The Pace of Innovation and Other Drags on Future Economic Growth. With Robert Gordon.

hi my name is Huck Guttman I'm a member of the board of the Vermeil Humanities Council and I'm also a professor of English here at UVM and it's my honor actually it's a very great honor to introduce you to this talk by Robert Gordon I won't go over his biography it's in your packet I think biographies are important I think people work very hard to become shared professors as he is at Northwestern and I think they work very hard to publish a lot of books and articles and I think they work very hard and it's a great accolade to be elected to distinguished councils and so I don't mean to give short shrift to Professor Gordon by skipping over those things but as a member of the Vermont Council I listed a meeting of the program committee and I did say to Peter Gordon I hope we're not going to have a conference in which everybody says technology is great and he said no no we have Robert Gordon here and he's gonna be coming and here's his book and he went upstairs in God and it's really fat and it's really overwhelming and I thought I'll get it out of the library and skim it and I wanted to tell you I started reading it and I couldn't put it down it is an overview of who we are and how we got to be where we are and how we are profoundly different than the people who lived at the beginning of the 20th century it's a book about the great inventions of the later 19th century especially electricity and and the internal combustion engine and what they meant as those inventions were deployed in the 20th century and especially as they permeated modern life between 1920 and 1970 as those of you who heard him last night know those innovations were and those movements of our society were in a sense non-repeatable in his view there was a kind of a singularity you can only once go from urban from agricultural to industrial from water into your house having a spigot and did this his view as he said last night that there are three industrial revolutions that too we know of the invention of the steam engine and and mechanized textile manufacture was the first Industrial Revolution the second one was what I've just mentioned electricity in the internal combustion engine and what followed from that which are not only domestic appliances but also all the mass media that we know and think of as being part of our world the third being one we are inhabiting now which is the invention and deployment of ways of marshaling information electronically he's going to speak to us about what lies ahead as the era of great growth which kind of ended in 1970 with the deployment of things like air conditioning dishwashers jet planes telephones everything we know in her modern life she's going to talk about what lies ahead for us as we look at this third Industrial Revolution but also a decline in growth so it gives me very very great pleasure to welcome I can't tell you how good his book is I hope you all go out and buy it or if you don't buy it I hope you read it at his book which is called the rise and fall of American growth is just spectacularly readable and unbelievably elucidating about who we are so it gives me as I said very great pleasure to welcome Robert Gordon Thank You Huck for that nice introduction I'm glad to be here and I'm gonna try not to repeat much if anything of what I said last night so I'm just gonna give you a little bit of a preview let me start and remind everyone why we should care about economic growth the faster is economic growth the more we can consume the more poor people can afford to eat and pay rent the more middle-income people can afford to pay their health insurance bills can afford to save up for their children to go to college more growth makes room for more investment which makes us better future and more output for jobs and since 2009 we've been growing as an economy at a rate of 2% the 2% growth rate has been accompanied by growth of employment of one and a half percent which is a very impressive rate of growth of jobs that's now been persisting for the last eight years and how has that been made possible when the growth of our adult labor force is only growing at about half a percent and the reason is obviously that we have been pulling people out of unemployment into jobs consistently for the last eight years during which the unemployment rate has fallen from 10 percent in late 2009 to four-point it's now down to four point one percent unemployment can't decline much further the lowest unemployment has been in the last 50 years is three point eight percent we're already at four point one percent we're almost as low as we can get and so how fast can the economy grow at a stable unemployment rate which were just about add so this is looking into the future and asking what kind of growth can we expect if the unemployment rate reaches a very desirable and healthy bottom of somewhere around four or three and a half percent well the first thing we face is that the population is growing slower than it used to fertility rates are down the Bugaboo of the Trump administration illegal immigration has stopped over the last period since the Great Recession we have roughly 11 million undocumented immigrants in the United States which is about the same as we did eight years ago so they're not adding to the labor force as they once did how fast our hours per person growing well this goes back about 50 years and the red area show you where hours per person were shrinking as people took longer vacations and shorter work weeks in the middle period shown by the blue was the era when women enter the labor force and the net effect of women entering the labor force overcame the natural tendency of weekly hours to shorten as people took longer vacations and worked shorter work hours and then we move back into the red area where in addition to the effect of shorter work hours this tack talk is a technological marvel the faster hours per person are growing as they did in the middle period due to the entry of women into the labor force the more goods and services we can get per member of the population because more members of the population are working it's gone in the opposite direction in the last 15 years because the women have finished their entry into the labor force and we've begun to have the retirement of the baby boom generation and in addition a big social problem represented by the dropping out of the labor force of many adult men an important theme of my talk today which I'll come back to how fast can output grow per person we've gotten used to over the last hundred two hundred and fifty years steady growth of output per person at a rate of about two percent per year and that continued throughout most of the period shown on the graph which goes back to 1953 the yellow line is growth in hours per person the Green Line is growth in output per hour and the yellow line is above the green line in the middle period when the women were entering the labor force and then as you can see the yellow line falls below the green line in the last 15 years when we had these negative influences I just mentioned on growth of hours per person but the overall message is at a constant unemployment rate the capability of our economy to create our standard of living for the average person has drastically slowed down in the last five to ten years and we're here today both to understand why and also to talk about some other impediments to the improvement in the standard of living that are not represented solely by the raw figures of gross domestic product per person now in talking about the slowdown I'm going to be very us centric talking about the United States but the slowdown in productivity growth that you just saw on that Green Line is shared by all the nations in the developed world Western Europe Canada Australia New Zealand Japan even South Korea which was a paragon of rapid growth during most of the period since the Korean War has leveled off and has productivity growth that it's no faster than that in the United States but later on when I talk about the headwinds that are impeding growth going beyond the pace of innovation we're going to see that there are some special problems with the United States in our education system in the rise of inequality and in what I call sometimes called socio-economic decay problems with the quality of the workforce the quality of life the decline in marriage and a number of other facts you might refer to as sociology rather than economics just a document the slowdown in productivity growth for Western Europe here in the black line we have the United States with a brief revival in productivity growth in the late 1990s and then slowing down at the very end and then the blue line for Europe shows that Europe was catching up growing faster than the United States during most of the post-war era Europe for some reason did not enjoy this temper revival in the late 90s that most of us associate with the arrival of the internet and if you look just at the last five to seven years Europe's productivity this is referring to Western Europe the original members of the common market their productivity growth is just as bad as ours has been and then if you look at the developed countries in Asia including Singapore Hong Kong Taiwan South Korea and Japan weight them by the size of the economy you'll see that they had an even more impressive catching up to the United States back in the 60s and 70s but their productivity growth has steadily fallen so in the very last years at the far right hand side of the screen that purple line comes down almost to where the United States is so the innovation issues I'm going to talk about are universal to the developed world now understanding why growth was slowing down requires symmetrically that we understand why it increased there was no economic growth before 1750 or so people lived mainly on farms with a few farm animals most work was done by hand and people were living very little better than at the time of the Romans so no economic growth century after century the first Industrial Revolution in the late 18th century brought us the steam engine railroads steamships cotton spinning and weaving and a transition from wood to steel and that was great that got some economic growth going but the real powerful inventions occurred at the end of the 19th century the last three months of 1879 was the most fruitful period for invention in the history of the human race because in those three months we had Edison's electric light bulb invented in October in December Karl Benz who gave his name to the famous mercedes-benz company developed the first working practical internal combustion engine and in a little-known experiment an Englishman in London actually sent the first wireless signals but what were all these inventions that came together at the end of the 19th century electricity which made possible electric light power elevators streetcars Subway's fixed and portable electric machines kitchen appliances and later on air conditioning motor vehicles cars trucks buses taxis and air transport made possible by the internal combustion engine an old invention going back to the Romans running water didn't come to the urban American household until the late 19th century early 20th century in 1870 virtually no American homes had bathrooms by 1930 almost all of them did with toilets and bathtubs information and communications witnessed a string of inventions that totally changed the speed of information flow starting with the Telegraph in 1844 the telephone in 1875 and with entertainment devices that included the phonograph and motion pictures information coming by radio and TV all of these things occurring within the very brief period between the invention of the telephone in 1875 and the invention of workable television which was debuted at the New York World's Fair in 1939 behind the scenes less noticed were all the inventions in the sphere of chemicals plastics antibiotics and modern medicine plastics had the most fruitful decade for their invention was in the 1930s and antibiotics were introduced with penicillin at the time of World War two and throughout at all of this there was a change in working conditions the absolute drudgery of hand planting and hand harvesting and pushing plows behind horses and how tough that was on the body together with the idleness in the winter in the northern states so people were unproductive a whole enormous change from that kind of back-breaking labor to the kind of work that most people do today or even did 30 or 40 years ago working in air-conditioned offices so many of these transitions as Huck previewed could only happen once we could only once go from a rural to an urban society only once could we make the transition from light with kerosene and whale oil lamps that required matches to light them and gave off polluting flames fumes to the electric light silent easily switched on and off by a switch instead of by the stroke of a match only once could we accelerate the speed of movement of human beings from the hoof and the sale of 1820 to the Boeing 707 of 1958 and we're not flying any faster than we were in 1958 only once could we go from an indoor temperature that varied from very cold in the winter to very hot in the summer to a moderate indoor temperature that we all now take for granted due to central heating and air conditioning only once could we move from communication by horseback to communication instantly only once could we invent bathrooms and running water and replace the drudgery of the housewife who had to carry pails of water into the house for cooking and bathing and perhaps most impressive of all in this period was that life expectancy increased twice as fast in the first half of the 20th century as it did in the last half of the 20th century yes we do have a third Industrial Revolution we're living through it right now it started in 1960 with the mainframe computer and then the mini computer and memory typewriters of the 1970s and the electric electronic calculators and then the personal computer of the 1980s and the Internet of the 1990s together with search engines and e-commerce there's been a lot of progress but the basic progress was accomplished in terms of business methods and productivity already by about ten years ago in communication we've gone from the pay telephone where you had to put in a nickel or later a quarter to the mobile phone and the smart phone and we've had productivity enhancers including ATM machines barcode scanning and credit card authorization that make it so much easier to shop now a number of people have written to me just reading my book and looking up my email address and often the book reminds them in some way of something they learned from their grandparents so in that spirit I wanted to read you the reminiscence of a grandfather who was celebrating his 60th birthday in 1927 and remembering back to life when he was a child back in the 1870s and this will help to bring to life the enormous changes that had happened already by 1927 from the 1870s the homes of my childhood were not built to keep out winters cold or the summers heat they had none of the comforts of our homes today that is today in 1927 no furnace no gas stove no storm sash no screens no plumbing no sewers no bathroom or bathtub they were heated with wood burning stoves the fires in which went out at night the kitchens were bitterly cold in the winter and infernally hot in the summer well and sister-in water all outside the house for lighting kerosene lamps I remember well how the snow drifted across the floor of my bedroom and winter and how the Flies took possession of the house in the summer one thing not many people would think about is that window screens were not invented until the 1880s and so on the farm there was a nonstop path from the manure in the farm yard to the family dinner table as long as the windows were open now much of this progress was already evident by the late 1920s and particularly by the late 1930s and I wanted to read you one other evocative way of thinking about the nature of these changes at the turn of the millennium in 2000 an author wrote a column for The Wall Street Journal in which he compared the changes that had been made in 2061 years back to 1939 and then comparing them with the changes sixty-one years earlier from 1939 looking back to 1878 and I'll tell you at the end why he chose 1939 imagine somebody dozed off in 1939 and woke up in the year 2000 despite the 61 year blackout he'd still find a familiar world that made basic sense he could drive a 2000 Dodge car since the steering-wheel gas pedal and radio were exactly where they were in 1939 he would understand records telephones light bulbs electricity central heating x-rays social security insurance savings women voting network broadcasting and airplanes all without explanation but suppose instead of jumping forward 61 years from 1939 we went back say our man nodded off in 1878 and woke up in 1939 he would blink in disbelief at the world he saw for nothing of the modern world existed yet he would not know about gas pedals because there were no cars in 1878 the idea of pictures that moved would be strange sending voices and music through the air on invisible waves or inscribing them permanently on discs would have been unexplainable how would he have comprehended a simple light switch from his age of candles and kerosene imagine his reaction to being lifted above the clouds in a dc-3 conversing with someone 10,000 miles away on a phone or listening to Count Basie it would be astonished at going up 104 stories to the top of the Empire State Building in an elevator or Russian under it in a subway such a nice way of putting the enormous pace of change from 1878 to 1939 and the more moderate pace of change since then now I said I would tell you why this man chose 1939 and the reason is he lives in neighboring Wilmette Illinois right next to Evanston and he happens to own in 1939 Buick that's why he chose 1939 now if we look at the impact of these three industrial revolutions we can look at the most important indicator of economic growth which is the growth in labor productivity output per hour the height of these three bars shows you at the very top of the black gray and yellow areas shows you the growth in labor productivity over three area eras on the Left you have and you can't see this it's cut off underneath the slide and the Left we have 1890 to 1920 in the middle we have 1920 to 1970 and on the right we have 1970 until now and as you can see productivity growth was almost twice as fast in the middle period as it was in the first or the second period now some of the growth and productivity was due to better educational attainment and that was true throughout some of the growth was due to more machines per person something economists call capital and that was about the same impact per in each of the three periods what was different is the productivity growth that we cannot explain by the advance of Education or the advance in the number of machines per worker and this economists called total factor productivity it's how productive our economy is taking account of the hours of labor and the hours of machines you can see here there's no comparison total factor productivity growth shown by the black area what grew three times as fast in the middle period as it did in the first and the last periods so what happened to make prototypic growth so rapid before 1970 it's the fact that the Second Industrial Revolution had so many different dimensions of inventions in contrast the third Industrial Revolution was really focused on one dimension the information technology revolution associated with mainframe and personal computers the Second Industrial Revolution altered every aspect of life for consumers and business whereas the third Industrial Revolution mainly mattered for business consumers had their bathtubs had their washing machines had their dishwashers in large numbers by the 1950s and 1960s the advanced from the 1960s until now was really quite small in terms of the consumer standard of living the only important appliance invented after 1950 was the microwave oven leaving aside the mobile phone and the smart phone which we'll come back to so how does total factor productivity growth look over the post-war period going back to the early 1950s as you can see the 1950s and 60s brought us healthy growth there was a radical slowdown in the 70s and 80s a brief revival in the late 1990s that most economists attribute to the arrival of the internet and all of the investment that was made in computers and servers and fiber-optic cable and broadband and flat screens and then in the last ten years were back in the doldrums again with hardly any growth in total factor productivity now the third Industrial Revolution changed business practices think back to the world of 1970 with mechanical calculators repetitive retyping file cards and filing cabinets in the 1970s we advanced with electronic calculators and memory typewriters in the 1980s arrived the IBM personal computer which many of you may remember with the first software that allowed us to do word processing and spreadsheets and by the end of the 1980s we'd made a lot of progress we already had email we already had electronic catalogs and business firms were tying together their computers inside the firm the external internet hadn't arrived yet but inside the firm businesses were doing a lot of processing with computers getting rid of old-fashioned bookkeepers keeping track of things with clunky mechanical calculators and then came the web search engines and e-commerce and flat screens and by the early 2000s airports were converting to electronic check-in kiosks in the airport Lobby and a lot of Airport employees lost their jobs but by 2005 this revolution in business practices was largely over and today businesses are pretty much still carrying on their affairs with desktop and laptop computers now one of the biggest changes that was made possible by the invention of small computers were the replacement of paper catalogs by electronic catalogs remember when you used to if you're old enough you remember when you used to go into a library the catalog would consist of little cards in wooden boxes and the cards wouldn't tell you whether the book was on the shelf or not now we have electronic catalogs with unlimited storage capacity that tells you whether you're in a hardware store or in a nursery and garden shop or in an auto parts department how much in stock you have of an innumerable supply and we're all familiar with Amazon and the millions of items that are available there and so the transition from card catalogs and paper catalogs to electronic catalogs was one of the big transitions but that also was complete by 2005 so everywhere you look you see standing still in office methods with desktop and laptop computers leaving aside ecommerce which is still only 8% of retail sales we still have human beings at checkout counters in retail stores we still have the shelves stocked by humans we still have humans behind the deli counter slicing up meat and cheese we've had virtually no change in decades in the technology used in construction or home maintenance in medicine the big advance in the last 15 years has been electronic medical records but they work with the doctors and nurses who are still basically doing the same thing the only difference is now when you go in to see your doctor for your annual checkup the doctor spends more time looking at the computer screen than looking at you and higher education with its enormous cost inflation as the ratio of administrative staff Rises compared to instructional staff we professors are a shrinking share of the costs of the university so let's play find the robot robots are everywhere in automobile and computer manufacturing the first industrial robot was installed by General Motors back in 1961 and by the mid 1990s in auto factories that I was privileged to tour robots had taken over large parts of the welding together of the auto body and had pretty much taken over the paint shop freeing human workers of the noxious fumes of the painting process but robots are so far almost nowhere outside of manufacturing and warehouses and in the wall street journal' just last week on November 11th there was a long story about some of the reasons why the robots have disappointed the great promise that they would take over for many human activities they're very crude in the tectal tactile feelings that they can develop with their mechanical fingers the hardest thing for a robot to do is fold the laundry they're only beginning to learn how to deal with the flexibility of fabrics robots have a hard time walking up and down stairs and often fall over and the Wall Street Journal story is illustrated by a mechanical robot flat on his face after having fallen over now I will concede that there are a few robots outside of manufacturing and I saw three of them last night in the local studios of channel 3w CA x TV because unlike my last visit my friend from college was formerly the owner of that station and so in the tour we had last night the striking thing was how few people were there compared to the last time I was there 20 years ago and all the cameras in the studio for the 11 o'clock news last night were robots so I've got to concede they're beginning to make their inroads elsewhere some innovations don't have entirely positive effects we know that auto deaths have stopped decreasing and have started increasing due to distracted driving as a result of the you in the wrong setting of smartphones technology but has brought us viruses hacking and identity theft in universities we have enormous extra expense to pay for all the information technology personnel that are necessary to keep our classrooms and laboratories going a lot of innovation is going into directions that don't directly raise business productivity and their ability to pay higher wages and hire more workers including video games and virtual reality goggles clean energy innovation is a great thing for cleaning up the air and dealing with climate change but it's not a direct creator of business productivity so if innovation is proceeding slowly and we're still creating lots of jobs why should we worry well we should worry because of the quality of the jobs two things have gone on first of all we've had job polarization which is a hollowing out of the middle with growth and jobs that are high skilled require a college education and we've had growth in jobs that are low skilled in retailing fast food restaurants and other low skilled occupations and flipping burgers and making beds is not a rewarding or high-paying way to spend the working life there's been a decreased demand for middle school skilled workers that used to belong to labor unions and have stable relatively high wages and look forward to a full career working in a factory and the disappearance of these jobs not just because of free trade but also because of more and more machines replacing people we've had very serious social and economic consequences for middle-aged men who have lost those middle skilled job now we'll come back to the problems of the men but let's turn now to some of the headwinds that are slowing down the process of growth I already showed you that graph that had the red and blue areas showing the shrinkage and then the growth and then the shrinkage again in hours per person the fewer hours our population work the less output there is to distribute to each person and we've had a decline in hours of work per person for the last 15 years and so I think I mentioned before due partly to the retirement of the baby boom generation which started about 10 years ago and also the dropping out of the labor force of many middle-aged age 25 to 54 particularly men but also to some extent women the participation of men aged 25 to 54 was 98% we're either working or looking for work in 1953 and that's down now to 88% so fully 12% of our adult men and that age category are neither working nor looking for work and what are they doing some of them are on Social Security disability but a lot of them according to time youth studies are playing video games in among the high school graduates or those who have less than high school education that participation rate has gone from 97% to 84% and we have the lowest male and female participation rate of any of the so-called oacd the developed countries besides Italy here's the history of the labor force participation rate going back to 1950 and you see the enormous increase that was brought about by the arrival of women who left the home thanks to the invention in part of modern appliances and also the fall in the birth rate after the baby boom generation was over and so we had this enormous increase in labor force participation as women enter the labor force and this raised the number of hours our population were working and pushed up our standard of living but that increase stopped around 1990 we had a plateau for a while and then a very sharp decline in the labor force participation rate in the last ten years it's only leveled off in the last two years and one of the big elements of suspense and uncertainty among economic forecasters is how much more can't employment grow how much more will we be able to bring back some of these prime age workers who've dropped out now this loss of middle skilled jobs particularly for men has had very serious consequences they have become less attractive marriage partners because they cannot earn a steady income and in many cases women don't find that an attractive proposition to be married to someone who cannot support a family that has led in part to a decline in marriage and then in turn to the consequences for children of growing up in single-parent families that should not say single family it should say single parents and we've had very serious consequences as a result of this labor force dropping out and detachment and many males from social interaction that has led to very unfortunate consequences now the obstacles that face men who've lost these middle-income jobs are profound because they're partly cultural we know that a number of jobs have traditionally been considered women's jobs nurses schoolteachers secretaries various kinds of health personnel and it's very hard to convince men to go into those fields but that's where the jobs are growing as the jobs in manufacturing are shrinking women tend to be better at social skills and social intelligence and there are obstacles to moving to better jobs in medium and small towns where the only factory or factories have closed what do people do they don't want to move and leave their extended family which to some extent they may need for support and often the closing of the factory has reduced the price of houses in those depressed communities and made it impossible for people to get enough money from selling their house to be able to go and afford to live in some of the country parts of the country where the jobs are growing more rapidly as men drop out of the labor force and his unions decline in their importance we've had a detachment of men from social interaction through the Union Hall through the Catholic Church or other churches the interactions that people had after their jobs by sharing a beer at the nearby bar we've also had a change from the compliant wife to women who want more independence and don't want unemployed men relying on them males who did not complete college who have a high school education or less have a 51 percent divorce rate and often that is two women leaving the men because of infidelity domestic violence and substance abuse and this then leaves the men off on their own without the civilizing influences of marriage and children so if you want to look at some startling statistics and these are areas in which the United States is falling behind a number of the other developed countries for white high school graduates the percentage of their children born out of wedlock went up over the last thirty years from four to thirty four percent for black high school graduates it went up from forty eight to seventy four percent and here's a really dramatic change this comes from Charles Murray's book coming apart charles murray was accused of being a racist for making slurs on the intelligence of minority populations and so he decided he would get out of that stigma by writing a book totally about the white population and he focused on the top 20% of the white population that he called belmont and the bottom one-third of the white population that he called Fishtown after a poor area in philadelphia and so here's his most startling statistic from the fish town population the bottom one-third of the white population which you can think of as high school dropouts and at least some of the people who have just completed high school for forty year old women the percent of children living with both biological parents in this group declined over the fifty years 1960 to 2010 declined from ninety five to thirty four percent that is an incredible change in the percent of children living with both biological parents now we've got other problems with men and here we're going to look at the ratio of women to men in college education and the thick red line that steadily Rises refers to the white population and that's the one I want to focus on so in the middle you have zero coming down on the left-hand axis you have minus two minus four minus six minus eight and so back in 1975 the percentage of women completing college was eight percent less than the percent of men completing college that female-to-male ratio steadily improved across zero at about 1995 about 20 years ago and it has continued to rise until now we have roughly eight percent gap between the number of women completing college and the number of men and that leads to a problem that if college educated women want to marry college-educated men there aren't enough college-educated men to go around what are some of the consequences of these single-parent families the children in single-parent families grow up without the steadying influence of a father and sociological studies have shown that there is a distinct difference in the intellectual growth of sons and daughters with the sons being slower to develop in households without fathers much of the development of the young child's brain occurs in ages zero to two and the absence of parental leave in the United States compared to many other countries means that children are often left by their parents at very early ages when they need the nurturing to develop nor and there are other indications of adverse consequences for children growing up in single-parent families between 1979 and 2008 the percentage of white high school dropouts with prison records rose from 4 to 28% for whites and for blacks from 15 to 68 percent so we have a definite correlation between single-parent families dropping out of high school and becoming engaged in criminal activity now a couple of years ago a professor of economics at Princeton named Angus Deaton who subsequently won the Nobel Prize in Economics came up with startling figures for the mortality record of Americans whites without a high school education and what we see here in the blue line with the dots that goes down is the mortality rate of blacks steadily improving in other countries mortality is steadily improving as health care becomes better and as people stop smoking but the red line shows for high school or less educated white non-hispanics the death rate has gone up something that's not occurring almost anywhere else in the world and here again the red line in the left frame the left and right frames are a slightly different version of the same thing the red line on the Left shows the mortality rate the number of deaths per hundred thousand people rising in the United States and falling everywhere else falling rapidly in France Germany UK Canada Australia and Sweden so here again we have a story in which innovation is slowing down for all the developed countries but the United States is developing a peculiar and unique set of sociological problems highlighted by this increase in the mortality rate and last year was the first year in more than a century that instead of improving life expectancy actually became shorter so this extended view of the demographic headwind the dropping out of the men reduces growth in hours of work it reduces growth and total output the decline in postponement of marriage reduces the fertility rate and the rate of population growth the slower the population growth the fewer young people we have to pay the taxes to support the Social Security and Medicare of the older generation the health consequences of dropping out have raised the mortality rate through where these deaths coming from with this rising mortality rate suicides alcohol addiction and opioid addiction we're now up to 60,000 deaths a year coming from opioids alone and the consequences of all these single-parent families cast a shadow on the future educational attainment and employability of their children now that's the demographic headwind what about the education had win a major driver of productivity growth throughout most of the 20th century was the steady increase in educational attainment in 1900 only 10% of people completed high school by 1970 that was up to 80 percent a huge driver of productivity growth now we still have 15 to 20 percent of our population not completing high school most people who go to two-year Community College's drop out and do not complete college completion is gradually rising but 40 percent of recent college graduates were unable to find a job that requires the college education and 15 percent of Americans taxi drivers have college education on top of that with American higher education you have high and rising costs and growing indebtedness with the amount of student debt now up to one point four trillion dollars the upper faint pink line shows the percent of the population that had completed high school going back to 1940 and you'll see that that faint pink line at the top showing the percent of 25 to 29 year olds that had completed college reached a plateau around 1975 and it's been virtually level since with a slight uptick at the end the thick red line at the top shows for the entire population how many had completed high school and that is also leveling off of course the line for everyone lags behind the line for 25 to the 29 year olds and then the same for college shown at the bottom with a for the 25 to 29 year-olds the faint pink line at the bottom grew more rapidly in the early period than it's grown since here is another way of looking at the percent of the population that's completed four-year college and the crossing point with the women moving ahead of the of the men back in the early 1990s and the percent of women greatly exceeding that of men particularly over the last ten years when you look at international comparisons the United States does very poorly in the international tests given with the same material - 15 year-olds in 34 different countries the on the most recent one carried out a year or so ago the u.s. ranked 17th in reading 20th and science and 27th and math the u.s. used to lead the world in the percentage of our population that went to college thanks to the GI Bill after World War two but we've now fallen down the league table 416 in college completion as a percent of the population and we're somewhere around the same rank in the percent of high school dropouts and this alone is slowing down in the improvement of educational attainment we'll take about a third of a percentage point off our productivity growth over the next 25 years as compared to our average performance in the 20th century and then after demography as a headwind after education as a headwind we have the inequality had win over the last 20 years fully 52 percent of all the gains and income have gone to the top one percent of the income distribution the gains for the top one percent was 95 percent almost a doubling of real inflation adjusted income for the bottom 99 percent the growth of income was only 15 percent so how does this factor into economic growth if all the money is going to the top it means the average including the people at the top is growing faster than the median the performance of the people in the middle and so for the people in the middle our economic performance is even worse than those charts reveal that were shown earlier and the rise in inequality is not over just think of the ways it's occurring with multi-million dollar annual income of sports and entertainment stars beyond say a hundred million dollars last year not just 10 or 15 million there are at least 50 celebrities that made more than 50 million dollars last year chief executive officers used to be paid 30 times as much as the ordinary worker now they're paid 300 times as much at the same time firms are pushing workers out of employment status into contract status with out benefits forcing people into part-time work instead of full-time work without benefits and we've had the decline in unions and the purchasing power the minimum wage this chart goes back further than any of my other charts goes back to 1920 and shows four different countries the share of the top one percent in income and we started out in the 1920s with most of these countries the top 1% had a share of income ranging from 15 to 20 percent there was a great equalization that came in the Great Depression and World War two and so by the 1970s the income share of the top 1% had fallen from about 20 percent down to 8 percent that's still substantial substantial inequality but still less than there was now look at what's happened since the late 1970s the top blue line is the United States the top 10 top 1% of the income distribution is now back with an income share above 20% Canada and the UK come next and Japan and France have had virtually no increase in income inequality so again the United States is unique the problems of innovation affect all the developed countries but the United States stands alone in some of these headwinds not all the headwinds the demographic headwind is actually more significant in Japan and Korea which have lower fertility no immigration and a higher and growing share of people over the age of 65 putting a great fiscal burden on the rest of the population now here's something I think most people would find shocking we have 5 pairs of bars arranged by income with the lowest 20% of the income distribution on the left and the top 20% of the income distribution on the right the blue bars show for people age 50 years old how long they could expect to live if they were born in 1930 or if they were born in 1960 for the poorest group on the Left the number of years you could expect to live from age 50 was twenty six point six if you were born in 1930 and actually decreased it got worse to 26.1 so you add twenty six to eight fifty that's a life expectancy of seventy six years for people at the bottom then look at the people at the top over on the right from age fifty they could expect to live to be about eighty two if they were born in 1930 and they could expect to live to be about eighty nine if they were born in nineteen sixty so tremendous improvement in life expectancy for people at the top and an enormous gap of twelve years of life expectancy between the poorest group and the richest group the poorest living until age seventy six and the richest living till age eighty nine and just think of the inequity of Social Security when low-income people not only get smaller Social Security checks per years but they died too soon to get their full entitled Social Security benefits whereas the better off people live so much longer then the fourth headwind is simply the effect of the retirement of the baby boom generation and the rising share of people over the age of 65 on the federal budget on the expenditures for Social Security and Medicare this is a projection of what will happen to the ratio of total federal debt to GDP how big the debt is in relation to the size of the economy starting now at about 78% and going up over a hundred percent by about fifteen twenty years from now so if you take all these headwinds together it's not a pretty story the demographic headwind reduces hours per person the education had wind reduces productivity growth the inequality headwind reduces median growth of incomes below average growth and the fiscal headwind means that to stop that inexorable rise in the debt to GDP ratio we're gonna have to cut benefits raise taxes or raise the retirement age now you put it all together and this is almost the end I look out into the future and come up with several different measures of where we're going compared to where we've been in the past now looking over at the left we have output per hour that's productivity in the period since 1920 up until now productivity has grown at two and a quarter percent per year my prediction and this comes straight out of the book is over the next 25 years we're gonna have productivity growing at 1.2 percent about a full percentage point less now that 1.2 percent really from today's perspective looks pretty good because the actual growth achieved by the economy in the last seven years has only been half that amount about 0.6 of a percent for productivity moving over to the second pair of bars the growth in income per person was as I said earlier historically around 2% to be precise two point one and that's going to grow slower at a rate of only 0.8 why does output per person grow slower than output per hour because the number of hours per person are shrinking due particularly to the retirement of the baby boom generation then if inequality continues to increase the median output per person instead of growing at 1.8 percent a year would only grow at 0.4 and then the final pair of bars looks at disposable after-tax income and I conjecture that will grow even slower if we have higher taxes or lower benefits because of the growing burden of the elderly generation so my conclusions are that 70% of all the growth in total factor productivity since 1890 occurred in the middle 5 decades of the 20th century and can be attributed to the miracle of the Second Industrial Revolution the big impacts on total factor productivity of the third Industrial Revolution were less they lasted shorter and they were largely completed by 2005 we've got lots of innovation I can talk more about it in our discussion period autonomous vehicles smartphones 3d printing artificial intelligence but at least so far this set of innovations has had less impact on productivity than the earlier innovations going back to electricity and the motorcar much of the slowdown in our future growth is caused not by faltering innovation but by the headwinds and their effects in pulling down growth in median income per person slowing innovation is shared across all the developed countries while aspects of the headwinds are a us-centric but there's a real dichotomy about what may seem to be a pessimistic view of the future and an optimistic view of the future because there are those that I call the techno optimists that think we're about to embark on a fourth Industrial Revolution where artificial intelligence and robots take over all the jobs and those people while optimistic about productivity growth are very pessimistic about jobs they think that the jobs are going to be largely taken away a pair of economists at Oxford predicted four years ago that 50% of the jobs would disappear within the next 20 years and we can come back to their forecasts in the discussion period I take the opposite point of view I'm more pessimistic about the pace of innovation and the breadth of the impact of artificial intelligence and robots on the many jobs that we still have left as we've achieved our 4.1 percent unemployment rate so to end on a happy note while I may be pessimistic about productivity growth I think there are lots and lots of jobs in your in my future thank you [Applause] so let's have some questions I see an eager beaver here in the front row I have a quick comment and a question the comment has to do with an earlier remark you made and it doesn't have anything to do with the modern period I I'm an economic historian of medieval Europe and I I would probably quit quibble that there was no economic growth in the Middle Ages because I I consider the ninth through the late 13th century to be a very strong period of growth based on population growth technological change in public spending but in any case that's a small quibble my my real question and it's one that I wanted to ask last night actually has to do with what is really helping to fuel these first two revolutions in particular these first two industrial revolutions don't you don't you think that public spending in particular investment in socially useful targets are part of the reason why we had such growth in the late 18th early 19th centuries public spending behind the construction of railroads and the public spending that occurred in the 20th century in the period that you're highlighting here in the middle of the 20th century focusing on the GI Bill the interstate highway system also certainly technology as well military spending that helped create the Internet isn't that also what's really behind these these this great productivity growth and one of the reasons why we're we're not encountering that now is that public spending seems to be shifting more toward increasing inequality and and supporting interests of shareholders and so on talk about what public spending shifting toward you'll you'd have to recognize that the biggest shift is toward transfer payments toward Medicare Medicaid and Social Security but if you go back just to add to your list not only did government land grants made possible the rapid expansion of US railroads but we also had the Agricultural Experiment stations that greatly enhanced productivity in agriculture and we had the establishment of the land-grant state universities which brought the United States ahead of the rest of the world in the percentage of students who completed college as I mentioned we've slipped from number one to number 16 by that metric and then in the 20th century the effects of World War two on productivity are mysterious but quite profound we came out of World War two with a level of economic activity that was much higher than you could explain by the previous rate of growth up to the beginning of the Great Depression in 1929 and the interstate highway system was one of those inventions you could only you could only do that once you only need to put a four-lane limited-access highway across the middle of Wyoming once you don't need to keep doing it and the ability to drive from coast to coast without a traffic light was a miracle that we marvel that back when I was in graduate school in the 1960s and one nice eggman after another of the interstate highway system was completed so we are not investing in public investment it's not just that we're we're slipping as a share of our total economy our investment in public investment is roughly half of what it was back in the heyday of the interstate highway system so I fully support you were your general theme I know you came with Jomo Karen we're debate and so I have some questions about that I went to his talk yesterday afternoon and he talked about adverse effects of Technology and for him the technological fix was the answer that he explicit I think he explicitly said in terms of climate change that there would be no way of agreeing politically to reduce carbon emissions and so he had to go for carbon capture and I I totally disagree with that I'd like your take and then another thing he characterized do you disagree oh well I think that these first of all the technology solution is just a transfer of money to big corporations who were and and that the climate deniers and now of the the corporate climate deniers have sort of shifted their view instead of saying that there's no climate change they're saying yes there is and we can save it the other thing I think that that these things especially the the idea of putting sulfur dioxide in the atmosphere is just so so scary that I don't know what to say about it and I just have my doubts of that carbon capture and so the other thing he characterized your position in terms of science he said that what you say is that we've solved all the low-hanging fruit and that all the easy problems said themselves and we won't be able to solve the hard problems and I'd like your take on that as well first reaction is I only predict out 25 years 50 years hundred years from now the extent to which jobs have been replaced by robots I don't think is within our power to predict but we've got enough problems to focus in on the next 20 or 25 years I don't think all the problems have been solved we are engaged in innovation that is going to directly address several issues involving climate change that won't directly improve business productivity but will address climate change in particular I'm thinking on the one hand of wind and solar power we've had a huge decline in the price of solar panels partly due to imports from China and solar power is much more promising than it was 10 years ago there have been big and technological improvements in batteries the problem with solar power is how to use provide the power at night when the Sun goes away or when it's cloudy and improved battery technology is helping with that in addition there has been enormous progress as everyone knows with electric cars and it's if we wanted to predict anything that's going to change over the next 20 years it's probably easiest to predict that we'll have nationwide charging stations that are almost as ubiquitous as today's petrol gas stations and electric cars don't require as much maintenance they don't pollute the air and if we had a 100 percent conversion to electric cars not over the next 20 years but over the next 50 years that would make a major contribution to not just stopping the growth of carbon emissions but turning them around and I'm certainly like most economists an advocate of the carbon tax particularly not only for the disincentive to emit carbon that is imposed on the economy but also all that tax revenue and what we could do with the tax revenue in terms of preschool education or a single-payer medical system somewhat morbid I'm from Cleveland Ohio originally and four years ago well after the recession hit Cleveland there were so many unoccupied buildings four years ago I had two cousins who one worked for Ford one worked for manufacturing company in Lorain Ohio and they both killed themselves and they were fathers of children and I wondered if there's been another time in the history of industrial revolutions where people have lost so many jobs that it really destroys you know people lost their jobs there was no help from the government and then this led into the opiate crisis many kids whose parents lost their jobs are now the people who are of these issues and I wondered if there's been another time where you've you couldn't pin well like that today's loss of jobs is absolutely no comparison it shrinks into almost insignificant compared to the Great Depression when in 1932 in 1933 we had unemployment rates of 25 percent but you didn't you didn't see the the same decline in marriage you you saw people sticking together and trying to help each other we went through an entire decade of the 1930s with unemployment above 10% for more than ten years and we were pulled out of the Great Depression only by rearmament and World War two so yes I think that is an example that helps to put today's problems into context because we did not have opioid addiction I think we did have an increase in suicide during the Great Depression but today's problems I think are unique and they're particularly unique because the increase in mortality among those with a high school education or less is unique to American White's it's not even applying to the black and Hispanic the United States population [Applause]

Channel: Vermont Humanities

Views: 465

Rating: 5 out of 5

Keywords: humanities, technology, progress, economics, Northwestern University, Vermont

Id: OnET10CkDl4

Length: 74min 54sec (4494 seconds)

Published: Tue Dec 05 2017