Presidential candidates, Congress and the Fed love to talk about what they can do to help the economy grow. Lower taxes, higher taxes. More regulation, less regulation. Smarter immigration policy. Quantitative easing. Everyone has a pet solution. But what if the economy is already all grown up?
“There was virtually no economic growth before 1750, suggesting that the rapid progress made over the past 250 years could well be a unique episode in human history,” writes Robert J. Gordon, an economist at Northwestern University. “Economic growth may not be a continuous long-term process that lasts forever.”
In his bleak paper, “Is U.S. Economic Growth Over?,” published by the National Bureau of Economic Research, Gordon identifies six “headwinds” that buffet the economy: a labor force shrinking as baby boomers retire, a “plateau in educational attainment,” increasing inequality, outsourcing, ever-higher energy prices, and rising government and household debt. Past industrial revolutions — first the steam engine, then widely available electricity — jump-started the economy, but modern innovations such as the Internet may not have this power.
To illustrate this, Gordon asks audiences whether they’d sooner forgo indoor plumbing or iPads. “The audience realizes that it has been trapped into recognition that just one of the many late 19th century inventions is more important than the portable electronic devices of the past decade on which they have become so dependent,” he writes. “Such essential improvements of human life as the conversion from rural to urban life, the speed of travel, the temperature of rooms, and the near-elimination of brute-force manual labor, have already been achieved.”
What is to be done? Gordon suggests the “unlimited immigration of high-skilled workers” and points to more open societies as a model for America.
“A Canadian or Swedish economist looking at the past and future of his or her country would not be nearly so alarmed,” he writes.