It’s interesting to see just how parochial Larry Summers is in his understanding of just how much the world has changed over the last dozen years or so. From his op-ed at Prospect, bemoaning the slow rate of economic growth:
It is striking to contrast the changes during my grandmother’s lifetime with those during mine. I have seen the microwave become universal in American kitchens. Automotive air-conditioning has gone from common to universal.
A much wider range of TV programmes are now available and with a much sharper picture. There is a wider array of healthy foods. And, of course, I carry a smartphone that keeps me more connected to information sources, friends and colleagues than was imaginable 50 years ago.
But whereas my grandmother would have been at sea if returned to her girlhood home, I would miss relatively little if suddenly placed in the home I grew up in. It takes longer and is less comfortable to fly from Boston to Washington or London than it was 40 years ago. There are more highways now but much more traffic congestion as well. Life expectancy has continued to increase, though at about half the pace it did during my grandmother’s day. But the most important transformation—child death being an extraordinary event—had already happened by the time I was born.
I wonder if he is aware of the thousands of American companies who are exchanging orders and engineering design changes with their Chinese suppliers on a real-time basis (or pseudo-real time, why split hairs)? Apparently not:
Gordon acknowledges a “third industrial revolution” built around software and IT but argues that it is much less significant than the “second industrial revolution” of the mid-century because its impacts are largely confined to telecommunications and entertainment. He further argues that it may already be largely played out, and that in any event concerns of technology replacing jobs are not new; workers displaced by new technologies tend to find new jobs, often in sectors created by those new technologies.
Gordon is right in pointing to the huge disjunction between the techno-optimist narrative and the productivity statistics. It is hard to see how technology could be displacing huge numbers of workers without raising measured productivity. And if its effects are so pervasive as to lead to large shifts in the distribution of income with innovators capturing huge rents, why do we not see more evidence of increased output?
While I disagree with the way in which he reaches his conclusions, I agree with the conclusions themselves. Global economic growth is likely to be slow for the foreseeable future because of the huge overhang of debt and the mammoth, excessive productive capacity in China. Unless world demand increases fast, that capacity will be enough to supply a world unable to expand fast enough to drag many of its people out of poverty for many years to come.
What has happened over the last decade or so is that China has time-shifted its own economic growth from what was then the future (today) into the present (which is now the past). Consumption needs to catch up and, because of that debt overhang I mentioned, that will take a very long time.