Gordon and Lawrence Summers both make the same mistakeby Anatole Kaletsky / February 18, 2016 / Leave a comment
Read the two pieces from last month’s Prospect that Anatole Kaletsky is replying to:
The end of economic growth
Will our children really not know economic growth?
Last month Prospect published two articles about economic growth by two of the world’s most distinguished economists, Robert Gordon and Lawrence Summers. These reminded me of why, 40 years ago, I decided not to become an academic economist and drop out of the Harvard PhD programme where, as it happens, Summers was my fellow student. Instead of shedding light on business and social realities, academic economists seem to prefer to debate among themselves over the intricacies of statistical methods and largely spurious mathematical models. As the joke most famously made by Ronald Reagan runs, an economist is someone who, when he or she sees something working in practice, then wonders if it works in theory too.
A good example of this intellectual distortion is the question whether technological progress has accelerated or slowed to a crawl. For anyone except economists, the answer is so obvious it is hardly worth debating—technological progress is shooting forward. But Robert Gordon assumes that weak economic statistics are proof that, however much new technology we see around us, progress has slowed down.
Gordon is the most influential proponent of the view that he describes as “technological pessimism,” developed in his new 700-page book, The Rise and Fall of American Growth. Summers, a former United States Treasury Secretary, is neither a technological pessimist nor optimist, but believes that the world faces “secular stagnation”: a broad slowdown caused by a combination of changing demographics, globalisation and economic policy mistakes.
These two theories of the world neither contradict nor support one another—they hardly intersect at all. But they have one thing in common. They both fail to address the crucial practical issue—why has the link between technological advances and economic growth apparently broken down?
Gordon claims to provide an answer, but his evidence mainly relates to a totally different question: what happened in the 1970s, after the post-war “Golden Age” of rapid economic growth. The answer is obviously “yes.” Between 1920 and 1970, US output per person grew by 2.41 per cent annually. From 1970 to 2014, the rate was 1.77 per cent.
Gordon explains fairly convincingly why this slowdown happened. Technological change accelerated from 1920 onwards, as the great…