I just finished reading The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War by economist Robert J. Gordon. The thesis of the book is that economic growth in the US was extremely rapid between 1870 and 1970, but has slowed since and barring something unforeseen will continue to be relatively slow for some time to come.
I tend to agree.
The most important factor in economic growth is technology. Gordon goes into detail just how technology changed everyday life between 1870 and 1970. Instead of an outhouse you have indoor plumbing. You no longer have to carry all the water a household needs from somewhere else, you just turn on the tap. Instead of a wood burning fireplace you have gas or electric heat. Instead of a horse you have a car. Instead of having to wash clothes by hand you have a washing machine and a dryer. You have electric power, telephone, television, and air conditioning. Maybe most importantly, you have clean water so your children don’t die of disease in infancy.
But technological change has not produced such massive changes sine 1970. This flies in the face of conventional wisdom that today is a time of rapid technological change. But is that really true? The biggest change since 1970 is the combination of cheap powerful computers and the Internet. Gordon looks carefully at that development and points out that most of the growth in GDP and productivity that can be attributed to the computer revolution reached its high point in 2000 and has leveled off since. The last really major innovation was the introduction of the iPhone in 2007. But the mobile device market has already reached saturation, as shown by the recent decline in Apple profits and iPhone sales. It was predictable that eventually everybody who wanted and could afford a smartphone would have one, and sales would level off, just as they did earlier for personal computers.
At the moment we don’t have a big new technology that everyone wants to get. We don’t have a lot of pent up demand in this country, the way we had after World War II. So where is growth going to come from?
I can think of a couple of near term possibilities in technology that could cause massive change. One is the possibility of artificial intelligence advancing to the point where machines can do most of the jobs (such as driving) that have required people up to now. The other is a biological revolution based on designing genes on a large scale. A robotic revolution could cause a big jump in demand for such technology. The problem is the elimination of jobs might make it impossible for the average person to benefit from this. A biological revolution might cause a big decrease in medical costs and be a big help, but the possibility of large scale life extension would cause problems with population growth at a time when we already have more people, in the world than the planet can support both comfortably and in a sustainable way.
We already have the technology to give everyone a decent standard of living if the population is managed to prevent resource exhaustion and climate change. So here are the real unsolved problems in economics:
1. How do we organize an economy that works for everyone during times of slow growth?
2. How do we organize an economy that works for everyone if the value of most human labor becomes much less than the value of resources and technology?