Growth Sputters to a Crawl

Issue 223

Bennett Baumer Mar 29, 2017

The Rise and Fall of American Growth By Robert J. Gordon

Princeton University Press 2016

Darkness defined the American home prior to the electric light bulb. It was pork and corn for breakfast, lunch and supper (at least in Southern homes) before the rise of industrial processed-food manufacturers that delivered goods in refrigerated trucks. Before tractors and washing machines, people worked until they dropped farming with horses and scrubbing clothes by hand. In winter, running to the outhouse and sitting around a hot stove trying to keep warm were the norm before indoor plumbing and central heating.

Before the U.S. industrialized after the Civil War, economist Robert Gordon writes in The Rise and Fall of American Growth, its economic growth measured about “6 percent per century.” In contrast, when the economy geared up for World War II in 1943 and 1944, the gross domestic product more than doubled each year. Gordon’s main thesis in this expansive book is that innovations drove growth, most innovations have already occurred and the United States is now in a slow-growth period.

The Rise and Fall of American Growth chronicles the rise in quality of life in great detail, although not all improvements are captured in GDP statistics. Though the Sears catalog included only sinks in 1897, Gordon notes, by 1908 it offered several full sets of bathroom equipment, including “a clawfoot bathtub, a porcelain-enameled sink, and a toilet. . . with its ‘golden oak’ tank and set. The entire three-part outfit cost only $43.80, equal to about three weeks’ working-class income at the time.”

Gordon posits that the Industrial Revolution (steam engines, railroads, the first factories) was in fact only the first of three revolutions. By the mid-20th century, rural and urban Americans were networked into telephone lines, sewers, water pipes and electrical poles. This networking allowed for a great leap in quality of life and constituted a second industrial revolution that broadly shared prosperity and fueled growth, generally known as the “American Dream.” The postwar boom created consumer culture, as Americans bought suburban bungalows and filled them with kitchen appliances, Detroit-made cars and mass-produced clothing from department stores.

Since 1960, the invention of the computer, Internet and smartphones has powered the third industrial revolution — but it has not delivered the overall economic growth of the second industrial revolution. It may have changed communications, news delivery and computations so fast that Intel cofounder Gordon Moore predicted exponential growth — a doubling of microchip density every 18 months for the foreseeable future. The Rise and Fall of American Growth notes that Moore’s Law did not hold. Despite rapid technological advances, the third industrial revolution’s productivity growth stalled around 2004.

Capitalism is predicated on perpetual future growth, yet Gordon determines that the U.S. economy’s growth slowed to a crawl around 1970, and “steadily rising inequality” began to mark the era. Average real income — which considers the effects of inflation on purchasing power — for the bottom 90 percent of the population was higher in 1972 than it was in 2013. Occupy Wall Street drew attention to the spectacular wealth accumulation by the “1 percent” — yet, Gordon writes, “even within the top 1 percent, income gains are much faster the higher one rises into the stratosphere of the top 0.1 percent and the top .01 percent,” the people French economist Thomas Piketty calls “super managers.” Moreover a working paper released in December by Piketty and fellow economists Emmanuel Saez and Gabriel Zucman showed that even the top 10 percent income earners had only seen wage growth because of public spending on benefits such as health care.

Like Piketty’s seminal economic tome, Capital, Gordon theorizes that inequality will be a permanent fixture for the near future, and possibly long-term. He identifies four headwinds blowing against greater equality: deepening overall income inequality; crumbling public education and the declining fortunes of people with only a high-school education; declining labor-force participation, amplified as baby-boomers retire; and perhaps more controversially, government debt and unfunded pension-fund liabilities, coupled with tax cuts reducing  government wealth redistribution.

Those four headwinds helped blow the country into the arms of the Trump administration, which is likely to exacerbate the already deep inequality. Trump won the electoral vote with narrow victories in Rust Belt states, where he’d promised to bring back the manufacturing jobs that provided the second industrial revolution’s living standards — but then staffed his cabinet with billionaires and multimillionaires. The Republican-controlled federal government is poised to dismantle the meager remnants of the social safety net, particularly Medicaid, and may go after Medicare and Social Security.

Gordon believes that economic growth is driven by population growth and productivity — which are likely to decrease due to lower labor-market participation and an increasingly elderly population. Trump campaigned by stirring up white fears of immigration, but a mass deportation campaign could further depress both population growth and labor-market participation rates. If we don’t change the course we are on, the only growth industry might be books about inequality.

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