Northwestern Economist Gordon: Scant Growth to Haunt US for ‘an Extended Period of Decades’

Wednesday, 29 Aug 2012 10:47 AM

By Michael Kling

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Technological innovations, from the steam engine to the Internet, have boosted U.S. economic growth for centuries, but it might be all over, concludes Robert Gordon, an economist at Northwestern University, in a new research paper published by the National Bureau of Economic Research.

Gordon's research calls into question the nearly universal assumption that economic growth will last forever.

"There was virtually no growth before 1750, and thus there is no guarantee that growth will continue indefinitely," he writes.

Editor's Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.

Instead, rapid economic progress in recent centuries might have been a fluke in human history.

From about 1750 to 1830, the steam engine and railroads created an industrial revolution and economic boom. Then electricity and the internal combustion engine brought about a second industrial revolution from 1870 to 1900. Computers and the Internet prompted another revolution and productivity boom from about 1960 to present times.

The second revolution was the most important, Gordon notes, generating 80 years of rapid productivity growth. But once its benefits, such as like airplanes, air conditioning and highways, ended in 1972, growth from 1972 to 1996 faltered.

Benefits of the last technology revolution, he says, were relatively short lived, ending in 2004.

Even if innovation continues, the United States faces substantial headwinds that will drag down long-term growth to half or less of the 1.9 percent annual rate seen between 1860 and 2007, Gordon warns.

Those headwinds include unfavorable demographics, increasing education costs, economic inequality, increased competition from globalization, energy and environmental challenges and large consumer and government debt.

Consumption per capita for the bottom 99 percent of the U.S. population, he says, could fall below 0.5 percent per year for "an extended period of decades."

However, Mark Mills, CEO of the Digital Power Group, says techno-pessimists always say innovations are over.

"Such naysayers, who flourish like mushrooms in the depths of economic recessions, have been wrong in every one of the 19 economic downturns we have experienced since 1912. And they’re wrong again," argues Mills, writing in The American, an online magazine from the American Enterprise Institute.

Editor's Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.

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