31
Is U. S. Economic Growth Over? Lessons from the Long 20 th Century Robert J. Gordon, NBER, CEPR, OFCE Lecture at Sciences-Po, 13 September 2011

Is U. S. Economic Growth Over? Lessons from the Long 20th Century, Robert Gordon

Embed Size (px)

DESCRIPTION

Presentation by Robert Gordon, "Is U. S. Economic Growth Over? Lessons from the Long 20th Century"

Citation preview

Page 1: Is U. S. Economic Growth Over? Lessons from the Long 20th Century, Robert Gordon

Is U. S. Economic Growth Over? Lessons from the Long 20th Century

Robert J. Gordon, NBER, CEPR, OFCE

Lecture at Sciences-Po,

13 September 2011

Page 2: Is U. S. Economic Growth Over? Lessons from the Long 20th Century, Robert Gordon

Background: the Startling Round Trip

• Economists have always assumed that economic growth is a steady process and their theories of growth are built on that foundation

• Economic historians don’t buy that, because they know that there was no growth for most of economic history until about 200 years ago.

• After its millenia-long slumber, economic growth woke up in the first industrial revolution which created the steam engine, textile mills, the railroad, and the steam ship.

• The initial awakening was in Britain, the dominant economy of the 19th century, the U.S. caught up and surpassed British per-capita GDP as the 20th century began

Page 3: Is U. S. Economic Growth Over? Lessons from the Long 20th Century, Robert Gordon

And Here’s the Title Page of the PPT Where It All Started

=======================================

Is U. S. Economic Growth Over? Lessons from the Long 20th Century

Robert J. Gordon

Northwestern University, NBER, CEPR, OFCE

OFCE/Sciences Po, September 13, 2011

Page 4: Is U. S. Economic Growth Over? Lessons from the Long 20th Century, Robert Gordon

2014 Update of 2011 Slides: Why France Is Better Than the U.S

• Citizens of every other nation among the developed members of the OECD enjoy free health care, no exceptions.

• No city in provincial France has turned into a vacant prairie with no downtown, as has Detroit (Arsenal of Democracy)

• France has not experienced in the past seven years a decline in labor force participation, with equivalent to 7.5 million jobs lost forever. equal society, U. S. the worst

• Start superiority of France in terms of inequality and student achievement discussed

• Anyone in the entire world can walk through passport control at CDG in two seconds. U.S. citizens 10-15 minutes, foreign nationals one to two hours.

Page 5: Is U. S. Economic Growth Over? Lessons from the Long 20th Century, Robert Gordon

What is “The Long 20th Century”?

• Commonplace term in European History (Hobsbawm): The long 19th century is from the French Revolution of 1789 to the start of WW I in 1914

• In parallel, the long 20th century for the U.S. is from the end of the Civil War (1870) to now (2010) – You will hear later about the 700-page book to be submitted

next Monday to the Princeton University Press with the title The Rise and Fall of Growth in the American Standard of Living Since 1870.

– For Europe one hears of the “short 20th century” between 1914 and 1991

• Three industrial revolutions (IR) propelled growth. IR #1 (1760-1830), IR #2 (1875-1900), and IR #3 (1985-2010). – Impact spread over 50, 100 years? Which?

Page 6: Is U. S. Economic Growth Over? Lessons from the Long 20th Century, Robert Gordon

The Basic Hypotheses of This Talk

• U. S. economic growth has set the frontier for the developed world since 1890

• The frontier has been pushed forward by IR #1 through 1870 and then the great IR #2 for the whole century 1870-1970

• For economic growth to continue after 2010, IR #3 will have to live up to the precedent of IR #2, but it did not.

• Instead 40 years ago the growth rate of both labor productivity and total factor productivity slowed sharply,

• I’ll provide many examples of the absolute decline in the level of consumer well-being since 1972, and in fact one example of a decline in consumer welfare since 1936!

Page 7: Is U. S. Economic Growth Over? Lessons from the Long 20th Century, Robert Gordon

The Remarkable Three Centuries: Growth of the UK/US Frontier

Page 8: Is U. S. Economic Growth Over? Lessons from the Long 20th Century, Robert Gordon

Rainbows

Page 9: Is U. S. Economic Growth Over? Lessons from the Long 20th Century, Robert Gordon

What Joel Already Knows • This is the fourth debate in the past year

between Joel and me about this topic. Every point I’m making in this talk is the same as a year ago, and the same for him.

• There is a fifth debate, which few people know about or remember, including all my colleagues and friends who read the Wall Street Journal every day.

• This article appeared on the front page of the WSJ on June 16 of this year, and what an article!

Page 10: Is U. S. Economic Growth Over? Lessons from the Long 20th Century, Robert Gordon

Joel’s Life As a Lifelong Overachiever, But I Couldn’t Match My Father

• The WSJ article is long and deep and it is ultimately fair; the same number of paragraphs (many) is devoted to each of us.

• It tells about Joel’s unbelievable transition from a refugee in Israel at age 2, a Yale PhD at age 28, and long ago by say age 55 clearly was one of the top five economic historians in the world.

• My story is the opposite. I did not achieve anything my family had not already achieved. All four of us earned Ph.D’s in ecoomics. Father, mother, brother from Harvard, and I was the wild rebel who went two subway stops away to MIT.

• I’m an example of regression to the mean. My father was elected as President of the American Economics Association, a goal out of reach for me at age 74 (VP)

Page 11: Is U. S. Economic Growth Over? Lessons from the Long 20th Century, Robert Gordon

The Progress of IR #3 Since 1970 Has Been Revolutionary

• 1978: My first acoustic coupler and dumb terminal in 1978 • 1980: My first long-distance electronic co-authorship • 1983: My first personal computer with its two floppy drives • 1992: The heaven of Wordperfect 6.0 • August 1993: My first e-mail • 1994-95: Never since were e-mail messages so frequent or so

long • Moving from personal anecdotes to aggregate data, American

productivity growth was given an injection of elixer that doubled it from the 25 years before 1996 to the years after 1996..

• Joel and Erik think that this record of the past 40 years is just the beginning , and that we are at the “point of inflection” of something much more important

Page 12: Is U. S. Economic Growth Over? Lessons from the Long 20th Century, Robert Gordon

Contributions of IR #3 to Business Productivity

• It started before the internet – 1980s: ATM machines and bar-code scanning

– 1990s: Replacing paper library catalogs and paper parts catalogs at auto dealers and repair shops

– Wal-Mart and its famous distribution efficiency

• Cell phone and internet were both the marriage of computers and communications – Cell phone for calls, not data, established by late 1990s

– PCs in offices had T-1 lines, not dial-up, back in mid-1990s. Broadband arrived in homes 1992-96 and created the e-commerce revolution

Page 13: Is U. S. Economic Growth Over? Lessons from the Long 20th Century, Robert Gordon

Let’s Think About How Minor the Progress Was in IR #2 vs. IR #3.

• The introduction of GPS navigation screens on autos compared to the invention of the auto itself.

• The introduction of the cell phone compared to the invention of the phone itself and the telegraph.

• The invention of home-streaming of movies to the invention of the motion picture itself.

• The invention of the ipod to the invention of the phonograph. • The invention of the microwave oven to the replacement of cooking on

the open hearth by the enclosed cast iron stove and later the kitchen range.

• Icemakers in refrigerators compared to the invention of the refrigerator or even the icebox.

• The conversion of card catalogues in libraries to electronic screens with the invention of electric light that made it possible to read books at night.

Page 14: Is U. S. Economic Growth Over? Lessons from the Long 20th Century, Robert Gordon

Sources of Slowing U.S. Growth: Headwinds vs. Innovation

• My conclusions have nothing to do with any change of innovation after 1972

• Headwinds are demography, education, inequality, government debt. Total slowdown: 1.8 points from 2.0 to 0.2.

• 1.2 headwinds, 0.6 slowing innovation that occurred 40 years ago

Page 15: Is U. S. Economic Growth Over? Lessons from the Long 20th Century, Robert Gordon

The Trend in Hours Growth (From 02 Sept on Missing $2 Trillion)

0.00

0.50

1.00

1.50

2.00

2.50

1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013

Pe

rce

nt

Year

HP Kalman Trends for Total vs Alt NAIRU

Page 16: Is U. S. Economic Growth Over? Lessons from the Long 20th Century, Robert Gordon

Second Headwind: Education

• Yesterday’s WSJ p. D1 “More Preschool Children Are Being Diagnosed With Vision Problems”

• Same, p. A2. “Workers’ English Skills Wane” $1 Trillion Student Debt but 40% of recent graduates are in jobs that do not require a college education

The U. S. is the only developed country where the educational attainment of the 55-64 cohort is the same as 25-34 cohort

• U.S. has dropped from #1 to #16 in college completion as percent of population; same for high-school dropouts

Page 17: Is U. S. Economic Growth Over? Lessons from the Long 20th Century, Robert Gordon

Third Headwind: Inequality

• For 1993-2012 the gap between average real income growth of total vs. bottom 99% is

-0.53 percent per year.

• Yesterday’s NYT, p. A23. “Absence of Affordable Housing Squeezes the Middle Class.”

• Yesterday’s WSJ, p. A13. “The Economic Recovery That Left Almost Everyone Behind”

Page 18: Is U. S. Economic Growth Over? Lessons from the Long 20th Century, Robert Gordon

Interaction Demographics, Education, Inequality

• Social instability in Fishtown

– Percent of children of women aged 40 living with both biological parents, change from 1960 to 2010

– Fishtown 95% to 35%

• Interaction with education: for a child to live without a father at home is a predictor of more high school drop outs in the future

Page 19: Is U. S. Economic Growth Over? Lessons from the Long 20th Century, Robert Gordon

A Startling Measure of Social Decay in America

• Excellent statistics on every aspect of our criminal justice system, e.g, the age of inmates

• The percentage of those aged 30-34 who have been in prison at any time in their lives

• For whites, 4 percent in 1979 and 28 in 2009

• For blacks, 15 percent in 1979 and 60 in 2009

• Many but not all for petty drug offenses

Page 20: Is U. S. Economic Growth Over? Lessons from the Long 20th Century, Robert Gordon

Federal Debt/GDP RaiosOops! Graph is Wrong

• The CBO creates the government data on the growth in potential GDP and on the debt/GDP ratio.

• Oops, 28 Feb 2014. Oops again 2 September 2014.

• Estimates debt/GDP ratio for 2024 –CBO in January: 70 percent –CBO since February: 78 percent –Me on 2 Sept: 87 percent

Page 21: Is U. S. Economic Growth Over? Lessons from the Long 20th Century, Robert Gordon

As Joel Knows, Problems Are About Economic History, Not the Future

Page 22: Is U. S. Economic Growth Over? Lessons from the Long 20th Century, Robert Gordon

How Did Innovation in the Past Compare with the Past 40 Years?

0

0.5

1

1.5

2

2.5

3

3.5

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2012

An

nu

al T

FP G

row

th

Average Annual Growth Rate Over Ten Years Prior to Year Shown

10-Year Average Annual Growth in Total Factor Productivity, 1900-2012

Page 23: Is U. S. Economic Growth Over? Lessons from the Long 20th Century, Robert Gordon

Four Pieces of Evidence That the Late 1990s Were Special

0.00

0.50

1.00

1.50

2.00

2.50

3.00

Per

cen

t

Figure 5. Annualized Growth Rates of Output per Hour, 1891-2013

2.36

1.38

2.54

1.33

1891-1972 1996-2004 2004-13 1972-1996

Years

Page 24: Is U. S. Economic Growth Over? Lessons from the Long 20th Century, Robert Gordon

Growth in Manufacturing Capacity Peaked in the late 1990s

-2

-1

0

1

2

3

4

5

6

7

8

1977 1982 1987 1992 1997 2002 2007 2012

Annualized Five-Year Change in Manufacturing Capacity and Capacity per Capita, 1977-2013

Capacity

Capacity / WAP

Page 25: Is U. S. Economic Growth Over? Lessons from the Long 20th Century, Robert Gordon

The Most Dynamic Part of Manufacturing Has Disappeared

0

1

2

3

4

5

6

7

8

9

1972 1977 1982 1987 1992 1997 2002 2007 2012

Share of ICT Manufacturing Value-Added in Total Manufacturing Sector, 1972-2013

Share as a Percentage

Page 26: Is U. S. Economic Growth Over? Lessons from the Long 20th Century, Robert Gordon

Annual Change of Price Index for Information / Communication

Technology

-15

-10

-5

0

5

10

1973 1978 1983 1988 1993 1998 2003 2008

Page 27: Is U. S. Economic Growth Over? Lessons from the Long 20th Century, Robert Gordon

A Finely Tuned Depiction of the Productivity Growth Trend

0.00

0.50

1.00

1.50

2.00

2.50

3.00

1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013

Pe

rce

nt

Year

YP/HP Kalman Trends for Total vs Alt NAIRU

Page 28: Is U. S. Economic Growth Over? Lessons from the Long 20th Century, Robert Gordon

Hours Change Plus Productivity Change Equals Rate of Output Change

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013

Pe

rce

nt

Year

YP Kalman Trends for Total vs Alt NAIRU

Page 29: Is U. S. Economic Growth Over? Lessons from the Long 20th Century, Robert Gordon

A Closer Look at 1950-2014, A Two-Stage Slowdown

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

Per

cen

t

Growth Rates of Output, Labor Productivity, and Hours, 1950-2014, Intervals Divided at 1972 and 2004

1950-72 1972-2004 2004-14

Output

Productivity

Hours

Output

Productivity

Hours Output

Productivity

Hours

Page 30: Is U. S. Economic Growth Over? Lessons from the Long 20th Century, Robert Gordon

A Diagnosis of the Slowdown: Different Between 1st and 2nd

Vs. Between 2nd and 3rd Periods

-2

-1.5

-1

-0.5

0

0.5

1

1.5

Per

cen

t

Change in Growth Rates of Output, Labor Productivity, and Hours, 1950-2014, Intervals Divided at 1972 and 2004

Change from 1950-72 to 1972-2004 Change from 1972-2004 to 2004-14

Output Productivity

Output

Productivity

Hours

Hours

Page 31: Is U. S. Economic Growth Over? Lessons from the Long 20th Century, Robert Gordon

Summary: Headwinds vs. Innovation

• If future innovations are less important than the last 125 years and especially if they are less important than the last 40 years, all developed nations are affected – Still room for catching up in emerging markets

• Headwinds in other countries may be less serious – Better education (Canada, Korea)

– Less inequality (Japan, Korea, France, Scandinavia)

– Less future burden of rising debt/GDP ratio

• Assignment for the rest of this session: Comment on all of the above.