Why did Growth Slow After 1973?

My grandmother died at age 79 on the very week they landed on the moon. I believe that when she was young she lived in a small town or farm in Wisconsin.  There was probably no indoor plumbing, car, home appliances, TV, radio, electric lights, telephone, etc.  Her life saw more change than any other generation in world history, before or since.  I’m already almost 55, and by comparison have seen only trivial changes during my life.   That’s not to say I haven’t seen significant changes, but relative to my grandma, my life has been fairly static.  Even when I was a small boy we had a car, indoor plumbing, appliances, telephone, TV, modern medicine, and occasional trips in airplanes.

In response to my previous post, a commenter asked why the neoliberal revolution hadn’t produced a more impressive increase in living standards, after all, he argued, there have been huge increases in computer technology, cell phones, etc.  You’d think these are impressive, but they are actually in a rather narrow segment of everyday life.  Here is an example I use with my class:

When Lindbergh crossed the Atlantic in 1927, he had a fairly small and primitive airplane.  By 1969 Boeing had produced the 747.  Now another 41 years have gone by and commercial aircraft really haven’t advanced far beyond the 747.  Sure the internal avionics are improved, but the overall improvement is nothing like the 1927-68 period.  You could do the same for many other products.

Here’s what I think happened.  There were a few underlying technological developments in the late 19th century that dramatically affected living standards in the 1920-70 period, when they were widely adopted in advanced economies.  I would certainly include electric power and the internal combustion engine.  I also think indoor plumbing is underrated.  Imagine having to rely on outhouses in cold climates.  And also recall the health advantage of safe drinking water.  And I suppose modern chemistry should be included—something I know little about.  Many key products were first invented in the late 1800s or early 1900s (electric lights, home appliances, cars, airplanes, etc) and were widely adopted by about 1973.  No matter how rich people get, they really don’t need 10 washing machines.  One will usually do the job.  So as consumer demand became saturated for many of these products, we had to push the technological frontier in different directions.  And that has proved surprisingly difficult to do.

You can’t really make airplanes 10 times bigger than the 747, at least in a cost effective way.  We went to the moon in 1969, but still don’t have much better propulsion technology.  The Titanic was much bigger than earlier ships, but 1000 feet is long is long enough.  The new ships are wider, but no one is building 3000 foot liners.  Improvements in cars are now incremental.

I suppose there are three technologies that may drive the next wave of growth; computer chips, biotech and nanotech.  But only one of those has had a major effect so far, and although improvements in computers and cell phones have been awesome, it is just not enough to drive GDP figures higher at the rate my grandma saw.  Isn’t amazing enough that my grandma saw all those improvements in her lifetime?  Are we so spoiled that getting to live our entire life with all these goodies isn’t enough, we want another growth miracle as impressive as the 1920-70 period?  Unfortunately, it doesn’t seem like it is going to happen.

[I’ll defer to people like Robin Hanson on the prospects for the “out decades.”  Personally, I fail to understand why progress in biotech is such a great thing, if it means the ability of a Unibomber-type who thinks the world is overpopulated to build deadly viruses that spread like the common cold advances faster than our ability to develop cures for those threats.  And I’m not normally a Luddite.]

To summarize, I think people misunderstood my previous post.  I absolutely agree with Krugman that growth in living standards is now slower than in the 1920-73 golden age, which saw technological change affect almost all aspects of our life, not just the images we watch on illuminated boxes.    I was simply trying to compare neoliberal reformers, to those countries who reformed less aggressively, to get the marginal impact of those reforms.  I still think that the marginal impact of free market reforms and lower MTRs was positive.

So don’t tell me about 90% tax rates (which actually collected little revenue, BTW), even the inept Soviets churned out lots of goods in those decades.  You can run a steel mill or washing machine factory like you run the army, if you don’t care about quality.  Trying to recapture the 1950s with a statist economy is fool’s gold.  We’ll never again see that sort of growth–unless Robin Hanson is right.

PS.  I thought of another example.  In the 1960s we built lots of nukes.  What’s the newest thing in electric power generation?  Windmills!

About Scott Sumner 490 Articles

Affiliation: Bentley University

Scott Sumner has taught economics at Bentley University for the past 27 years.

He earned a BA in economics at Wisconsin and a PhD at University of Chicago.

Professor Sumner's current research topics include monetary policy targets and the Great Depression. His areas of interest are macroeconomics, monetary theory and policy, and history of economic thought.

Professor Sumner has published articles in the Journal of Political Economy, the Journal of Money, Credit and Banking, and the Bulletin of Economic Research.

Visit: TheMoneyIllusion

1 Comment on Why did Growth Slow After 1973?

  1. A well-considered piece. Why do comfortable civilizations gravitate inexorably toward self annihilation anyway ?

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