The Pessimist Mystique?

Do periods of economic downturn create more pessimists, or do they just get more attention during tough times?  Economists and politicians love to alarm us into believing economic growth is now on a slippery slope to permanently low levels.  Everything has already been invented, baby boomers are on the decline, and productivity will never experience the kind of improvements that were seen in the 1950s.  Robert J. Gordon, Professor of Social Science at Northwestern University wrote a paper for the National Bureau of Economic Research (NBER) in August 2012 in advance of his book release Beyond the Rainbow: The American Standard of Living Since the Civil War.  He points out that the computer and Internet revolution has resulted in a much smaller economic impact than that of the combustion engine.  He then argues that future innovations will have a diminishing effect on economic growth because of six headwinds¹.

Gordon makes some good arguments, and every once in a while I do have my doubts about continued economic growth in the U.S.  Working in the semiconductor industry, I’m constantly bombarded with dissertations on the ominous challenges of increasing R&D costs, narrowing margins and the death of the PC era.  One of Gordon’s ‘headwinds’ is the assumed plateau in educational attainment in the U.S.  He believes the increasing cost of higher education is deterring low income groups from attending college, and the percent of the population completing higher education degrees in the U.S. has reached a saturation point.  But then I have dinner with a 25-year-old who works at an Internet company and believes they are going to revolutionize the education system.  The public school system provides the necessary tools for a majority of the student population, but Internet education programs can address students outside the normal distribution.  New programs are being developed for advanced learners and customized assistance for those who drop out of the traditional class room setup.

Gordon admits that there may continue to be technical innovations but points out that the Internet has done more for entertainment and communication and not enough for productivity and economic growth.  I say give it time.  The computing power in a smart phone or tablet combined with sensor technology will bring about a shift just as significant as the move from a rural to an urban economy.

For a more in-depth analysis of Robert Gordon’s paper and Semico’s view on technology growth, please refer to the October issue of the Semico IPI Report.  For questions, contact Rick Vogelei, rickv@semico.com.

¹ Is U.S. Economic Growth Over?  Faltering Innovation Confronts The Six Headwinds, NBER Working Paper Series, Robert J. Gordon, Dept. of Economics, Northwestern University, August 2012.