Book Review – The Rise and Fall of American Growth

Rise and Fall of American Growth-bookcoverThe Rise and Fall of American Growth: the US standard of living since the Civil War by Robert J. Gordon ((Princeton U. Press. 2016)) is a weighty book in every regard. At 762 pages it is a heavy lift – not beach reading or even bed-time either. But I found it almost a page turner. It is very well structured and written. None of the fussiness or obscurantist language one often finds in academic works. The central point of the book is that during the period from 1870 to 1970 the US economy grew at an extraordinary and we will not see a return to that rate for some pretty fundamental reasons.

Before moving forward, a bit of context. For the past 150 years we have lived in a completely novel situation in human history. Until the beginning of the 19th century human beings lived for generations and generations seeing extremely little growth in the foods and material stuffs available to them. In the Western world average annual growth between 1 AD and 1820 AD was 0.06%, roughly 6% per century. In the US between 1870 and 1920 the growth rate was 1.8%. This means that the size of the economy doubled every 38 years. Between 1920 and 1970 the growth rate surged to 2.8% per year, doubling the economy every 25 years. Since 1970 the growth rate has slipped back to 1.6%.

Gordon argues that the boom century of 1870 to 1970 was a period of broad-based transformations in the quality of day-to-day life that far exceeds the growth measured by economic statistics. Everything changed, food, housing, health, education, domestic chores, transportation, work, leisure, communications, and more. The very shape of the day was transformed by the twin innovations of the electric light bulb and the electric supply grid. Gordon spends almost 500 pages taking the reader on a tour of all of these changes. Throughout he keeps an eye out for the systems implications of what otherwise might be viewed as individual innovations. For example, by the 1890s the grid of railroads was substantially completed throughout the country. But, perhaps counter-intuitively the demand for horses increased because it wasn’t until the 1920s with the broad adoption of the internal combustion engine that transporting all of the goods and people moving on the railroads could actually reach their desired end point. Horses continued to close this last mile.

This period was characterized by extremely fast adoption of new innovations, telephones, railroads, cars, electricity, water and sewer. Between 1910 and 1922 attendance at movies went from nearly zero to over 36% of the population attending movies weekly. By 1930 this reached over 70%.

So, this 500 page excursus into the practical changes in the quality of life during this boom century is intriguing on its own. The period between 1920 and 1970 was characterized Gordon by a growth rate substantially higher than the preceding 50 years and the following 46 years. What drove this? He comes to two somewhat unexpected sources, the Great Depression and WWII. The Great Depression was a period in which corporations consolidated many of the changes in methods while the workforce became substantially more unionized forcing a broader distribution of the economic pie. WWII in the US was marked by enormous improvements in production techniques and the Federal government, though purchases for war production, doubled the number of machine tools in use. The war also constrained the use of capital to drive growth and forced a focus on innovations in labor productivity.

None of these lessons were lost when the war ended. And the US entered the post-war era completely dominant on the world stage. All of its competitors had been reduced to rubble during the war. While the US, thanks to government investment in war materials production, now transferred to the private sector, had the newest capital with a workforce trained and ready.

The period following 1970 has not been without its innovations as we are reminded ceaselessly by Silicon Valley. Why is it then that these have not carried forward the growth rate of the previous 50 years? Gordon argues that these innovations have been largely contained within what he calls the information communications technology sector. Although in the last ten years or so, some of these devices and technologies have become omnipresent in much of our day-to-day life, think mobile phones, Facebook, etc., but compared to the changes wrought by the innovation of the previous period they simply have not had the material effects. A simple example will suffice to suggest why this is so. At the end of the War of 1812 the Battle of New Orleans ended on January 18, 1815 a full three weeks after the Treaty of Ghent had settled the conflict with the British. News travelled at the speed of sails and horses. On May 10, 1869 when the Golden Spike was driven to complete the first transcontinental railroad, cannon fire and celebrations broke out across the country within seconds because a telegraph operator tapped out the news across the nationwide telegraph system. Weeks and months had shrunk to seconds. All of the improvements in communications technologies since then can hardly compare to the first leap.

Gordon closes his discussion of why he feels that our current somewhat slower growth will not revert to that of the boom century with what he describes as a review of the question of whether new innovations can be predicted to be as fundamental as those in the boom century and “headwinds”: rising inequality, education, aging population, and government debt to GDP ratio. To focus only on education, productivity growth is a combination of capital and human ingenuity. An educated workforce is critical to a high functioning economy and society. The US is falling behind. high school graduation rates grew from 10% in 1900 ton 80% in 1970. It has fallen to 74% currently, eleventh in the world. International tests of educational attainment rated the US seventeenth in reading, twentieth in science, and twenty-seventh in math.

To close, read this book as a wonderful trip through the transformations in life that completely remade our experience of day-today life during the boom century. Read this book to understand the dynamics underlying our political economy and what faces us in the future.

PS – the book is available at the Hudson Area Library.