Thought Leaders: Will Digital Innovations Supercharge Economic Growth?

Famed American economist, Robert James Gordon (b. 1940), Stanley G. Harris Professor of the Social Sciences at Northwestern University.

Robert James Gordon is currently the Stanley G. Harris Professor of the Social Sciences at Northwestern University. Gordon is one of the world’s leading experts on inflation, unemployment, and long-term economic growth whose recent research on the sources of U.S. economic growth is widely cited. In 2016 he was named as one of Bloomberg’s top 50 most influential people in the world. Gordon is also a Distinguished Fellow of the American Economic Association and of the American Academy of Arts and Sciences.

Below is an excerpt of an article summarizing Gordon’s views on whether today’s digital innovations will “supercharge” long term economic growth,. The original article is from Tom Butler-Bowdon, 50 Economics Classics, Nicholas Brealey: London, UK, 2017.

Digital Innovations and the Trajectory of Economic Growth

We think that we live in a time of great innovations, driven by supercomputing, artificial intelligence, big data, and robotics. How the potential of these technologies will pan out is one of the great questions of our time. While there is no doubt that these innovations will continue to dazzle us, the question on many people’s mind is whether they will uplift productivity and thus prosperity? History provides a useful guide for informed speculations. 

In The Rise and Fall of American Growth (Princeton University Press, 2016), renowned economist Robert J. Gordon note that the mid-century period from 1920 to 1970 was the golden age of economic advancement in the U.S. Total factor productivity tripled what it was in 1870 to 1920, and was triple what it has been since 1970.  The productivity surge of the era was spurred by unexpected and rather mundane factors such as big improvements in air quality, a large decline in the number of people smoking, the increased use of antibiotics, X-rays and cancer treatments, and the telephone whose ubiquity not only improved communications but also saved lives.  According to Professor Gordon, life expectancy improved at a rate that was twice as fast in the first half of the 20th century as in the last half.

Not only were American workers healthier, they were also more productive in the workplace, thanks to widespread unionization which was a big part of the Present Franklin D. Roosevelt’s New Deal. Working hours were reduced, the class consciousness of the 1920s was gone, and for the first time in many decades, Americans enjoyed decent pay, safe working conditions and employment insurance. Unionization also added pressure on firms to increase capital productivity.  The increase use of machine tools was a big help. Between 1940 and 1945, the number of machine tools in the US double, paving the way for a robust economic expansion that lasted into the 1960s.  And all these before the era of the personal computer, the Internet and Google!

Professor Gordon thinks that the new array of digital innovations will have second order productivity effects compared to the mundane innovations of the 1920-1970 era. As wonderful as smart phones and the Internet are, they are no match for the huge improvements in living standards brought about by improved sewerage, water, electricity, gas supply, the telephone, medical diagnostics, drugs, machine tools and mass-produced automobiles. Professor’s Gordon’s theme is not that the US will not be a technology leader or that living standards will decline from here. It is that it unrealistic to expect superfast growth from gizmos because all the elements of a modern standard of living are already attained. Further improvements in living standards due to digital innovations will look more like icing on a cake.

Related: TED Talk – Robert Gordon, “The Death of Innovation, The End of Growth” (2013)

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