We Are Entering a Prolonged Period of Slow Growth

The 20th-century was a once-in-a-species-lifetime aberration and the 21st century will be one of prolonged slow growth.

That is essentially what gets said in William D. Nordhaus’s NYRB review of The Rise and Fall of American Growth: The US Standard of Living Since the Civil War by Robert J. Gordon. In this, it echoes many of the things said in Thomas Piketty’s Capital in the 21st Century.

The message of Rise and Fall is this. For most of human history, economic progress moved at a crawl. According to the economic historian Bradford DeLong, from the first rock tools used by humanoids three million years ago, to the earliest cities ten thousand years ago, through the Middle Ages, to the beginning of the Industrial Revolution around 1800, living standards doubled (with a growth of 0.00002 percent per year). Another doubling took place over the subsequent period to 1870. Then, according to standard calculations, the world economy took off.

From later in the same essay:

The last chapter of the book suggests that the US faces major “headwinds” that will continue to drag down living standards relative to underlying productivity growth. In Gordon’s account, these headwinds are rising inequality, poor-quality education, the aging population, and rising government debt. Gordon forecasts that average growth in real income per person over the next quarter-century will be 0.7 percent per year—even lower than the 1.3 percent per year in the 2000–2015 period. If inequality continues to grow, this might lead to declining incomes of the bottom part of the distribution—and therefore to true Spenglerian decline. I emphasize that these forecasts are highly speculative and contingent on many economic, fiscal, and demographic forces.



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