Is Very Slow Growth Our Economic Future?

There’s been a burst of activity attending this paper from Robert Gordon at the NBER on slowing economic growth in the United States, produced by four factors: demographics, educational attainment, income inequality, and debt. Tyler Cowen is largely in accord with the conclusions:

I agree with a great deal of this paper, to say the least, especially when it is compared to previous mainstream opinion on these topics. My favorite parts are his discussions of how multi-faceted were the waves of earlier progress starting in the 19th century, compared to some of the more recent and weaker tech revolutions. That said, in some key ways this piece falls short of meeting the standards of reasoned argumentation.

I only have one remark and it’s tangential: the more you know about technology the less threatening you recognize it is.

One more thing: I think we have slowing growth because the policies put into place over the last two to four decades produce slower growth.

11 comments… add one

  • TastyBits

    The old computers naval ships used to calculate trajectories were mechanical. If today’s computers were a set of whirling gears spitting out punched taped, I doubt there would be the fascination.

    Years ago, I got a “computer” for Christmas. I was young, and I was excited until I opened the box. It was a circuit box with wires and light bulbs. Years later, I understood it was AND, OR, NAND, and NOR gates, but as a child, it was disappointing.

  • ...

    Okay, so how will open borders make any of the four headwinds anything but worse? What in the current and likely future regulatory environment won’t make matters worse? What in the semi-free trade environment (free trade from our international competitors, but not to them) promulgated by our elites will make things better instead of worse?

    Cowen states these four headwinds aren’t controversial, but nothing our lords and masters promote will do anything but make the headwinds worse. How much will it take for people to realize that what is happening is pretty much what our rulers want to happen?

  • Ben Wolf

    And we were just discussing how delusional economists can be. Gordon thinks he can forecast trends up to one hundred years in the future.

    A projected long-term increase in the ratio of debt to GDP at all levels of government will inevitably lead to more rapid growth in tax revenues and/or slower growth in transfer payments at some point within the next several decades.

    And here we are again at the Ricardian equivalence trainwreck, a la Reinhart and Rogoff. Note how Gordon tells us debt/GDP growth will inevitably lead to DOOOOOM even though no one, including Gordon can demonstrate where this has ever happened or establish any correlation between growth and sovereign debt.

  • or establish any correlation between growth and sovereign debt.

    If that’s the conclusion you took away from the paper a while back that “refuted” Reinhart and Rogoff’s work (the one that identified the Excel error?), you might want to re-read it. The paper actually affirmed the inverse correlation that R&R had found. What the paper concluded was that there was no “cliff” at 90% debt-to-GDP which I think stands to reason. Any conclusion that doesn’t have a commonsense explanation (which the 90% “cliff” didn’t) probably should be taken with a grain of salt.

  • PD Shaw

    re technology, I do not feel threatened by technology, I feel threatened by malinvestment brought upon by its boosters. And by malinvestment, I mean government subsidy and transformation of the public space for something that sounds kewl to Matt Yglesias.

    Cowen links favorably to a piece on driverless cars, the sum of which is that Google has announced initial success with automation technology that requires only occasional human control, which could lead to doubling of road capacity in congested areas. Comments: (1) mixed human/automatic control is really not what gee-wiz consumers are excited about, they want to sleep in their car or watch Netflix or porn. In any event, its the bridge btw/ human and automation that is the big technological issue. (2) doubling capacity by allowing cars to drive closer to each other appears to require universal or near-universal usage, meaning [here we go] properly incentivizing their use and avoding punishment for resulting car accidents. Driverless cars have to be one of the least marginal proposals that Cowen beats a drum for. (3) The goal is a Cosmopolitan utopia where everybody lives in higher densities, constantly rubbing shoulders with people of different backgrounds, eating ethnic foods, and sharing cars. I think a strong dose of skepticism is in order since transporation improvements have often tended to _increase_ urban sprawl, not densities. I suspect most people don’t want to live in BladeRunner, and compromise their desire for space with the length of the commute.

  • I suspect most people don’t want to live in BladeRunner, and compromise their desire for space with the length of the commute.

    I think that’s right and the experience of the last 70 years certainly seems to support it. However and perhaps paradoxically, we shouldn’t ignore the role that subsidies have played in sprawl. Over the last fifty years we’ve spent several trillion in today’s dollars building interstates. Sprawl has occurred along the paths of the interstates. In effect, we’ve subsidized sprawl.

  • Ben Wolf

    @Dave,

    Sorry, I meant to write “causation” rather than correlation. I would add we’ve gone well beyond the Amherst study:

    “Our analysis of historical data has highlighted that there is no simple threshold for debt ratios above which medium-term growth prospects are severely undermined. On the contrary, the association between debt and growth at high levels of debt becomes rather weak when one focuses on any but the shortest-term relationship, especially when controlling for the average growth performance of country peers.”
    http://www.imf.org/external/pubs/ft/wp/2014/wp1434.pdf

  • Yeah, that’s the way I remembered it.

    None of which changes the reality that either we need more growth which means a change in policies to produce more or we need a change in policies corresponding to much slower growth. Example: public pension funds routinely assume an 8% annual return. Under circumstances of 1% growth?

    Either one will be fought like poison so I envision misery for the foreseeable future.

  • PD Shaw

    Of course, Lincoln bought property near prospective canal or railroad lines because improved transportation increased the desirability of the property. Its a bit myopic to think that if driverless autos improve city living they wouldn’t also improve transportation elsewhere. I frankly had assumed the benefits would be greater the longer the distance drove and where there was less density (less unpredictable events). I would like to see a program that helped a driverless auto turn right in the Loop against a stream of pedestrians — it usually requires a bit of safe, but threatening nudging. And what if the pedestrians know the design limitations?

  • ...

    Yeah, Yglesias has experience rubbing shoulders with people of different backgrounds, alright. SMACK! Right upside the head!

    It’s as though no one remembers what happened to Yugoslavia….

  • steve

    I think we have been in a bit of technology stagnation. I think we need some fundamental advances in basic science. We could be headed that way, or not. We are past the point, mostly, where one guy works in a lab by himself and makes the big discoveries. It will take big efforts like the Collider which will require lots of funding and cooperation.

    Steve

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