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Has growth reached its end in the developed world? Economist makes the case


feargach

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I've made this case before, but it'll perhaps be more interesting to see a Professor of Economics expound such a similar view in a "deliberately provocative" essay. It's specific to the USA, but it has a lot of relevance to the rest of the developed world.

http://www.voxeu.org/article/us-economic-growth-over

The justification for depressed growth of less than 0.5% per annum (for the bottom 99% only, the top 1% will continue to party on) for the next few decades is based on strong foundations. These are demography, education, inequality, globalisation, energy and debt.

The core of the story is his obviously correct observation that there have been three separate industrial revolutions since 1750 which have allowed growth levels to go above 1% per year in the developed world. The first was with the steam engine. The second and by far the most important one was the widespread electrification of the late Victorian era. The third and by far least important is the IT revolution which has mostly leveled off in most of the developed world.

Prof. Robert J. Gordon said:
IR (industrial revolution) #3 appears to have lasted only eight years, compared to the conjectural 100 years for IR #2.
Since 2004 productivity growth has been almost as slow as in the previous dismal period of 1972-96.
Inventions are not all created equal

The paper explains this history by a simple proposition. The great inventions of IR #2 were just more important than anything that has happened since. The speed of transportation was increased from that of the 'hoof and sail' to the Boeing 707. The temperature of a room was wildly variable in the 19th century but by now is a uniform 70 degrees year round. The transition from rural to urban in the US could only happen once. Only once could electricity be invented and create rapid transit, machine tools, consumer appliances, and the entire electricity-dependent set of entertainment devices from the radio to the TV to the internet and its multiple spin-offs such as the iPod, iPhone, and iPad.
Paul Krugman disagrees with Gordon:

Paul Krugman said:
I’ve been looking into technology issues a lot lately, and I’m pretty sure he’s wrong, that the IT revolution has only begun to have its impact.

Consider for a moment a sort of fantasy technology scenario, in which we could produce intelligent robots able to do everything a person can do. Clearly, such a technology would remove all limits on per capita GDP, as long as you don’t count robots among the capitas. All you need to do is keep raising the ratio of robots to humans, and you get whatever GDP you want.
I like optimism in people, but Mr Krugman's not convincing me with that. Not at all. To be expecting anything like that seems to me to be a very bad case of what James Howard Kunstler calls "techno-grandiosity".
 
D

Dylan2010

discussions about "growth" are hard to pin down. Would you rather have an income of100K pa growing at .5% a year or 5K growing at 10%? growth freaks only worry about this stuff when they are leveraged to the gills.
Medecine and education are ripe for disruptive technologies so there is still a lot to do out there
 

McDave

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Looking at the bigger picture, there may come a point where globalisation introduces a more obvious zero sum game where certain elements of growth come at the direct expense of others, e.g. natural resource obtained at less than market prices. And where only genuine advances in technology or productivity yield real net growth.

So yes, maybe boomy growth in developed countries really is a thing of the past.
 

feargach

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discussions about "growth" are hard to pin down. Would you rather have an income of100K pa growing at .5% a year or 5K growing at 10%? growth freaks only worry about this stuff when they are leveraged to the gills.
Medicine and education are ripe for disruptive technologies so there is still a lot to do out there
I disagree that education can change much due to technology. Unless you're talking about Matrix-style fantasies, learning is a slow organic process which technology can't help much. You want to understand something complicated? You have to put in years of effort without any guaranteed reward. That's true whether you're using wikipedia or you're a Victorian with a library card.

I agree that Medicine is ripe for disruptive technologies, but it's not at all obvious how that could cause economic growth.

Medicine has exploded in the last 100 years without causing any appreciable boost to economic growth.
 

feargach

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4,995
Looking at the bigger picture, there may come a point where globalisation introduces a more obvious zero sum game where certain elements of growth come at the direct expense of others, e.g. natural resource obtained at less than market prices. And where only genuine advances in technology or productivity yield real net growth.

So yes, maybe boomy growth in developed countries really is a thing of the past.
What does that do to pension funds? And the debts owed by developed-world entities, public and private?
 

Analyzer

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Maybe....just maybe....it might have something to do with reckless monetary policies being pursued in western economies....under the direction of chancers like Bernanke, Draghi, Carney, etc....

I reckon the low interest rate, high leverage, high cost state option is running out of borrowing power, and that this is the real problem.
 

Nemesiscorporation

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Oct 2, 2011
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I've made this case before, but it'll perhaps be more interesting to see a Professor of Economics expound such a similar view in a "deliberately provocative" essay. It's specific to the USA, but it has a lot of relevance to the rest of the developed world.

Is US economic growth over? | vox

The justification for depressed growth of less than 0.5% per annum (for the bottom 99% only, the top 1% will continue to party on) for the next few decades is based on strong foundations. These are demography, education, inequality, globalisation, energy and debt.

The core of the story is his obviously correct observation that there have been three separate industrial revolutions since 1750 which have allowed growth levels to go above 1% per year in the developed world. The first was with the steam engine. The second and by far the most important one was the widespread electrification of the late Victorian era. The third and by far least important is the IT revolution which has mostly leveled off in most of the developed world.



Paul Krugman disagrees with Gordon:



I like optimism in people, but Mr Krugman's not convincing me with that. Not at all. To be expecting anything like that seems to me to be a very bad case of what James Howard Kunstler calls "techno-grandiosity".
An interesting OP.

I would ignore Krugman. He was an economic advisor during the Clinton Era in which he advised ripping up all regulations on banking and finance.
 

Mossy Heneberry

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The Victorians believed that they had reach the pinnacle of human development and everything invented or improved upon had been.

This type of arguement is not new or progressive, it's boring and stale.
 
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Analyzer

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An interesting OP.

I would ignore Krugman. He was an economic advisor during the Clinton Era in which he advised ripping up all regulations on banking and finance.


Krugman is the self appointed successor of JM Keynes.
 
D

Dylan2010

What does that do to pension funds? And the debts owed by developed-world entities, public and private?
are you saying you want an economic model that keeps pyramid financing working? you seem to want a model that depends on exponential growth in dividends of Western based multinationals by creating more consumers across the globe?
 

sondagefaux

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Of course it's reached its end. There will be no new technologies spurring economic growth ever again. There will be no demographic changes ever again. There will be no new resource discoveries ever again.
 

Disillusioned democrat

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Saw a great docu-drama over the hols - Too Big To Fail I think it was called. Clearly the message was that all growth for last 10 years has been artificial, based on borrowing, not earning, and that the party is well and truly over.

There is no more growth possible under the current model - the population of the world can't continue to grow sufficiently quickly to keep the wheels turning - all that's going to happen is that "growth" will travel the globe, filling in gaps in low cost/low regulation environments at the expense of high-cost, highly regulated environments and this will result in far more frequent and nasty boom-to-bust cycles.
 

True Republican

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europe is dying economically and demographically. Ageing populations will have a negative impact on future economic growth.
 

feargach

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The Victorians believed that they had reach the pinnacle of human development and everything invented or improved upon had been.

This type of arguement is not new or progressive, it's boring and stale.
"Pinnacle of human development"? All I'm saying is that we've seen the developed world deteriorate for the last 5 years, and the evidence so far shows that a further five years of going backwards is at least as likely as a return to expansion.

Life will go on.
 

NLPete

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If there's a 95% chance nothing willl happen, then the remaining 5% will be extordinary if it occurs. And yet the true odds remain 50/50.
 

Mossy Heneberry

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"Pinnacle of human development"? All I'm saying is that we've seen the developed world deteriorate for the last 5 years, and the evidence so far shows that a further five years of going backwards is at least as likely as a return to expansion.
How much has the standard of living in Ireland decreased by, to 2007 maybe 2005 levels?

Life will go on.
Exactly.
 
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seabhcan

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The key problem with western civilisation is that the entire productive economy has been converted into a machine for maintaining the elderly. The pension system acts like a cancer on society dampening change. As Adam Curtis noted, we now work only to serve those who no longer work.

We, by law, send 10-15% of our income, plus tax incentives, abroad to 'diversify investments' which, in effect, fund competition to our own jobs. We are putting ourselves out of business.
 
R

Ramps

The only thing that will stop economic growth from continuing indefinitely is government interference; nothing else. Well, maybe a meteor or something.
 
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