My review of Robert Gordon’s *Rise and Fall of American Growth*

From Foreign Affairs.  Here is my bottom line:

His latest entry into this debate [over stagnation], The Rise and Fall of American Growth, is likely to be the most interesting and important economics book of the year. It provides a splendid analytic take on the potency of past economic growth, which transformed the world from the end of the nineteenth century onward.

In a nutshell, Gordon is probably right about the past, but wrong about the future.  My greatest reservation about the work is that Gordon thinks he can predict future rates of productivity growth with considerable accuracy:

…although Gordon focuses on the demographic challenges the United States faces, he never considers that today, thanks to greater political and economic freedom all over the world, more individual geniuses have the potential to contribute to global innovation than ever before.

…many past advances came as complete surprises. Although the advents of automobiles, spaceships, and robots were widely anticipated, few foretold the arrival of x-rays, radio, lasers, superconductors, nuclear energy, quantum mechanics, or transistors. No one knows what the transistor of the future will be, but we should be careful not to infer too much from our own limited imaginations.

And here is the “oops” aspect of the book:

What Gordon neglects to mention, however, is that he is also the author of a 2003 Brookings essay titled “Exploding Productivity Growth,” in which he optimistically predicted that productivity in the United States would grow by 2.2 to 2.8 percent for the next two decades, most likely averaging 2.5 percent a year; he even suggested that a three percent rate was possible.

…Gordon offers a brief history of the evolution of his views on productivity. Yet he does not mention the 2003 essay, nor does he explain why he has changed his mind so dramatically. He also fails to cite other proponents of the stagnation thesis, even though…their work predates his book.

Nonetheless this is a tract well worth reading.  Again, here is my entire review.


1) Good review

2) Is 'Foreign Affairs' edited? "A prototype of Goodle's self-driving vehicle in Mountain View, California, September 2015"

That's kinda inspiring

Very good review.

MR readers, please also consider reading my review of Gordon's book at

That was good.

Very good

I don't need to read Gordon's book, since, like Piketty's book, there are so many excellent reviews.

I think however the current patent laws worldwide are skewed against innovation. As it stands, "laws of nature" (math formulas) are un-patentable, as well as "products found in nature" (of course you can patent the synthesis of these compounds, which is sometimes a weak patent that's easy to defeat, and get a very weak patent on the method of using these natural products).

Finally, typical employment clauses give the employer all inventions invented by an employee using company materials or company time. As a consequence, the only real incentive to invent are: (1) recognition by society, (2) by employer (for job security or a bonus), or, (3) taking your invention with you when you quit your job (illegal but common) and starting your own company (which requires capital, and networking skills, that many inventors lack, think of "Nicholas Tesla", etc, your archetypal nerds).

Nutshell: without better patent laws, the rate of innovation is limited to those Good Samaritans who invent out of altruism (pretty much most Nobel Prize winners in science, and those that don't do altruism don't get the Nobel Prize, see Damadian's snub).

There's nothing wrong with altruism as a way of getting long-term growth--it's not capitalism, but so what--however, it requires people 'buying into' the idea. As the world becomes more atomized, with less "common goals" or "shared humanity", you might have a hard time convincing disparate people to buy into this concept. They might just shrug, and, like some Ayn Rand character, go on strike, or go into the free-loaders business, aka become a politician, a businessman, a b.s.-artist, a manager,and the like. Or play sports or a musical instrument if they have the talent. Certainly not science, which doesn't really pay big.

'In a nutshell, Gordon is probably right about the past, but wrong about the future.'

Well, he is probably doing better than this web site, where being wrong about both is commonplace.

'My greatest reservation about the work is that Gordon thinks he can predict future rates of productivity growth with considerable accuracy'

Unlike an economist predicting the end of a currency, eh?

'...thanks to greater political and economic freedom all over the world, more individual geniuses have the potential to contribute to global innovation than ever before'

Ah, the old early 80s LaRouche pitch, dressed in that ever so tasteful GMU econ dept. style.

How does your neck support your head?

Much like a balloon string I'd guess.

As an example of how molecular medicine is going to be as big as electronics, last Friday there was a report that will lead to a simple test to see if you, your partner or your unborn baby is at high risk for developing schizophrenia

On what planet is greatly reducing the incidence of schizophrenia not huge ?
this shows how a particular DNA sequence in one particular gene increases , greatly, your risk of schizophrenia
DNA sequence or SNP based tests for this are not that difficult (way easier then BRCA or CFTR)

Good review but it makes me wonder why do we even argue about the future growth rates. Nobody can predict the future, so why even try? Seems more of an academic exercise than anything of real value.

At the very least "we" (investment managers, in my case) need inputs to long-run cash flow discount models.

So in your experience how do you go about forecasting these growth rates? Are they as low as Gordon suggests they ought to be? What's the general consensus in the industry (if there is one)?

Just saw your review above, reading it now.

Because advocates will use the forecasts to promote their preferred public policies. The current election campaign is very much a debate about the pessimistic or optimistic views of future growth and the policies that will attach to the view that prevails.

"He also fails to cite other proponents of the stagnation thesis, even though…their work predates his book". So he's cooking the books on his own intellectual productivity, then?

it is just bad style, but not uncommon

When we look at the long term developement of GDP per capita for the US and UK

page 8 and 9, sources referenced

we get an increase by about factor 30 (US) and 15 (UK). that leads to a long term growth rate of ln(30) / 200 = 1.3 - 1.7 %

The US accelerated to the 2% growth trajectory after the civil war , the UK after WWI.

There are 3 one time factors to be considered, mainly over the 150 year period of 1850 - 2000:

a) getting people of the farm, resulting formerly in about a factor 1.5 - 1.8 higher GDP, and this has come to and end

b) getting women into the paid workforce (tending to house and children is not counted as GDP), resulting in a factor 1.4 - 1.7 higher GDP, an coming to an end

c) getting people educated, with 50% pay premium for an additional 4 years of college, take this as 10% per year, and average school years rising from 1850 to 2000 from 4 years to 13 yielding a factor of 2.0 - 2.5, and coming to an end

ln (1.5 * 1.4 * 2.0 ) / 150 years = 0.7 % per anno
ln (1.8 * 1.7 * 2.5) / 150 years = 1.4 %

That means the 2.0% productivity growth of the last 100 years was full half due to one time factors , petered out now, and we are stuck with a relatively robust 1.0% of real technical progress.

And given the uncertainties of how to really measure this , it does matter very little, whether this is in a single year 0.7 or 1.4%

2 usefull links :

"Current education trends in the United States represent multiple achievement gaps across ethnicities, income levels, and geography. In an economic analysis, consulting firm McKinsey & Company reports that closing the educational achievement gap between the United States and nations such as Finland and Korea would have increased US GDP by 9-to-16% in 2008.[159]

Narrowing the gap between white students and black and Hispanic students would have added another 2-4% GDP, while closing the gap between poor and other students would have yielded a 3-to-5% increase in GDP, and that of under-performing states and the rest of the nation another 3-to-5% GDP. In sum, McKinsey's report suggests, "These educational gaps impose on the United States the economic equivalent of a permanent national recession."[159]"

lots of long term US government statistics:

An educational inequality permanent national recession. Geez. American society just isn't inscribing enough knowledge on the tabula rasaof the racial underclasses, which hinders economic development for all and keeps them mired in witless poverty.

In this day and age, education is more easily attained than ever before in world history. Access to information is everywhere and virtually free. Yet, when wandering around the computer areas of public libraries, one notes that the screens display youtube cat videos, card games and facebook exchanges. The uneducated proles facing these screens are economically disadvantaged or they wouldn't have slithered down to the library to watch cats, something most people do now on their own magic phones. Yet, they're not studying sociology or economics or nursing or genetic engineering. They're watching cat videos, by choice.

The idea that society can or should increase the utility of a large portion of its losers (as defined by the educated) through what would have to be mandatory training is a concept that never seems to go away, despite the fact that it's never been successfully accomplished.

Motivation varies, but if the Flynn Effect is real, no reason to think it has a fixed value. We could have done better, we could have done worse

"Narrowing the gap between white students and black and Hispanic students would have added another 2-4% GDP": what a ridiculous statement. It depends entirely how you narrow the gap. If you achieve it by depressing the performance of the whites, you'd presumably have subtracted quite a bit from GDP.

Here's some ideas for future waves of productivity - d) general purpose self assembling AI/robots e) electronic living (beyond virtual reality) f) immortality and cheap space travel. etc etc. You don't have to be a singularitist to think that the best is yet to come.

From the abstract of Gordon's 2003 Brookings essay: "Variations in four factors—population growth, labor force participation, the unemployment rate, and hours worked per employee—can create significant differences between the long-run path of potential output and that of trend productivity growth. These differences matter for numerous issues, including long-run fiscal policy, the solvency of entitlement programs, the balance of world saving and investment, and the role of the United States as an engine of growth for the rest of the world." I think he got it right, in particular "the balance of world saving and investment". Indeed, it's way out of balance. Owners of capital abjure investment in productive capital (the fuel for productivity growth) and, instead, invest for short-term capital (speculative) gain, a losing endeavor since that's what other owners of capital are seeking (hence, bubbles).

On the other hand, the world's productive capacity has never been greater, due in large part to investment in productive capital in places like China. Indeed, the world's productive capacity is sufficient to provide a decent standard of living for everyone on Earth. Unfortunately, much of that productive capacity sits idle. This glass half-full view of the world economy suggests that the focus should be on using the existing productivity capacity rather than chasing pipe dreams like self-driving cars to Mars. On the other hand (I'm two-handed), pipe dreams like self-driving cars to Mars are what inspire creative minds and lay the groundwork for both investing in and fully using productive capital.

Reading this essay ( by Dietrich Vollrath got me thinking about the connection between what he calls "time-series persistence" ( i.e., the persistence of technology within a particular economy or country) and "cross-sectional persistence" (i.e., gaps in technology between countries persists over time). What if technology developed in those countries with an advantageous time-series persistence, countries like the U.S., is suddenly shifted to countries with a disadvantageous time-series persistence, countries like China (i.e., the phenomenon of cross-sectional persistence is defied). Has globalization upset the laws of nature? This isn't an original thought, but rarely do I hear or read about the possible adverse economic consequences of globalization that may result when technology is shifted to a place with adverse cross-sectional persistence. Does the technology, does innovation, change the country or does the country change the technology (and not in a positive way)? Has globalization created a black hole in the world economy?

I think theory lags the Gapminder data. It is much harder today to find holdouts, exceptions to increased GDP and lifespan, or reduction in family size.

"thanks to greater political and economic freedom all over the world, more individual geniuses have the potential to contribute to global innovation than ever before"

And thanks to Internet connectivity propagation of their ideas is faster than ever before.

Whatever you think of Bitcoin, think how fast it was tested on a global scale.

"Invention per capita" is still used in some circles, but should be dead.

FWIW, I still think the big challenge is understanding the long term impact of free innovation. Microsoft uses Linux, etc.

The connection between GDP and human welfare must be changing, but how?

Some years ago, Stanley Engerman offered an estimate that the growth in per capita income in British North America during the colonial period was along the lines of 0.6% a year and we're fretting over rates twice that? The primary utility of greater production at this point in the occidental world would be to defend ourselves against China and the jihadi configurations. We garner only the most modest benefits from more stuff per se. Personal well-being in Africa or Latin America could be much enhanced with more stuff, but we're kind of tapped out in this country, where deficits of personal well-being are more likely to come from indifferent law enforcement, indifferent schooling, and haphazard financing of medical and nursing care. In those cases, allocation and incentives are the problem.

Good review.

Hard to see why you would need to read the Gordon book. The first half sounds like yet another historical survey of how far we have come and the second half sounds completely speculative and possibly, i think probably, wrong.

"When the facts change......" If only there were more to take this approach.

Tyler Cowen: " .... but we, along with most informed participants in these debates, are skeptical about our ability to forecast rates of economic and productivity growth many years into the future or, for that matter, even a few years ahead."

But Tyler said when his book was released that he expected the Great Stagnation to continue another 30 years. That looks pretty long range to me.

By the way, I thought that was a fair review and agrees with my impression from previous reviews that I wish it would have been a two volume set where I could just buy vol. 1.

And something I haven't seen Tyler mention when talking about air travel either when discussing his The Great Stagnation book or in this review is that in 1958 a round trip ticked from NYC to LA cost $1700 in today's dollars. Now it is around $300 to $500. I also think the improvements of safety are significant since those must have decreased the anxiety cost to flying, which isn't trivial

Has anyone noticed the similarity between Gordon's work and Productivity and American Leadership by William J. Baumol, Sue Ann Batey Blackman and Edward N. Wolff? The structure of the two works is very similar (a review of qualitative evidence on economic growth since the mid 1800s followed by a discussion of the data on productivity) yet Gordon does not cite Baumol et al. Odd.

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