Gordon on Growth: Rates versus Levels
By David Henderson
I’m looking forward to reading Robert Gordon’s new book, The Rise and Fall of American Growth. PBS recently did an 8-minute segment on it that lays out his argument nicely.
HT2 John Cochrane and Greg Mankiw.
I won’t try to resolve the issue of whether future growth will be higher or lower than that of the period from 1870 to 1970 here–or anywhere. It can’t be resolved. We simply can’t know whether economic growth, properly measured, will be higher. John Cochrane points out that real GDP does not measure consumer surplus. And that’s a problem.
I do want to point out, though, a simple error that PBS reporter Paul Solman makes that one would expect anyone who understands basic math not to make.
Note the quote from President Obama near the top of the story (at the 0:33 point):
Anyone claiming that America’s economy is in decline is peddling fiction.
Solman then asks: “But really? Tell that to eminent economist Robert Gordon, a Democrat, who’s peddling a distinctly nonfictional new book, The Rise and Fall of American Growth.”
But there’s no contradiction. Obama claimed that the U.S. economy is not in decline. What does this mean? That growth is positive. Is growth positive? Yes. Has growth, measured by real GDP, fallen since the golden era Gordon discusses? Possibly yes.
It’s basic math, but it’s basic math that people often forget. One of the most valuable things I learned in Ben Klein’s course in monetary theory at UCLA was always to distinguish between levels and rates of change.
Solman does it again at the 2:08 point, saying, “But MIT’s Erik Brynjolfsson doesn’t buy the argument that the U.S. economy’s best days are over.”
I should hope he doesn’t. Nor does Gordon. If per capita economic growth persists, then the U.S. economy’s best days are ahead.