Assumptions, Challenges and Comments
I stumbled across this article on MarketWatch just a few minutes ago and was seriously debating whether to write about it or not when I saw something in the comments that virtually forced me to link to it.
The columnist is referring to this NBER paper entitled “Is U.S. Economic Growth Over?”, a title sure to provoke knee jerk reactions from many. The paper points out that growth as we know it was non-existent before 1750, seeming to cast doubt on the idea of growth as an inevitable fact of economic life. The paper points out headwinds affecting continued growth that the author, Robert Gordon, sees as already evident back in 2007:
The headwinds include the end of the “demographic dividend;” rising inequality; factor price equalization stemming from the interplay between globalization and the Internet; the twin educational problems of cost inflation in higher education and poor secondary student performance; the consequences of environmental regulations and taxes that will make growth harder to achieve than a century ago; and the overhang of consumer and government debt. All of these problems were already evident in 2007, and it simplifies our thinking about long-run growth to pretend that the post-2007 crisis did not happen.
The biggest headwind that he does not mention, IMO, is psychological and societal. When presented with a potential problem if there’s a way to deny it exists many people will find it. Then it becomes much harder to deal with when denial just doesn’t work any more. Many also possess a tendency to believe that what they’ve seen in their lifespan or what they know to have been true in the last couple of generations is some kind of eternal truth, always having been so and that it will continue to be so. Look at people’s attitudes towards young single adults moving out of their parent’s home. This is actually a fairly recent development in the history of humanity but how many people put it in perspective as the phenomenon is examined in terms of the recent Great Recession?
Gordon’s primary point is that our current level of innovation is not as great as people might think because of all the new gadgets they see pouring into the marketplace because most of it is in a way just incremental improvements on relatively unimportant areas of technology, nothing to match earlier innovations in energy, transportation, medicine and chemistry. It therefore follows that it isn’t capable of making up for the factors reducing growth. Of course he could be wrong about how unlikely another major innovation is, as he admits here, even though he still has a caveat.
There are four classic examples in the past of innovation pessimism that turned out to be wildly wrong. In 1876, an internal memo at Western Union, the telegraph monopolists, said, “The telephone has too many shortcomings to be considered as a serious means of communication.” In 1927, a year before The Jazz Singer, the head of Warner Brothers said, “Who the hell wants to hear actors talk?” In 1943, Thomas Watson, then president of IBM, said, “I think there is a world market for maybe five computers.” And in 1981, in the most famous of
these ill-fated quotes, Bill Gates himself said in defense of the capacity of the first floppy disks, “640 kilobytes ought to be enough for anyone.”
Heeding the warning of these forecasting missteps, let us assume that innovation continues, with such marvels as the driverless Google car on the near term horizon. Research on the genome will surely make progress in the fight against cancer and other diseases. But research for new blockbuster drugs is encountering diminishing returns, with a substantial numbers of failures and rapidly escalating costs of experimentation per successful new drug found. And, just as we should heed the lesson of the four overly pessimistic quotations from the Western Union to Bill Gates, so we should also recall the past overoptimism, including the universal prediction in the late 1940s that within a generation each family would have its own vertical lift-off airplane, a universal society of Jetsons.
All of this is interesting when thinking of where we are going in terms of a nation and its economy but what in the comments made me decide to definitely write something? Given my point in my previous post about the straw man factor in modern beliefs consider this exchange in the comments section and especially the last comment.
Paul, You forgot to add Reason #7 – Liberals like you are taxing and regulating Companies to DEATH !! YOU and your ilk drain the resources from those who achieve, and “redistribute” the life blood of growth to the Entitlement crowd who are nothing but Takers!! Look in the mirror Paul…
Excellent! Possibly the most important factor!
Ah, a supporter of greater upward move of wealth into the hands of ever fewer people. Classifying Ronald Reagan as a liberal is intriguing to say the least.
Ah, a supporter of the “Entitled” crowd, contributing NOTHING to this Country, not willing to work for anything, and not completely happy until he has spent the hard earned money of others who did earn it. I believe the word in Webster’s is: LEECH.
I think that’s yet another pretty good example of what I meant earlier.