Robert Gordon occupies the Stanley G. Harris Chair of Social Sciences at Northwestern University and is the author of a number of works on economic growth, productivity, and unemployment. His present book has been eagerly awaited, owing to the publication of two “working papers” in 2010 and 2012 by the National Board of Economic Growth—papers that anticipated the argument made here, which may be summarized as follows: Between 1870 and 1970 Americans experienced an unprecedented era of economic growth, one in which prosperity was accompanied by much lower levels of economic inequality than those we have seen since. Regarding this part of his thesis, there is little disagreement. More controversial is his assertion that the decline in American growth that began roughly in the early 1970’s will remain the stark reality of the 21st century. Although he positions himself against the “techno-optimists” whose faith in the promise of innovations such as AI and robotics to produce yet another industrial revolution he does not share, Gordon is not a prophet of gloom—not quite. He presents a realistic, if much chastened, vision of what 21st-century Americans can expect: If the American Dream is predicated on the assumption that our children and grandchildren can hope for a standard of living more affluent than our own, then that dream, if not extinguished, will be much diminished in the decades to come. The fundamental problem is that economic growth is dependent on technological innovation. While levels of innovation are still high, they are mostly incremental, and future innovation is not likely to be the kind that will transform the economy in the far-reaching fashion achieved by, say, the development of electricity or the internal combustion engine. Added to this we face a number of what Gordon terms “political headwinds,” among them deepening economic inequality and declining educational standards, which are undermining productivity.
It would be impossible here to do justice to the scope and massive detail of Gordon’s study. In nine chapters in Part One, he surveys the effects of technological and economic growth between 1870 and 1940. While the profound changes in the American standard of living during this period have been studied by others, one would have to search diligently to find anything approaching Gordon’s comprehensive analysis. Most salient are the transformations wrought by the advent of electricity and modern transportation. It was during this period that the American home, both rural and urban, was transfigured by electrical power, which made possible modern household appliances, running water, plumbing and sewer systems, central heating, telephones, and, of course, electric lighting. Especially significant were those innovations, like refrigeration and washing machines, which drastically reduced domestic labor for women. Concurrently, Americans began the long rural-to-urban migration, made possible by the transportation revolution. In the 1870’s 60,000 miles of railroads connected the far-flung reaches of the continent. Before the end of the century electric cable cars, subways, and the automobile were rapidly replacing horse-drawn vehicles and dramatically enhancing the speed at which Americans could travel. Though we may smile with a smug sense of our own technological prowess, this was indeed the first Age of Speed. Between 1870 and 1929 average railroad speeds tripled, and automobile speed increased by a factor of five. Thousands of new highways were constructed, allowing greater ease of movement from the rural hinterlands into the rapidly growing urban centers and, eventually, facilitating the creation of suburban America. Indeed, suburbanization was already well under way between the two world wars, as Gordon demonstrates in his treatment of the “bungalow movement.” The wave of new housing development, 53 percent of it single-family structures, was the result of the emergence of a broader middle class as the machine age increased the demand for skilled labor and created millions of new, better-paying jobs. As this demographic shift developed, another wave of technological innovation appeared in mass communications and entertainment with the advent of radio, the phonograph, and motion pictures. Additional growth was stimulated by the invention of the “installment plan,” the forerunner of today’s credit-card economy.
The years 1940-70 Gordon treats as a transitional period. On the one hand, in the broadest sense of the term, growth rates continued to expand, driven by a number of factors, including the proliferation of commercial television; construction of the Interstate Highway System; the enormous expansion of the passenger aircraft industry; a second, massive wave of suburbanization; the enhanced efficiency of manufacturing, which grew largely out of the total mobilization that occurred during World War II; and the invention and widespread use of air conditioning in the home and workplace. On the other hand, what economists call Total Factor Productivity (TFP) reached a peak in roughly 1950, and while it remained high through the 1960’s, it had diminished significantly by the early 70’s. In many respects the 1950’s and 60’s were the high-water mark of what Gordon calls the “miracle century” (1870-1970). He demonstrates that during this 20-year interval growth rates for the incomes of both the top 10 percent and the bottom 90 percent of households approached parity. He quotes approvingly a 1994 Atlantic Monthly article by Jack Beatty, who noted that,
Back then, thanks to the wages won for him by his union, the blue-collar man . . . could live next door to the white-collar man—not to the doctor, perhaps, but to the accountant, the teacher, the middle manager. This rough economic equality was a political fact of the first importance.
It is clearly the case that, in large sectors of American society, an unprecedented expansion of the middle class was taking place, but whether it produced a “diverse and stable middle class,” as Gordon claims, is another question. Large swathes of the American workforce were not unionized (especially in the deep South), and much of the growth of the middle class, it might be argued, was driven not so much by wage increases as by a pervasive expansion of the credit system and the home-mortgage industry (itself stimulated by the G.I. Bill). To the extent that this was true, is it not reasonable to ask whether the stability of the postwar middle class was, to a significant extent, illusory? Gordon’s own discussion of the credit and mortgage system hints at, but never draws, such a conclusion.
As Gordon demonstrates in Part Two of his book, the period that began in the early 1970’s and continues down to the present has been, with a couple of notable exceptions, characterized by economic decline. Real wages have been largely stagnant. Rates of growth in the transportation industry have been sluggish, and, in the case of the airlines, the quality of passenger travel has diminished. No major changes in patterns of food and clothing consumption have occurred. In health and medicine, innovations have continued, but by comparison to the dramatic changes in the 1870-1940 period, these have been incremental rather than groundbreaking, and the inflation of costs in the healthcare industry has continued unabated. In the workplace, most of the improvements in safety, working hours, etc., had already occurred before 1970, and little significant progress has been made since then. In education, improvements in high-school completion rates have been miniscule, and while greater numbers of Americans obtain college degrees, the capacity of the economy to produce good jobs for them has been anemic. Broad areas of U.S. manufacturing have been outsourced, and job growth has been heaviest in lower-paying service industries. In the housing sector, costs have soared. In 1967 the average cost of a dwelling was 2.9 times the median income; by 2011 the average figure had almost doubled. The two areas that continued to produce high levels of growth after 1970 were entertainment and communications, both driven by innovations in computer and digital technologies (abetted by developments in closely related fields such as fiber optics). In 1970 personal computers, cellphones, DVD players, the web, satellite dishes, video-gaming consoles, VCRs, MP3 players, HDTV, and DVRs had not yet been introduced into the American household. Today, all of these are commonplace, and some have reached saturation levels—cellphones and personal computers especially. Easy access to the internet has also fueled the growth of e-commerce and social media.
Nonetheless, as of 2014, rates of TFP in the economy as a whole stand just below what they were in 1920. While “techno-optimists” look for renewal of growth in robotics, Big Data (or AI), medical advances, driverless cars, and the like, Gordon is skeptical. Innovation is important, and current levels of innovation are still quite high, but what is crucial is the distinction between the “pace of innovation” and the “impact of innovation.” Gordon argues that growth rates (those that have shaped our expectations) between 1920 and 1970 were well above historical averages because the innovations which drove that growth affected the “full span” of human life. By contrast, innovation associated with the “digital revolution,” while dynamic in restricted areas (primarily communication and information processing), has not and will not result in the “epochal changes” of the earlier era. Moreover, growth will be impeded by social and political factors, such as rising income inequality, an increasingly mediocre American educational system, declining labor-force participation rates (owing in part to the retirement of the “Boomer” generation), and indebtedness (both public and private). Gordon’s proposals to counter these “headwinds” might be described as moderately liberal and rather predictable: more redistribution of income from the highest to the lowest wage earners; an increase in the minimum wage; universal, single-payer healthcare; an expansion of the earned-income tax credit; “creative policies” to reform education (more funding for preschools and a shift in financing public K-12 education away from local property taxes and toward “statewide revenue sources”); and new immigration policies that will “substantially raise legal limits while emphasizing the education and work experience of would-be immigrants.” Regarding income inequality, Gordon admits that near parity of real-income growth rates in the 1920-70 period was the result, in part, of immigration restrictions and restrictive trade policies. It is curious, then, that he apparently dismisses the possibility that similar policies might be effective today. Indeed, while Gordon’s research has contributed enormously to our understanding of the “rise and decline of American growth,” and while his refusal to be seduced by the facile optimism that dominates so much economic discourse is laudable, the evidence of decline assembled in this formidable book consistently points toward solutions more radical than those he is willing to consider. If he proves correct, we can look forward to a long economic twilight with growth rates of Real GDP per Person averaging 0.80, well below the 1920-70 average of 2.41. Given the present levels of social fragmentation, the decline of blue-collar America, and the erosion of middle-class stability, not to mention the fever-pitch of resentment now directed at our political and economic masters from both sides of the political spectrum, our economic ills are a recipe for political disaster.
[The Rise and Fall of American Growth: The U.S. Standard of Living Since the Civil War, by Robert J. Gordon (Princeton University Press) 762 pp., $39.95