David R. Henderson  

Gordon on Growth: Parting Thoughts

Marginal Revolution University... Are Austrians Anti-Empirical?...

I've laid out Robert Gordon's pessimistic thoughts on U.S. growth here and some of my criticisms here. These are my parting thoughts. Some of them are similar to what some of the commenters have said.

First, I'll emphasize the big-picture point that I mentioned here. Gordon simply does not have the basis for thinking that we won't see major innovations. [Thanks, by the way, to commenter Bob Montgomery for disabusing us of the idea that Bill Gates ever made the ridiculous comment attributed to him.] Those innovations could be technological and they could be in government policy.

Second, Gordon subtly moves the goal post. He judges the future with a measure that is narrower than the measure he uses to judge the past. Recall that his predictions are all about growth in real GDP or growth in real GDP per capita. This is the issue on which he is pessimistic. But recall also that a huge part of his eloquent discussion about how great growth was in the past was not about growth per se but about things like sanitation, lessening of disease, and increases in life expectancy. So even in his worst case that the bottom 99 percent get per capita growth of only 0.2 percentage points annually, that would understate, and possibly understate by a lot, the growth in well-being. What if, for example, innovation helped us reduce the incidence and horror of Parkinson's, Alzheimer's, cancer, and diabetes? That would be a big deal. But it wouldn't necessarily show up in our narrow measures of growth. Incidentally, Gordon does mention that research "on the genome will surely make progress in the fight against cancer and other diseases." He is pessimistic, though, writing:

But research for new blockbuster drugs is encountering diminishing [marginal] returns, with a substantial numbers of failures and rapidly escalating costs of experimentation per successful new drug found.

True, but much of this is due to FDA regulation. [See here and here.] Again, we get back to a kind of innovation Gordon barely addresses and addresses not at all in this context: innovation in government policy.

Third, and finally, read John Cochrane's comments on Gordon. I'll end by quoting the part I found most insightful:

My pet theory is that the real defining innovation of growth was Gutenberg. Science gives us real knowledge, at last, by controlled experimentation. But controlled experimentation is extraordinarily expensive. A farmer can't afford to test which crops grow best, a country doctor can't do clinical trials. For society to gain knowledge by scientific method, we need communication. One doctor's clinical trials inform another doctor's practice a thousand miles away. Gutenberg made that possible.

More generally, the process of growth, of incorporating new ideas into the economy, almost always represents standing on the shoulders of giants, appropriating, slightly improving, and implementing someone else's ideas. That, for example, is why we see clusters of innovation such as Silicon Valley.

Well, if Gutenberg (and subsequent innovations that used his ideas, the newspaper, the scientific journal, and the public library) lowered the costs of communicating ideas and widened the community of people that a given idea could reach, the internet just did that tenfold. As I look at the cool stuff -- nanotechnology, genetic engineering etc. -- underway and the instant worldwide communication of ideas, I have hope we'll see that 2.5 percent [growth per capita] again. If we let the process run.

For example, think how Bob's idea got to your desk. When I was a young economist, before the internet, he would have mailed a paper to the NBER, a month or two later the working paper would have been distributed. The internet buzz I saw that got me to go look at it would have taken a few more months to percolate to me by older information networks, then I'd have to go read it in the library. Finally, who knows how I would have gotten to you. That all happened in a week. The diffusion of ideas is on steroids.

Comments and Sharing

COMMENTS (4 to date)
john hare writes:

As an inventor myself, I have the unfortunate tendency to never leave well enough alone. A thought on a political innovation that could easily jack productivity and well being to unprecedented levels.

Suppose some system were implemented that tied all a politician's incentives to the well being of the country first, the region second, and his local area third. Instead of political back room deals of, "You vote for my pork and I vote for yours", into, "If it's good for the country, then we'll take a look at the effects on my state and hometown."

Right now the incentives are inverted in too many cases. There will be some form of mostly legal corruption as long as the incentives point toward insider deals and reelection pork. It may not be possible to change the incentives to the desired result, but if it were, an insane number of stupid laws would get repealed or squelched before reaching committee.

Consider if that starting point could be achieved.

Prison administration would have incentive to slow recidivism through rehabilitation and/or punishment. Professionals almost certainly would have good results based ideas.

The drug wars would wind down in some manner.

Education would focus on cost effective results.

Entitlements would receive constant scrutiny.

It is my opinion that no amount of laws to regulate or prevent improper behavior can compete with officials operating in their own unenlightened self interest. A few decades of double digit productivity increases could follow a rational implementation of government.

Steve Sailer writes:

"My pet theory is that the real defining innovation of growth was Gutenberg"

Yup, that's the big one.

If you look at the extraordinarily slow spread of printing presses in Muslim lands, you can see a big part of why they fell so far behind Christendom.

Steve Sailer writes:

"My pet theory is that the real defining innovation of growth was Gutenberg"

Yup, that's the big one.

If you look at the extraordinarily slow spread of printing presses in Muslim lands, you can see a big part of why they fell so far behind Christendom.

David Friedman writes:

For a discussion of a variety of potential
"big things" in technological developments over the next few decades, let me immodestly recommend my Future Imperfect. Those who don't want to buy a copy can read the copy linked to my web page.

Comments for this entry have been closed
Return to top