Robert J. Gordon on Growth
By David Henderson
I’m a big fan of much of the work of Northwestern University economist Robert J. Gordon. His latest piece, “Is U.S. Economic Growth Over? Faltering Innovation Confronts the Six Headwinds,” is no exception. I have some criticisms. Indeed, my main criticism is that his bottom line is implausible. More of that in a follow-on post tomorrow. For now, because it’s gated, I’ll highlight his basic argument plus some of the best parts.
Briefly, his argument is that there have been 3 industrial revolutions: (1) steam and railroads from 1750 to 1830, (2) electricity, the internal combustion engine, running water, indoor toilets, communications, entertainment, chemicals, and petroleum from 1870 to 1900, and (3) computers, the web, and mobile phones from 1960 to now. Each of these has brought a burst of productivity increases over decades with (3), though, causing a growth revival only from 1996 to 2004. He emphasizes that what can be done once, when it’s a move from one level to another, can’t be done again. As he puts it, “A common feature of this innovative revolution was that many of the improvements could only happen once.” So, for example, “The U.S. was transformed from 75 percent rural to 80 percent urban, and that could not happen again.”
Here are some highlights:
But the biggest inconvenience was the lack of running water. 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. Coal or wood for open-hearth fires had to be carried in and ashes had to be collected and carried out. There was no more important event that liberated women than the invention of running water and indoor plumbing, which happened in urban America between 1890 and 1930.
Life expectancy was only 45 years in 1870, compared to 79 years recently. Why? Infant mortality resulted from poor sanitation, water-transmitted diseases, and contaminated milk. The first attempts at urban sanitation infrastructure emptied the waste into the rivers because there was a theory at that time that rivers were self-cleansing. And there were further causes of low life expectancy: hard physical labor and work-related injuries. In 1900, 13,000 people died in railroad deaths, about a quarter of them railroad employees, and others included both passengers–because boilers would blow up–or pedestrians run down by the railroad. There was also violence and lynching.
These quotes above remind me of a similar point Gordon made in his 2000 article in Journal of Economic Perspectives titled “Does the ‘New Economy’ Measure up to the Great Inventions of the Past?” Here’s one highlight from that article:
The urban streets of the 1870s and 1880s were full not just of horses but pigs, which were tolerated because they ate garbage. In Kansas City, the stench of patrolling hogs was so penetrating that Oscar Wilde observed, “They made granite eyes weep.” The increasing production of animal waste caused pessimistic observers to fear that American cities would disappear like Pompeii–but not under ashes. Added to that was acrid industrial smog, sidewalks piled high with kitchen slops, coal dust, and dumped merchandise, which became a liquid slime after a rain. All of this was made worse in the summer, which was almost as unbearable outdoors as inside, especially with the heavy clothes of the day. Rudyard Kipling said of Chicago, “Having seen it, I desire urgently never to see it again. Its air is dirt.” Added to putrid air was the danger of spoiled food–imagine meat and poultry hung unrefrigerated for days, spoiled fruit, bacteria-infected milk, and so on. Epidemics included yellow fever, scarlet fever, and smallpox. Many hospitals were deathtraps.
Gordon also “gets” the huge benefits of the car. It was a bigger boon to rural than to urban dwellers. By 1926, he notes, “93 percent of Iowa farmers owned motor cars.” Incidentally, my father was the only person I knew in his generation who put his car on blocks in the garage over the winter. He did this through the winter of 1960. So we went from mid-October to late March without a car. Here’s a great paragraph in Gordon, excerpted from a 1972 book by James J. Flink:
The benefits of automobility were overwhelmingly more obvious: an antiseptic city, the end of rural isolation, improved roads, better medical care, consolidated schools, expanded recreational opportunities, the decentralization of business and residential patterns, a suburban real estate boom, and the creation of a standardized middle-class national culture.
On life expectancy:
Life expectancy began to grow rapidly as horse-created diseases were reduced; running water and water-treatment plants largely eliminated water-borne diseases; and regulations [DRH note: I’m skeptical about regulation being an important cause] and refrigeration prevented the spoilage of milk and meat. The Jungle, Upton Sinclair’s sensational muckraking expose of the Chicago stockyards, helped push popular and political sentiment to create the Food and Drug Administration in 1906.
Eventually in the 1930s and 1940s sulfa and antibiotics were invented, but by then life expectancy had turned a decisive corner. Little known is the fact that the annual rate of improvement of life expectancy in the first half of the 20th century was three times as fast as in the last half.
So why the pessimism? Gordon points to six “headwinds” that he thinks will reduce growth: demography, education, inequality, globalization, energy/environment, and the overhang of consumer and government debt.
His tentative bottom line:
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.
Notice, by the way, that this highly pessimistic exercise still gives positive growth so that the economists’ optimism about the future that Bryan Caplan has written about still holds, albeit in muted tones.
Tomorrow, I’ll give some criticisms.