John Mauldin Forecast 2014 – The Human Transformation Revolution

The End of Growth?

There is a school of thought that sees the first and second industrial revolutions as having been driven by specific innovations that are so unique and so fundamental that they are unlikely to be repeated. Where will we find any future innovation that is likely to have as much impact as the combustion engine or electricity or (pick your favorite)?

This is a widespread school of thought and is nowhere better illustrated than in the work of Dr. Robert Gordon, who is a professor of economics at Northwestern University and a Nobel laureate. I have previously written about his latest work, a papercalled Is US Economic Growth Over?

Before I audaciously suggest that he and other matriculants in his school of thought confuse theproductsof industrial revolutions with theircauses,and thus despair over the prospects for future growth, lets examine a little bit of what he actually says. (You can of course read the original paper, linked above.) To do that we can turn to an article by Benjamin Wallace-Wells that I cited inOutside the Boxlast June. He explains Robert Gordons views better than anyone I am aware of.

[T]he scope of his [Gordon's] bleakness has given him, over the past year, a newfound public profile, Wallace-Wells notes. Gordon offers us two key predictions, both discomfiting. The first pertains to the near future, when, he says, our economy will grow at less than half its average rate over the last century because of a whole raft of structural headwinds.

His second prediction is even more unsettling. He thinks the forces that drove the second industrial revolution (beginning in 1870 and originating largely in the US) were so powerful and so unique that they cannot be equaled in the future.

(A corollary view of Gordons, mentioned only indirectly in Wallace-Wellss article, is that computers and the internet and robotics and nanotech and biotech are no great shakes compared to the electric grid and internal combustion engine, as forces for economic change. Which is where he and I part company.)

Gordon thinks, in short, that we do not understood how lucky we have been, nor do we comprehend how desperately difficult our future is going to be. Quoting from Wallace-Wells:

What if everything weve come to think of as American is predicated on a freak coincidence of economic history? And what if that coincidence has run its course?

Picture this, arranged along a time line.

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John Mauldin Forecast 2014 - The Human Transformation Revolution