Is Economic Growth Returning to an 18th-Century Norm?
The recent spate of bad economic news for Canada has dampened short-term economic prospects. But what if it is evidence we've reached the end of growth, as economist Robert J. Gordon argues in a National Bureau of Economic Research paper titled Is U.S. Economic Growth Over? Faltering Innovation Confronts the Six Headwinds?
Gordon questions the conventional wisdom laid out in the 1950s that modern economic growth is a continuous process that will persist forever. Indeed, Gordon suggests the past 250 years could be a very unique period in human history and we will be returning to an era of low economic growth -- a state that has characterized human history prior to the 1750s.
For example, the U.K.'s real per capita GDP grew at an annual rate of 0.2 per cent in the four centuries leading up to 1700. In contrast, the modern era has often seen per capita income growth at nearly two per cent.
Modern economic growth was sparked by the Industrial Revolution. As Gordon notes, the first industrial revolution from 1750 to 1830 harnessed steam power and started lowering transportation costs with railways and steamships.
The second revolution, from 1830 to 1900, provided the innovations of electricity, running water, the internal combustion engine, communications, airplanes, air conditioning, communications and chemicals.
The period from 1900 to 1960 saw their spread into everyday use. Since 1960, economic growth rates have declined and, looking ahead, Gordon suggests the historic rate of 0.2 per cent will be reached by the end of the 21st century.
Is the end really nigh? Despite the appearance of progress, the case can be made that current developments in communication, computers and information are but extensions of the electronic age, and true innovation has faltered.
Indeed, one can argue economic growth since the mid-20th century has largely been driven by diffusion of technological innovations made before 1960 -- automobiles, television, jet engines, nuclear power, computers -- and the presence of cheap oil as the economic lubricant.
Yet, predicting the future is difficult. …