Will our children really not know economic growth? This is the title of a balanced review by Larry Summers of economist Robert Gordon’s – pessimistic – expectations of US growth in The Rise and Fall of American Growth: The US Standard of Living since the Civil War.
The easy conclusion would be to assume the economists do not know and cannot guess, given Gordon was among a host of economists a decade earlier predicting productivity would average 2.2% to 2.8% in his 2003 Brookings paper – Exploding Productivity Growth: Context, Causes, and Implications –- rather than the under 1% recorded since the 1980s.
Twenty years ago the first “new economy” bandwagon was still in full swing, although it was Alan Greenspan’s attempts to diminish such “irrational exuberance” that were cut short. In 1996, Greenspan was worried that the internet and tech developments were not impacting production as expected – hence the irrational exuberance of investors – but eventually concluded the impacts were so new they were not being caught in the data and so the party should continue.
As then head of the Federal Reserve, Greenspan encouraged the post-dot.com bailout through low interest rates, combined with the China trade of keeping its currency low to boost exports and then buying US treasuries with the dollars earned, which helped keep the global economy afloat until the credit crunch struck in 2007-08.
That productivity has still to take off in the numbers indicates the balance between population growth, labour force participation, the unemployment rate and hours worked per employee with technology and business model improvements, such as better utilisation of assets through the so-called sharing economy of Uber and Airbnb.
With billions more people joining the digital economy through better – or at least usable – internet connectivity and devices, the relatively low productivity trend could remain constant until something changes, such as artificial intelligence, deep learning, biotech or robots. As Summers said in his review: “Creative destruction takes time.”
Just a quick look at an entertaining – albeit biased as a virtual reality maker – view on workplace productivity and Robert Scoble’s review of Magic Leap and augmented reality as “Apple Mac II, mark two” shows the excitement in new tech continues.
In this scenario of abundant change, productivity could climb while labour force participation drops as people are reclassified out of the formal jobs market.
Hindsight, therefore, could show that this time for increasing productivity may be the next decade given likely changes in energy, health, communications and most sectors through the combination of different advances. Ideas are not added but multiplied under the idea of combinatorial explosion discussed in last month’s editorial.
There is no real question that our children will know economic growth given the focus on innovation currently but how much they participate in this growth or reap its rewards is still open to question. One plausible scenario is very few will be so involved, as Marvin Minsky, the so-called father of AI, identified in a discussion before his death this year with Ray Kurzweil, who has promoted the idea of the singularity.
Film-maker Adam Curtis in his work, such as All Watched Over by Machines of Ever-Loving Grace, has noted that power and politics did not go away in the new economy, just the technologists’ idea of freedom and ecosystem stability. But just as financiers effectively replaced politicians in holding the levers of power from the 1990s, so the technologists are now joining the power elite. By being able to understand the electorate and to target messaging to influence them as effectively as recent campaigns in the US and UK show, technology moves from enabler to influencer, and those that control these platforms commensurately have increasing power.
The shift in power structures within the global elite could be as dramatic as the shift in relative importance between countries, such as China and the US.