Freakonomics Radio - 95. Why America’s Economic Growth May Be (Shh!) Over

Episode Date: October 3, 2012

Sure, we love our computers and all the rest of our digital toys. But when it comes to real economic gains, can we ever match old-school innovations like the automobile and electricity?

From APM, American Public Media, and WNYC, this is Freakonomics Radio on Marketplace. Here's the host of Marketplace, Kai Risdahl. Time now for a little bit of Freakonomics Radio, that moment in the broadcast every couple of weeks where we talk to Stephen Dubner, the co-author of the books and the blog of the same name. It is The Hidden Side O' Everything. Dubner, welcome back, man. I missed you. I missed you too, Kai. Thanks for having me. I'm guessing you're going to be in front of your TV tonight for the debate? I am, yes. Of course I am. In point of fact, also live tweeting, and it's on marketplace.org. So if you're lonely, you know where you can go. Very good. The focus of this first presidential debate, as you know, is domestic policy. So I'm assuming we're going to hear an awful lot about the economy.

One would certainly hope. Right. I mean, that's what we're waiting for, for these two men who want to be the most powerful men in the world to help us fix the American economy. Right. So, Kai, let me say two things about this. The first, which I have said on your program before, and I probably will again, is that the U.S. president has much less influence over the economy than we actually think.

Yeah, but we have to pretend. Right, come on. We have to pretend. My second point is actually more heretical than that. My second point is this. There are people out in the world who will argue with you that the great age of American economic growth is just over. Okay, here's Robert Gordon, an economist at Northwestern. We had a century of relatively rapid productivity growth between, say, 1870 and 1970,

and then it slowed down. And a major puzzle for the economics profession was to figure out why did it slow down? Okay, so A, did they figure it out? And B, what about computers and automation and technology and increased productivity? Hello? Excellent question. I know. So, okay, here's the way Robert Gordon explains it. There have been three what he calls industrial revolutions over the past couple centuries.

The first one was, you know, steam power and railroads. Yeah, it was the industrial revolution, right? That was a big one. But the second one that we're really most thankful for included things like electricity, the internal combustion engine and the fuels to run it, clean water. And his argument is that the computer revolution is just not as potent as the ones that came before it. Hello, has this man never heard of the iPhone? I mean, come on, that changed my life. And there are people who will be amazed to hear me say that. I'm glad it changed your life. It's changed my life too. But his argument is will be amazed to hear me say that. I'm glad it changed your life. It's changed my life, too.

But his argument is this, is that what a lot of technology does is make things that already existed more portable and more flexible, our entertainment, our communication. And obviously, we're all thankful for that. But when you compare that to things like mass transportation and electricity, heating and air conditioning, the computer era does not produce those kind of gains. Okay. So not to get all downer on you here, but if the iPhone and all that it represents is what we have now to propel us forward, are we fundamentally doomed? I mean, is America going to, you know? No, no. And nobody's saying that. What you are starting to hear is a description of, you know, America's golden age of growth may have been exactly that, a golden age, which by its nature cannot last forever.

OK, Tyler Cowen, an economist that you've had on this program before, he's coined a name for the current U.S. economy. He calls it the great stagnation. OK, now, that said, Cowen is a big believer that new technology, artificial intelligence, for instance, will lead to further growth. He thinks that Robert Gordon's prediction, therefore, is probably a little bit too grim. I think our ability to forecast future growth has never been all that great. So about the future, I'm actually fairly optimistic. Which is great, but what if, Dubna, right? What if Gordon is right and what if you're right and that the greatest growth is behind us?

Then what? Well, look, it may be. And again, these are predictions, and you know how I feel about predictions. They're mostly worthless. But it may be, however, time to start thinking about the U.S. economy, not so much in terms of never-ending growth, which we've been trained to do, but in terms of a different word, which is sustainability, essentially, right? Which isn't necessarily the worst thing in the world. And, of course, that's what we're going to hear the president and Governor Romney talk about tonight, right? Not about growth at all.

Are you kidding me? First of all, they both need to preserve this fiction that the president controls the economy. But beyond that, to get on TV, okay, picture this and to say, you know, my fellow Americans, our great age of growth was wonderful and it's over. Welcome to the new season of sustainability. I do not see that as a big vote getter. They will do what politicians always do. They will promise a bigger and brighter economic future.

Because if there's one thing, Kai, that politicians are really good at, it's making promises that they have absolutely no ability to keep. Stephen Dubner, Freakonomics.com is the website. We will talk to you again in a couple of weeks, man. See you. See you, Kai. Thanks. Coming up on the next Freakonomics Radio, the Cobra Effect. When there's a really nasty pest you want to get rid of, what's the best way to make that happen?

That's easy, right? Just offer a cash bounty. What could possibly go wrong with that? Bye.