About a week ago I did a post on Robert Gordon's idea that we have reached peak growth because of a lack of innovation I have thought we have reached peak growth for some time but because of diminishing and increasingly expensive resources. Gordon thinks it is because there have been really been no real new technological discoveries in several decades, only improvements on existing ones.Over at the Financial Post Terence Corcoran takes a look at the peak growth ideas.
One of the more persistent economic ideas rattling through the intelligentsia is that the last 250 years of amazing innovation, productivity and growth —from the steam-engine birth of the first industrial revolution in the 1700s to last month’s launch of the iPhone 5 — have come to an end. The nations of the developed world, especially the United States, have seen their best centuries. Growth has peaked. The future is flatlined.
Serious economists are throwing their good names behind this speculative idea, the latest being Robert J. Gordon, at Northwestern University. In a U.S. National Bureau of Economic Research working paper, Prof. Gordon raises the possibility that the last 250 years “could well turn out to be a unique episode in human history.” The opening words of the paper’s title are designed to provoke: “Is U.S. Economic Growth Over?”
Another economist who has been trumpeting a long-term decline in U.S. growth is John Ross, Visiting Professor at Antai College of Economics and Management, Jiao Tong University, Shanghai. He sees a “long-term deceleration” in U.S. economic performance, a trend he pins in part on the failure of “Reaganite/neo-Liberal policies.”I think there is something to this. The so called supply side/ trickle down economics has only succeeded in a trickle up of the wealth. The lower 95% of the population has less and less disposable income and an economy can't grow without consumers.
In Prof. Ross’s view, this entrenched decline in growth rates should be the dominant focus of current economic analysis and forecasting. It is folly, in this context, to constantly view quarterly U.S. growth data as “disappointing” when in fact the much-lamented slow growth of GDP they may be the new normal. “Analysts are surprised by the new data only when they have no internalized or built into their models this long term deceleration of the U.S. economy.”
So is this slow or no growth the new normal? Unless there is some really new technological discovery the answer is probably yes.