For most Americans today, there has been a presumption that our children's lives will be more prosperous than ours. The American Dream, whatever particularities might include, has always included this assumption. It is virtually a social contract. Is the idea that most of our children will have a more prosperous life than we did really valid?
Robert Gordon, economic historian at Northwestern University, released a book earlier this year, The Rise and Fall of American Growth: The U.S. Standard of Living Since the Civil War. Gordon's mammoth tome documents changes in American living standards over the past 150 years. His research leads him to conclude that not all innovations significantly improve living standards. From 1870-1970, a wave of technological and social innovation emerged that radically improved worker productivity, improving our living standards. There has been innovation since 1970, but most of it, apart from communication and entertainment, has been an extension and a deepening of the innovations before 1970. The period from 1870 to about 1920 was a period of development and implementation of innovations that began to have a full impact after 1920. Gordon estimates the average annual growth rate in output per hour like this:
1890-1920 = 1.50%
1920-1970 = 2.82%
1970-2014 = 1.62%
For those familiar with American history, you will remember that income inequality was relatively high going into the 1920s. Inequality shrank steadily and substantially over the next fifty years until the mid-1970s. This corresponds with Gordon's estimates of rapidly improving worker productivity. Since the 1970s, there has been slower growth, which is more related to capital investment than improving worker productivity. We have seen income inequality grow since the 1970s.
Gordon is doubtful that we will ever again have a convergence of innovation as we had from 1870-1970. This and certain demographic headwinds will make sustainable high growth improbable for present generations. I hope to write more about this in the coming days, but this graphic posted by William Easterly on Twitter caught my eye. It comes from an article by David Leonhardt, The American Dream, Quantified at Last. I take it as more evidence consistent with Gordon's thesis.
Comments