist Robert Gordon says that innovation has stalled and that the U.S. is headed for its darkest days ever. Is he taking the ‘dismal science’ too far?

Robert Gordon, Stanley G. Harris Professor of Social Sciences

You can flush your smartphone, as far as Robert Gordon is concerned. Gadgets won’t save you or the United States from what he predicts will be a bleak economic future in the decades ahead.

How bleak? In a recent, much-discussed paper for the National Bureau of Economic Research, the eminent Northwestern macroeconomist says that faltering innovation, coupled with formidable headwinds, will slam the brakes on U.S. growth. Debt, demographics and declining educational returns are among the problems threatening America’s productivity, Gordon says.

“The Baby Boomer generation is retiring. At the same time, we’ve had a very significant decline in hours worked per person as prime-age adult males at the bottom half of the educational distribution drop out of the workforce,” Gordon says. “We also have a lot of debt — including $1 trillion in student debt. Consumers and students paying all that off is a main reason why our recovery is so sluggish.”

His calculations are grim: By 2100, the annual growth rate of U.S. GDP per capita will fall to 0.2 percent — a far cry from the 2 percent a year the nation enjoyed between 1891 and 2007. This decline will drive inequality higher as the middle class erodes under the pressures of globalization. It now may take more than a century for income to double, something that during the 1900s took only 30 years, and ­happened four times.

Gordon is no Luddite. In fact, he’s worried that we don’t have enough breakthrough technology to replicate the growth spurred by the three previous industrial revolutions. The first of these, which took place between about 1750 and 1820, gave us steam engines and railroads. The second, in the late 19th century, spawned many inventions that came to fruition between 1870 to 1970, including electricity, indoor plumbing, the internal combustion engine, air transport, the telephone, radio and television.

The third, which we know as the computer age, began in 1960 and produced the Internet and mobile telephony.

Impressive, but Gordon, the Stanley G. Harris Professor of the Social Sciences, says we have already absorbed most of the growth from such major, one-time advances. “You can only replace horses with motor power once,” he points out.

Even our lauded digital tools yielded the majority of their impact on productivity decades ago, Gordon says. Cell phones and social networking can’t hold a candle to, well, the electric light. For all its acclaim, the digital age has generated neither the intensity nor duration of growth to match earlier technological jumps. Gordon expects diminishing returns in our future too.

Gordon’s headwinds are powerful enough to cut the annual growth rate of U.S. GDP by 50 percent, even if ­inno­vation remains as robust as it’s been in the last 200 years — something he doesn’t think will happen.

“I’m not saying we won’t have any innovation,” he states. “It just won’t be enough to offset the power of the headwinds. Our best days may be behind us.”

An ‘economic hand grenade’

Gordon’s assertions have sparked a firestorm of debate among economists and in the financial press. One writer described his paper as an “economic hand grenade,” while The Atlantic labeled his argument “the most depressing economic idea of 2012.”

Others, like Paul Krugman in the New York Times, have commended Gordon’s willingness to advance a crucial dis­cussion, but find his argument too pessimistic given the momentum of the computer revolution and the promise of big data and robotics. “The IT revolution has only begun to have its impact,” Krugman writes.

His views are bolstered by optimists like Peter Diamandis, chairman and CEO of the X Prize Foundation, who sees a coming world of renewed investment in people and technology that will banish privation. His confidence has marshalled top entrepreneurs, philanthropists, and CEOs to boldly push technological progress. In his book Abundance, he explores advances in artificial intelligence, robotics, infinite computing, digital manufacturing and nanomaterial, citing them all as reasons to expect a brighter tomorrow.

Technophile and MIT professor Erik Brynjolfsson echoed such sentiments during a TED2013 talk, during which he and Gordon took to the stage to debate technology and economic progress. Brynjolfsson believes that even if technology stalled tomorrow, businesses could generate IT-enabled innovation for decades. Rather than race against machines, Brynjolfsson contends, humans need to race with them, each complementing the other.

And yet one might wonder, as Gordon did to great applause at TED, what is the point of all this progress: “What good is a world in which we can listen to a bunch of free music, but no one has any jobs?”

The impact of inequality

Such questions have provoked lively debate among Gordon’s colleagues as well.

Fellow Northwestern macroeconomist Dale Mortensen shares Gordon’s concerns. While globalization has enabled “more people to escape poverty in the last 20 years than at any other time in history,” the 2010 Nobel laureate notes that those same forces have heightened economic disparities in the U.S. and destroyed millions of American jobs.

“The extent of inequality that has developed in the U.S. over the last 30 years is simply immoral,” Mortensen says.

The impact of that inequality on future U.S. growth is unclear, but Mortensen expects that median family income will continue to fall as the gap between the very rich and everyone else expands. While he cautions that forecasting the future of innovation is “an intellectual minefield,” Mortensen sees the technology frontier continuing to advance in the BRIC nations, which have been the major beneficiaries of market integration. America, meanwhile, will have to retrain millions of workers in new non-tradable jobs or in industries where the U.S. enjoys comparative advantage.

“We must find ways to engage people in meaningful employment and distribute the productivity benefits associated with technological advances,” Mortensen says. “Unless this happens, the prospect for liberal democratic society is in jeopardy.”

Even if innovation stalls, as Gordon warns, might we not use our existing tools better and extract a second wave of value from them? Mortensen thinks so. Smarter public policy and social institutions may also help, and these don’t require a nano­fabrication facility.

But policy is fraught with its own impediments and is unlikely to generate the big impact that Gordon says is needed to offset the headwinds. “In fairness to Bob’s argument,” Northwestern economist Martin Eichenbaum says, “policy enhancements will make only ­incremental increases in value and growth — a little change each year, not a dramatic change.”

Eichenbaum, the Charles Moskos Professor, studies exchange rate fluctuations and the effect of monetary policy on U.S. business cycles. He says Gordon’s view is too pessimistic, but finds clear points of agreement with him.

“I’m much more optimistic than Bob, but Bob’s paper and perspective have been very, very useful,” Eichenbaum says. “He is giving people great historical perspective about which innovations have profoundly affected our lives — and which have not. Bob’s take on much of Internet technology is that we’ve had different forms of entertainment over the last 20 years. While I think that overstates matters somewhat, there’s an important grain of truth in this view.”

Yet Eichenbaum predicts that “we will be surprised by change.” He foresees great innovations in many fields, ­including biology and extractive technologies like hydraulic fracturing. These, he says, will “transform geopolitics.”

Big innovations, however, take time to blossom fully. Joel Mokyr, professor of economics and history at Northwestern, studies the origins of the knowledge economy. “Most of the things that play a role in modern economic growth are gradual, slow and almost imperceptible: the dissemination of technological ideas, the accumulation of capital, even in most cases the changes in economic institutions were rarely very spectacular,” Mokyr has written.

Previous scientific revolutions that endured did so by expanding both the depth and breadth of knowledge, Mokyr says, generating “microinventions” that extended the impact of foundational “macroinventions.” Industrial revolutions produce progress not just through the creation of new knowledge, but by making that knowledge widely available so that others can build upon it and discover new ways to use it.

Networked knowledge

Such collaboration is the lifeblood of the Internet. Whereas in earlier times libraries and encyclopedias offered their riches to a fortunate few, today all of humanity’s knowledge is online, just a few clicks away from almost anyone.

“We thought knowledge was scarce, when in fact it was just that our shelves were too small,” writes Internet philosopher David Weinberger. “Our new knowledge is not even a set of works. It is an infrastructure of connection.”

This “networked knowledge” radically alters humanity’s sense-making ability. Now, says Weinberger, the smartest person in the room isn’t the one at the head of the table, or even the “collective wisdom” of those in the room. “The smartest person in the room is the room itself,” he says. “Our task is to learn how to build smart rooms — that is, how to build networks that make us smarter.”

Likewise, Mokyr believes that the impact of information and communications technology extends well beyond productivity. These tools are a “knowledge technology” that “affects every other technique in use.”

If this is true, then the computer revolution’s full impact may be ahead of us, not behind us, as Gordon believes.

But so are those headwinds.