Boom or doom? Debating the future of the U.S. economy

Photos courtesy of Chicago Council on Global Affairs.

Podcast transcript:

It has been called the “clash of titans.”Two of the biggest names in economics research–Bob Gordon and Joel Mokyr – have been battling it out in the press for years with fiery arguments in the Wall Street Journal and The New York Times, plus debates in countries all over the world, including the latest at the Chicago Council on Global Affairs.

Gordon forecasts a type of doomfor the future of American innovation.

Gordon (in debate): American economic growth really has slowed down.

Mokyr represents a more optimistic view.

Mokyr (in debate): My bottom line on the future of innovation is very different from Bob’s.

A boom, if you will.

Mokyr (in debate): It’s very simple. We ain't seen nothing yet.

Boom versus doom. These two leading researchers’predictions for America’s future couldn’t be more different. That’s evidenced even by their latest book titles. Mokyr just released a book called “A Culture of Growth.” Gordon’s newest book? “The Rise and Fall of American Growth.” These differing views lead to fierce debate.

Gordon (in debate): The question is, ‘Which way is the causation?’

Mokyr (in debate): I was going to come to that. I don’t know.

Gordon (in debate): Well, you've been talking long enough, so let me talk.

You wouldn’t know it listening to that exchange, but Gordon and Mokyr are actually really good friends.

Gordon: Oh yes, we've been friends a long time. I’ve visited him in his country home.

Mokyr: I know his wife. I've been to his house; he's been to mine.

Gordon: He’s definitely one of my best friends in the economics department or in the economic profession as a whole.

Mokyr even edited Gordon’s latest book.

Mokyr: I encouraged him to write that book, and I take some credit for it. I knew that he had it in him, so to speak.

In order to fully appreciate the exceptional nature of this collaboration, you have to understand how differently Gordon and Mokyr view the economy. For that, we take you to a debate at the Chicago Council on Global Affairs, set on Halloween night, 2016.

Debate introduction: Thank you forsaking Halloween to learn about innovation.

In this podcast, we’ll break down Gordon and Mokyr’s arguments, showing where they fight, where they agree, plus, the personal dynamics that lead to a fiery but respectful conversation about some of the biggest policy questions of our time.

Let’s get back to the debate.

Debate introduction: We're delighted to have Robert Gordon and Joel Mokyr here to debate the future of innovation and the economy. Professor Gordon contends that economic progress will be slow and innovation incremental. However, Professor Mokyr argues that the future looks bright, and it's a new age of invention. The question is, ‘Is the best yet to come, or are the heydays of economic growth over?’ We look forward to a lively debate on this discussion.

Here’s the format: each professor gets 10 minutes to present their arguments, followed by a short, unstructured conversation on key points. Then the professors answer questions from the audience. Following the structure of the debate, Gordon steps up to the mic first, and it’s game on for friendly foes.

Gordon (in debate): Professsor Mokyr has a tough road ahead of him if he tries to put a happy face on this.

Gordon emphasizes his points with a number of graphs showing a slowdown in U.S. Gross Domestic Product (GDP) growth.

Gordon (in debate): Just look at the numbers: in the 30 years up to 2004, the U.S. economy's GDP grew at 3.12 percent. By coincidence, if we take the 11 years since 2004, it grew at exactly half to 1.56 percent.

Gordon points to a number of problems, chief among them – a massive reduction in the total number of hours worked across the population.

Gordon (in debate): Part of it – a small part – is that the population is growing slower. A big part is that we've had a turnaround in labor force participation.

The total number of work hours went up drastically at the end of the 20th century as women flooded the labor force, but that impact has leveled out, and now, work hours are going down. That’s partly because millions of baby boomers are retiring, and…

Gordon (in debate): A lot of discouraged workers have dropped out of the labor force.

According to Gordon, all of that is contributing to a decrease in total factor productivity, or TFP. On that point, Mokyr largely agrees.

Mokyr (in debate): That was a good talk you gave, Bob. I’m almost convinced halfway.

But here’s where their arguments really diverge because Mokyr doesn’t put much stock in TFP measurements.

Mokyr (in debate): The way it's calculated – Bob knows this better than I do – is sort of dicey at best, but more importantly, lots of things don't end up in the numerator, which is total output.

Alright, so total factor productivity, technically, is the growth of output minus the cost of input. Basically, it measures the impact of technology and innovation on the economy. According to Gordon’s theory, TFP growth was biggest in the period from 1870 to 1920 thanks to two key innovations: electricity and the combustion engine.

Gordon (in debate): Within three months, we had Thomas Edison’s electric light bulb and Karl Benz’s perfection of the internal combustion engine.

Of course, those two inventions are the founding for almost everything that has come since, including computers. But Gordon says not even computers can rival the impact of the late 19th century inventions.

Gordon (in debate): The slowdown started in the ’70s and ’80s. We had a marked revival of productivity growth that most people associate with the coming of the internet and the dot com era of the late 1990s. But in the last 10 years we're back in the doldrums again.

Gordon claims not much has changed in the last 10 years.

Gordon (in debate): When I look around, I see a lot of standing still.

When you go to the grocery store, a human still stocks the shelves, slices the deli meat and checks customers out at the cash register.

Gordon (in debate): Our Jewel stores – supermarkets in the Chicago area – have removed electronic self-checkout and gone back to humans, so we're actually going backward, at least in that particular example.

Well, Mokyr says Gordon isn’t looking at the big picture and, beyond that, isn’t using his imagination.

Mokyr (in debate): The digital age will be to the analogue age what the Iron Age was to the Stone Age. Nobody in this room – least of all myself – can imagine what the post-digital age will look like, any more than Archimedes could imagine CERN.

Going back to Mokyr’s argument that TFP just isn’t an accurate measure of productivity…

Mokyr (in debate): I'm not that impressed by Bob's bars – not because he's doing it wrong but because they were designed for a different economy than ours.

Mokyr says TFP was designed for an economy that produced wheat and cotton.

Mokyr (in debate): And ours produces digital products that play by different rules.

Mokyr points to all of the things in our economy that are free –things like Wikipedia and smart phone apps.

Mokyr (in debate): Their contribution to GDP is close to zero. Why? Because they're free.

He says all of these things increase leisure time and improve our quality of life, but they’re not measured in TFP.

Mokyr (in debate): Lots of things that are not entering Bob's numbers should be important to us because they matter to how we feel, how long we live, how many quality-adjusted life years we have.

Gordon’s answer to that– many factors have always been left out of GDP. For example...

Gordon (in debate): The transition to motorcars, the removal of manure from the streets. What a boon. The elimination of infectious diseases, the conquest of infant mortality.

And beyond that, leisure time was never quantified in GDP. Gordon says if it had been, this century is not the era we see the biggest impact from improved leisure.

Gordon (in debate): The big decline in average hours of work occurred between 1900 and 1940, a reduction from 60 to 40 hours a week.

Mokyr argues that TFP in previous times isn’t accurate because it didn’t include all of the costs of certain inventions – for example, the environmental costs of burning fossil fuels.

Mokyr (in debate): If we go back and we start calculating the possible cost of global warming, the total factor productivity calculations that Bob talked about don’t look nearly as rosy.

This is what Mokyr calls “bite back.”He points out that a lot of innovation today is dedicated to fixing problems caused by previous generations.

Mokyr (in debate): if you are leaving out inputs that are used up but somehow don’t appear in the calculation, then your total factor productivity statistics are overstated.

We get it. Mokyr and Gordon have very different views on the value of TFP measurements. But this debate is really about the future of innovation, so let’s get back to that. Gordon pins his highest hopes for innovation on things like 3-D printing, except…

Gordon (in debate): It's not mass production. You can't make 17 million automobiles a year with 3-D printing.

He thinks robots are promising, but they have a long way to go. Driverless cars are also cool in theory, but Gordon says it’ll be at least 30 years before we phase out our current cars. Even then…

Gordon (in debate): Truck drivers do a lot more than just driving a truck.

We’ll still need humans to unload the truck and stock the grocery shelves. So where does Gordon see the most potential?

Gordon (in debate): I think the big progress is being made in artificial intelligence.

But he says we’re not using it to the fullest.

Gordon (in debate): By far, the largest expenditure on that is occurring in marketing departments. Companies are studying very hard how to steal customers away from their rivals. Well, that's very interesting but not productive for the economy as a whole.

So, pointing to the dot com boom of the ’90s, Gordon asks…

Gordon (in debate): I ask, in a skeptical way, could we conclude that the main fruits of the third industrial revolution have already happened?

Mokyr’s response?

Mokyr (in debate): There are two kinds of pessimists in this world: there are the pessimists, like Bob Gordon, who basically say, ‘Look, half of our innovations have worked themselves out, and basically we’ve exhausted their benefits. The other half will never work.’

And the other kind of pessimist…

Mokyr (in debate): The people who say it'll work so well it’s going to eliminate all the jobs.

Mokyr says the good news is…

Mokyr (in debate): They can't both be right. The even-better news is they can both be wrong, and they are.

Mokyr says there have been many Bob Gordons throughout history, and they’ve always been wrong.

Mokyr (in debate): We've been here before, ladies and gentlemen. Here's a quote.

It’s from a 19th century English historian named Thomas McCully who said…

Mokyr (in debate): ‘Those are in error who say society has reached a turning point and we have seen our best days. So said all who came before us, and with just as much apparent reason. On what principal is it,’ he’s asking, ‘that with nothing but improvement behind us, we are to expect nothing but deterioration before us?’

This quote was written in 1830, just as railroads started slashing the landscape, forever changing the exchange of people, goods and services. Mokyr argues that we can’t yet imagine the innovations that will change the world and create new jobs in the future.

Mokyr (in debate): I challenge anybody to think about jobs that are important today.

He says to imagine telling your great-great-grandma that you’re a cyber security expert.

Mokyr (in debate): They wouldn’t have the foggiest of what you were talking about. These jobs came out of a totally novel technological paradigm. We are creating new such paradigms.

Mokyr says he knows that’s not consolation for people who are struggling to find jobs now, but in the long run…

Mokyr (in debate): The children and grandchildren of these workers will be able to find new jobs in occupations that we cannot even yet imagine any more than people in 1914 could imagine what a cyber security expert was going to do.

But Gordon says there are four big things inhibiting innovation in the future.

Gordon (in debate): What I call the four headwinds.

Those headwinds fall into categories of demography…

Gordon (in debate): Instead of having more hours per person as women went into the labor force, we’re having fewer hours per person as the baby boom generation retires.

Education…

Gordon (in debate): It's about a slowing down in the growth of educational attainment, in part because of rising tuitions and student debt.

Also, inequality and the growing national debt.

Gordon (in debate): Much of the slowdown in future growth is caused by the headwinds, not a slacking in innovation all by itself.

So can we overcome those headwinds? Mokyr says yes. Gordon says no way. But Gordon says that doesn’t mean the good life is coming to an end. It just means that our children’s lives won’t improve as much as ours did compared to our parents. Economic growth is slowing, but it’s still improving.

Gordon (in debate): Productivity growth, I estimate, will be 1.2 percent over the next 25 years. It's only been half of that the past six years.

Gordon is actually predicting a slight improvement in economic growth.

Gordon (in debate): And so I'm an optimist.

To which Mokyr says…

Mokyr (in debate): I was kind of amused by Bob for standing here saying, ‘I'm an optimist.' That reminds me of nald Trump saying, 'I respect women.'

 On its surface, it seems like Gordon and Mokyr can’t agree on much of anything, but that’s really not true.

Mokyr (in debate): We ended up agreeing on most things.

In fact, remember how Mokyr worked on Gordon’s latest book “The Rise and Fall of American Growth?”Well, in an interview after the debate, I asked Mokyr if it was hard to edit arguments that he fundamentally disagrees with. He said absolutely not. In fact…

Mokyr: I love the book. I have two copies, and I agree with 90 percent of what's in it.

He says…

Mokyr: We can agree about the past; we cannot agree about the future.

Mokyr says he studies patterns about what has boosted progress forward in the past, and…

Mokyr: If you try to look at those patterns and then plug in what's happening today, it seems to be far more promising than Bob gives it credit for. And that's, I think, where we basically disagree.

Mokyr and Gordon are really just looking at things from two very different perspectives.

Gordon: I'm much more practical and down to earth. The difference is Joel is looking more into the future, more into the potential of science. I’m looking more into the problems that we face in the context of the next 10 or 15 years.

But even where Gordon and Mokyr disagree, they respect each other’s arguments.

I want to bring in a third voice now.

Christiano: Larry Christiano. I am a professor in the economics department, and I’m chairman of the economics department.

Christiano is intimately familiar with both sides of the boom-versus-doom debate, particularly the Gordon/Mokyr version.

Christiano: One of the things I like about their discussion is that they really are discussing big questions.

Big questions with potentially bigger policy implications.

Christiano: It would be great if presidential candidates were required to watch Bob and Joel's debate so they can see how it is that ideas can be debated without the discussion having to descend into personal attacks.

You heard a few little jabs in the audio from the debate…

Mokyr (in debate): The age of fossil fuels is over.

Gordon (in debate): Okay, you’ve said that.

But both Gordon and Mokyr agree…

Gordon: Everything is good natured. We accept that both of our views have some merit.

Mokyr: Bob and I have kind of a mutual admiration of society.

He says these are complicated issues with many legitimate, intelligent interpretations.

Mokyr: Bob is a very reasonable – more than reasonable, brilliant – man, and this is an issue on which we can seriously disagree and still remain friends.

In fact, they both say they learn a lot from each other. Here’s Gordon, talking about Mokyr. Mokyr wasn’t in the room to hear this of course.

Gordon: He's an extremely admirable person, enormously well-read, articulate, a fiery debater.

In fact, Gordon says…

Gordon: I am often tempted to try to audit his economic history class to learn something for myself.

So there’s definitely a mutual respect, and they even agree on some of the policy changes they’d like to see as a result of the data they present –things like more investment in education…

Gordon (in debate): The federal government can do something about college loan repayment, so that’s just a starter.

Mokyr (in debate): Unfortunately for you, there's not going to be much disagreement here.

A need for globalization and an open flow of people and ideas…

Gordon (in debate): We could go much further, and this would incorporate Joel's desire to have more high-skilled people.

Mokyr (in debate): I say amen to that, Bob.

Investment in infrastructure and in research, taking steps to end the use of fossil fuels and slow global warming, making sure the markets are competitive, with free entry for newcomers.

Mokyr (in debate): Financial markets will have a very serious responsibility to make sure competitiveness stays alive, and if they don't, then the people in the justice department and FDC are going to have to step in because there's nothing else.

Gordon (in debate): Starting with AT&T and Time Warner.

Mokyr (in debate): Yes, Bob. Thank you. See, we ended up agreeing on most things.

And when it comes to boom versus doom, will we ever know who wins the debate?

Gordon: I think we will know.

Certainly, we can play the wait-and-see game. One hundred years from now, we’ll look back at the numbers and know the answer. But economists at Northwestern and the Kellogg School of Business aren’t satisfied with that approach. Together, they have one of the top economics programs in the world, and they’re expanding.

Christiano: We're making a big push to hire more people in the empirical direction and in the direction of analysis of data.

Northwestern: Is it possible these more empirical economists will be able to answer the question better of boom versus doom?

Christiano: I think so.

They’ll be using data science to understand the implications of innovation, leisure and productivity at a level previous generations could never imagine. So which picture –boom or doom –will it support?

This has been Kayla Stoner with a Northwestern Now podcast. If you want to read more from Gordon and Mokyr, you can get a number of their books from any major bookstore.

Subscribe to more Northwestern podcasts through our SoundCloud channel, or visit our website, news.northwestern.edu