December 7, 2013

WE AIN'T SEEN NOTHIN' YET:

The Myth of America's Great Stagnation : Why there's hope for long-term growth--if we invest in it. (MICHAEL LIND, December 06, 2013, Politico)

GDP growth is driven principally by two factors: labor-force growth, due to increases in population and labor force participation, and productivity growth, the ability to produce more goods and services using the same number of workers or fewer, due to innovative technology or organization. Demographic trends, without a doubt, are putting the first factor in danger, with population growth and labor-force participation both in long-term decline. [...]

If the United States is to reverse, or at least mitigate, slowing growth, productivity might be our best hope. The contribution of labor-force growth to GDP growth has plummeted, from 46 percent in the 1960s to less than 20 percent beginning in the 2000s, according to the McKinsey Global Institute--which means productivity, in comparison, now accounts for 80 percent of that growth. In other words, growth of the American economy in the future will depend not on adding masses of people to the workforce but almost entirely on improvements in how much we can produce and how quickly. [...]

But who's to say there aren't 21st-century versions of the steam engine that are yet to come--or already here? As the economic historian Joel Mokyr has written, "Technology has not finished its work; it has barely started." Indeed, the Austrian-American economist Joseph Schumpeter, who coined the phrase "creative destruction," argued nearly a century ago that technological progress goes through stages, in which there is often a lag between the invention of a transformative "general-purpose technology" and the uses that are eventually found for it. Decades, for example, elapsed between James Watt's development of the steam engine in the late 18th century and the perfection of railroads and steamboats that could open previously impassable continental interiors in the United States and elsewhere.

Today, the personal computer and the iPhone are often considered the most transformational innovations in modern information technology. But other innovations that build on these devices--for instance, the self-driving automobiles pioneered by Google and Amazon's experiments with drone deliveries--might yet transform the way we live, work and shop even more dramatically than the desktop computer. The application of IT to manufacturing is responsible for 3-D printing and other kinds of advanced, do-it-yourself manufacturing that have vast, and still uncertain, implications for society, government and the economy.

Meanwhile, a fourth industrial revolution may be in its gestation--poised to yield a whole new set of innovations like nothing we've seen before. In laboratories and factories around the world, researchers are experimenting with new materials, molecular-level assembly and biotech--including "in vitro meat," food grown in labs from stem cells. Because many of these technologies are not ready for primetime, overly optimistic investors have been disappointed so far in their limited availability. But similar complaints about the slow pace of computerization were heard in the 1970s and 1980s--right before Bill Gates and Steve Jobs came along and brought us the personal computing revolution.

Folks are, not surprisingly, having tremendous difficulty processing the realty that whereas the two factors rode in tandem for thousands of years they now stand in opposition to one another. Productivity is the enemy of employment and vice versa.  We can either have more wealth of more jobs.


MORE:
Joel Mokyr on Growth, Innovation, and Stagnation (Hosted by Russ Roberts, 11/25/13, EconTalk)

Joel Mokyr of Northwestern University talks with EconTalk host Russ Roberts about the future of the American economy. Mokyr rejects the claims that the we are entering an area of stagnation or permanently lower economic growth. He argues that measured growth understates the impact on human welfare. Many of the most important discoveries are new products that are often poorly measured and not reflected in measures such as gross domestic product or income. The conversation closes with a discussion of the downsides of technology and why Mokyr remains optimistic about the future.
Posted by at December 7, 2013 8:25 AM
  
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