Ahhhh! No robots! | FT Alphaville

Ahhhh! No robots!

Says this guy here with our paraphrasing, naturally (click through for the full paper):

Gordon concentrates solely on the US and ignores the separate questions of whether the recession and slow recovery have pulled down the trend growth rate, output, and the size of the “gap” between the trend path and actual real GDP. From the abstract:

It questions the assumption, nearly universal since Solow’s seminal contributions of the 1950s, that economic growth is a continuous process that will persist forever. There was virtually no growth before 1750, and thus there is no guarantee that growth will continue indefinitely. Rather, the paper suggests that the rapid progress made over the past 250 years could well turn out to be a unique episode in human history.

Before getting all provocative:

A provocative “exercise in subtraction” suggests that future growth in consumption per capita for the bottom 99 percent of the income distribution could fall below 0.5 percent per year for an extended period of decades.

Well, there are those who have a less pessimistic view (read herehere, here and here). Also, just because the dreams of our grandfathers didn’t quite match up to reality isn’t so much a cause for despair as a reminder of the perils of this type of forecasting.

The paper is, nonetheless, worth a read. The basic points are:

1. Since Solow’s seminal work in the 1950s, economic growth has been regarded as a continuous process that will persist forever. But 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 rather than a guarantee of endless future advance at the same rate.

2. The frontier established by the U.S. for output per capita, and the U. K. before it, gradually began to grow more rapidly after 1750, reached its fastest growth rate in the middle of the 20th century, and has slowed down since. It is in the process of slowing down further.

3. A useful organizing principle to understand the pace of growth since 1750 is the sequence of three industrial revolutions. The first (IR #1) with its main inventions between 1750 and 1830 created steam engines, cotton spinning, and railroads. The second (IR #2) was the most important, with its three central inventions of electricity, the internal combustion engine, and running water with indoor plumbing, in the relatively short interval of 1870 to 1900…

4. The computer and Internet revolution (IR #3) began around 1960 and reached its climax in the dot.com era of the late 1990s, but its main impact on productivity has withered away in the past eight years…

5. The article suggests that it is useful to think of the innovative process as a series of discrete inventions followed by incremental improvements which ultimately tap the full potential of the initial invention. For the first two industrial revolutions, the incremental follow-up process lasted at least 100 years. For the more recent IR #3, the follow-up process was much faster. Taking the inventions and their follow-up improvements together, many of these processes could happen only once. Notable examples are speed of travel, temperature of interior space, and urbanization itself.

6. The benefits of ongoing innovation on the standard of living will not stop and will continue, albeit at a slower pace than in the past. But future growth will be held back from the potential fruits of innovation by six “headwinds” buffeting the U.S. economy, some of which are shared in common with other countries and others are uniquely American. Future growth in real GDP per capita will be slower than in any extended period since the late 19th century, and growth in real consumption per capita for the bottom 99 percent of the income distribution will be even slower than that.

Those headwinds, says Gordon, include the end of the “demographic dividend”; rising inequality; factor price equalisation stemming from the interplay between globalisation 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.

Gordon points to transport speed to illustrate his “audacious idea”:

Until 1830 the speed of passenger and freight traffic was limited by that of “the hoof and the sail” and increased steadily until the introduction of the Boeing 707 in 1958. Since then there has been no change in speed at all and in fact airplanes fly slower now than in 1958 because of the need to conserve fuel.

But one could point to any number of other stalled leaps including, poignantly (from xkcd):

Back to Gordon, who whacks out this chart to make his point:

The blue line represents the UK through 1906 (approximately the year when the US caught up) and the red line the US from then through 2007. Says Gordon:

The graph shows striking absence of the lack of progress; there was almost no economic growth for four centuries and probably for the previous millennium.

Then he combines the historical record with a “provocative fantasy” (yes, really):

Summarizing, doubling the standard of living took five centuries between 1300 and 1800. Doubling accelerated to one century between 1800 and 1900. Doubling peaked at a mere 28 years between 1929 and 1957 and 31 years between 1957 and 1988. But then doubling is predicted to slow back to a century again between 2007 and 2100. Of course the latter is a forecast, and the rest of this essay provides support for its plausibility.

(Awesome standalone fact from next sections which detail the different revolutions and their outcomes — the average housewife in North Carolina in 1885 had to walk 148 miles per year while carrying 35 tonnes of water.)

And then we get to IR #3 – computers and stuff

Gordon argues that the productivity impact of IR #3 evaporated after only eight years, compared to the 81 years (1891-1972) required for the benefits of IR #2 to have their full impact on productivity and the standard of living (with our emphasis):

Attention in the past decade has focused not on labor-saving innovation, but rather on a succession of entertainment and communication devices that do the same things as we could do before, but now in smaller and more convenient packages. The iPod replaced the CD Walkman; the smartphone replaced the garden-variety “dumb” cellphone with functions that in part replaced desktop and laptop computers; and the iPad provided further competition with traditional personal computers. These innovations were enthusiastically adopted, but they provided new opportunities for consumption on the job and in leisure hours rather than a continuation of the historical tradition of replacing human labor with machines.

And here’s that productivity growth, charted:

Izzy took a crack at explaining why the slowing change from human to mechanised labour may not reflect any real natural contraint but rather the fact that it wasn’t in indusrialists interests to make that shift, citing David Graeber in his article “Of Flying Cars and the Declining Rate of Profit”. From Graeber:

Marx argued that, for certain technical reasons, value—and therefore profits—can be extracted only from human labor. Competition forces factory owners to mechanize production, to reduce labor costs, but while this is to the short-term advantage of the firm, mechanization’s effect is to drive down the general rate of profit.

For 150 years, economists have debated whether all this is true. But if it is true, then the decision by industrialists not to pour research funds into the invention of the robot factories that everyone was anticipating in the sixties, and instead to relocate their factories to labor-intensive, low-tech facilities in China or the Global South makes a great deal of sense.

As Izzy wrote, this may no longer be true:

Graeber goes on to have some strong opinions about why technology, even now, is failing to advance as quickly as it should. He posits that neo-liberal and capitalist forces may be misdirecting innovation into bureacratic technologies, which awkwardly offset efficiencies, rather than focusing on the sort of grandiose poetic projects that could serve humanity (Mars missions etc), which we could have expected of the Soviets.

Nevertheless, one thing is clear. For the first time in decades, those in the know say private sector technology is outpacing government technology. Meanwhile, no matter how much of an incentive corporations may have to sabotage such efforts, technology appears increasingly to be slipping out of their control. This is thanks largely to open source initiatives and a system which increasingly provides for people at a base level. Once base needs are met — due to a general abundance of goods — however they may be funded, people are free to dedicate themselves, if they wish, to the pursuit of nobler goals, technologies and academia. On the academic front, despite the increasing trend towards tuition fees, access to knowledge has ironically never been cheaper.

All these developments suggest that technological advances could soon start flowing back into production and manufacturing circles compromising the current corporate grip which is restraining abundance even further.

And heck, forecasting innovation is pretty darn hard anyway.

Gordon makes that point himself before recalling past over-optimism (“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”) and heading back to his six headwinds — none of which are particularly new.

He even goes as far as to put his finger in the air to estimate their quantitative impact, with the below chart. First, start with the 1.8 per cent growth per capita rate witnesses from 1987-2007. Then subtract what Gordon believes the impact of each headwind will be. This allows one to picture the future he is envisaging.

Which is followed by this rather irritating paragraph:

The particular numbers don’t matter, and there is no magic in the choice of 0.2 percent as the long-run growth rate. That was chosen for “shock value” as the rate of growth for the U.K. between 1300 and 1700. Any other number below 1.0 percent could be chosen and it would represent an epochal decline in growth from the U.S. record of the last 150 years of 2.0 percent annual growth rate in output per capita.

One hopes this is a paper to look back on fondly from the back seat of a robot-driven alternatively-fueled hover car in the near future but, even if you don’t find his arguments all that persuasive, it might be nice to take a moment and, courtesy of Gordon, remember how cool indoor plumbing is:

A thought experiment helps to illustrate the fundamental importance of the inventions of IR #2 compared to the subset of IR #3 inventions that have occurred since 2002. You are required to make a choice between option A and option B. With option A you are allowed to keep 2002 electronic technology, including your Windows 98 laptop accessing Amazon, and you can keep running water and indoor toilets; but you can’t use anything invented since 2002.

Option B is that you get everything invented in the past decade right up to Facebook, Twitter, and the iPad, but you have to give up running water and indoor toilets. You have to haul the water into your dwelling and carry out the waste. Even at 3am on a rainy night, your only toilet option is a wet and perhaps muddy walk to the outhouse. Which option do you choose?

Related links:
Article Series – Beyond scarcity – FT Alphaville
Economic possibilities for our grandchildren – Keynes