Imagine an Economic Ice Age in the United States

Noted economist Robert Gordon lays out a long-term future with very little U.S. economic growth.


When the Boeing 707 began flying in 1958, the age of mass jet travel was launched, ushering in an economy-boosting increase in the speed of transport for people and goods. More than half a century later, planes have gotten bigger, quieter, and more fuel efficient. They haven't, however, gotten any faster. In fact, to conserve fuel, commercial jets today fly more slowly than in the past.

Two scientists stand near the face of the glacier on Anvers Island in Antarctica. The ice stretches 10 stories high and reaches a depth of 2,000 feet.

Therein lies an enormous problem in the eyes of Robert Gordon, an influential Northwestern University economist. In a recent paper, itself a summary of a forthcoming book, Gordon argues that the kinds of innovation-driven productivity gains that fueled decades of impressive U.S. growth may have disappeared.

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"The rapid progress made over the past 250 years could well turn out to be a unique episode in human history," he wrote. "Future growth in real GDP [gross domestic product] per capita will be slower than in any extended period since the late 19th century, and growth in real consumption per capita for the bottom 99 percent of the income distribution will be even slower than that."

Gordon freely admits his views are speculative, and there are certainly other respected economists with more positive outlooks. Surely, many of his colleagues will be sharpening their chalk to differ with him. But while this formulaic fur is flying, Gordon's basic arguments are very accessible to non-economists and worth thinking about.

First off, his assessments assume the recession did not occur. It has had a big impact on recent economic growth, but also obscures longer-term trends. That omission, of course, simply makes his negative conclusions all the more compelling. They rest on two sets of observations.

The first is a widely accepted view of the role of several industrial revolutions in the past 250 years: 1) the period from 1750 to 1830 that saw the replacement of much human labor with machine outputs; 2) the use of electricity and the internal combustion engine from 1870 to 1900 to produce running water, indoor toilets, and the building blocks of the industrial age, and 3) the computer revolution—aka The Information Age—which can be roughly dated from 1960 and is still with us today.

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Looking at the economic benefits of these revolutions, Gordon finds that the trends set in motion in the late 19th century during the second industrial revolution have been far and away the major driver of 20th century growth.

The computer era, by contrast, while bringing automation and, more recently, powerful personalized computing tools, has had a much smaller impact on boosting productivity. Further, the positive economic effects of the second revolution lasted on the order of 100 years. The third? Maybe a decade, and they already had begun to wear off even before the recession.

Gordon stresses that it's not that recent innovations haven't been important—it's that earlier gains led to enormous one-time improvements that simply can't be repeated. "Speed of travel was increased from that of the horse to the jet plane in a century but could not happen again," he wrote. "The interior temperature that in 1870 alternated between freezing cold in the winter and stifling heat in the summer reached a year-round 72 degrees Fahrenheit [due to air conditioning] and that could not happen again. The U.S. was transformed from 75 percent rural to 80 percent urban, and that could not happen again."

U.S. productivity growth actually peaked some 60 years ago, Gordon said, and has been on a long downward slide since then. Looking at broad historic periods, the annual growth rates in productivity averaged 2.33 percent from 1891 to 1972, 1.38 percent from 1972 to 1996, 2.46 percent from 1996 to 2004, and 1.33 percent from 2004 to 2012. Because productivity gains are ultimately the source of wage increases and non-inflationary growth, these changes have enormous consequences for our economic well-being.

The bump in productivity from 1996 to 2004 is largely due to the Internet revolution. But its benefits faded after a short time. "During the past eight years," he noted, "labor productivity has slowed again to almost exactly the same rate as 1972-96."

Looking ahead, Gordon puts forth his second set of observations. The United States faces six strong "headwinds" that are likely to cause our recent 1.3 percent rate of productivity gain to be reduced even further, particularly for lower-income Americans.

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1. Demographic factors that supported growth have flipped. With lots of older people, productivity trends will be pulled down. And women's entry into the workforce is another of those one-time boosts that cannot be repeated.

2. The U.S. primary and secondary education system has been on a long slide and shows no signs of recovery. At the college level, students have been priced out of the system by rising tuition costs, and this also has reduced achievement levels.

3. Rising income inequality will reduce future income gains for nearly everyone except the wealthy. Gordon cites research that inequality will shave more than half a percentage point from future economic growth—a huge reduction.

4. The United States is still on the "losing" side of technology-driven globalization trends. It will be a long time before wage levels in China, India, and elsewhere rise enough to end this headwind.

5. The costs of dealing with energy and global warming issues will place the United States at a relative disadvantage with less-developed countries that are not willing to put their recent economic successes at risk.

6. Repaying personal and government debt will be an increasing drain on economic growth.

Gordon estimated that these headwinds could cause long-term U.S. growth to fall to 0.2 percent. He admits this figure cannot be precisely determined and was chosen in part for its shock value. It also echoes back to the relative lack of growth experienced in the developed world (read "Great Britain") for 400 years, from 1300 to 1700.

"There was virtually no growth before 1750, and thus there is no guarantee that growth will continue indefinitely," he wrote. "Future growth in consumption per capita for the bottom 99 percent of the income distribution could fall below 0.5 percent per year for an extended period of decades."