The end of fast economic growth?

The idea that each American generation will be better off than the previous one may be over, not just for now but for a very long time to come, because the big engines of economic growth were one-time benefits from 1870 to 1970. That’s the provocative thesis of a new book by one of the country’s most respected economists, Robert J. Gordon of Northwestern University.

He tells readers he wanted to examine “why productivity growth was so fast between 1920 and 1970 and so low thereafter.”

So powerful and intriguing are the facts and arguments marshaled by Gordon that even informed critics who think he is wrong recommend that readers plow through his “The Rise and Fall of American Growth,” with its 60 graphics and 64 tables spread over more than 700 pages. You don’t need to be an economist to appreciate or understand the book. His thesis is straightforward.

He argues that the widespread adoption of inventions enabling industrialization — steam engines, electric motors, internal combustion engines, railroads, mass-produced steel, refrigeration, flash-freezing, safe drinking water, sewage treatment systems, quality roads and the telephone and telegraph — were vastly more important to economic growth than the computers and other advances of our digital age.

People in 1770 America lived pretty much as people in Europe had two millennia earlier, Gordon claims. But in the next 100 years, human mastery of the physical world increased enormously. The economic era of 1870 to 1970 was unique and unrepeatable because “so many of its achievements could happen only once.”

It’s an audacious thesis but one likely to stand until new innovations transform the current economic and technological order. He looks upon the technological wonders of the past 45 years the way I view Andy Warhol’s art: fun but ephemeral. Ask yourself just how Facebook, Instagram and Twitter contribute to economic growth.

“Advances since 1970 have tended to be channeled into a narrow sphere of human activity having to do with entertainment, communications and the collection and processing of information,” he writes. “For the rest of what humans care about — food, clothing, shelter, transportation, health and working conditions” inside the home and out — little progress has been made in the past 45 years.

Noting that jetliners fly today at about the same speed as when they were introduced six decades ago, Gordon sees nothing on the horizon that would produce the economic growth effects approaching the great technological advances of 1870 to 1970.

Consider steel. In the preindustrial world, blacksmiths with powerful arms and big hammers spent hours transforming charcoal and strips of iron into steel and pounding it into swords for warriors. Then about 150 years ago, humans learned to combine vats of molten iron with the nearly pure carbon we call coke, producing steel by the ton for buildings, rails and ships.

Since then, technology has advanced so much that some new alloys literally heal themselves when they develop minor cracks. Rust may even be vanquished. Researchers at the University of Rochester developed superslick surfaces that, if they can be produced en masse, mean that dirt, grime and snow of roadways will not stick to cars, radically reducing the need to wash them.

While defeating rust would slash America’s more than $1 trillion annual bill for corrosion, that pales in economic significance compared with the 19th century technological leap of making steel by the ton.

Gordon has a history of insights that disrupted the widespread understanding of both the citizenry and economists. His doctoral thesis looked at why the ratio of invested capital to output rose so much from the 1920s to the 1950s.

The common belief, which I was taught in college, was that World War II destroyed so many factories in Europe and Japan that America enjoyed having more than half the world’s industrial capacity. 

Gordon’s meticulous research showed a crucial fact that, like Edgar Allen Poe’s “The Purloined Letter,” was hiding in plain sight: American taxpayers paid for the factories that produced the aircraft, ships, tanks and trucks for the war, and then the federal government gave all this physical capital to U.S. corporations to make civilian products. But the official data left out this massive subsidy.

A half-century ago, think tanks predicted that by the year 2000, Americans would work four-day weeks and enjoy such huge incomes that our biggest social problem would be more leisure time than may be good for us. Computers were described as job destroyers back then, just as computer-managed robots are today. And we were told paper would become passé.

So far, though, computers have created vast numbers of highly paid jobs while enabling price-lowering efficiencies that expanded some economic activities, like air travel, as well as paradoxically increasing demand for paper.

But the naysayers of a half-century ago look likely to be proved right over time.  People are adapting to reading online. And as computers (and robots) become more sophisticated, even jobs like chambermaid may vanish. A Spanish company has developed a bed that smooths the covers — a Ford Model A that in time may become as advanced as the Tesla sedan. (Hey, technologists, how about self-cleaning dishes?)

While Gordon never says this directly, his book illuminates an awful truth: Inefficiency creates jobs; efficiency destroys them.

The best blacksmith required years to turn a ton of iron strips into steel blades. Today it takes less than one hour of labor to produce a ton of finished steel. On the Oregon coast, lumber mills once employed thousands of people. Because of automation, one mill near Coos Bay now requires just eight workers to turn thousands of tree trunks into finished lumber.

As Gordon sees it, manufacturing is in an irreversible decline in economic significance even as it becomes ever more efficient, producing more goods with less labor. “Manufacturing is performing a magnificent ballet on a shrinking stage,” he argues. “The manufacturing sector is increasingly divorced from the rest of the economy.”

We have come a long way from the drudgery of our forebears, but he warns we have no reason to expect the kind of long-term economic growth of the 100 years that ended in 1970, barring the kind of paradigm-puncturing insights that gave us major new economic benefits.

This doesn’t mean there will be no progress. On the contrary, we should be optimistic about the future. In the long run, humans should become wealthier, happier and less violent as our knowledge grows. But be aware that human advances are not annual or quarterly. They come in fits and spurts. Progress is not a smooth upward slope, as the Dark Ages showed, nor it is inevitable.