Is the U.S. economy stuck in secular stagnation? Or is it on the cusp of another golden era of growth and productivity gains?
It depends on whom you ask.
The Bloomberg Benchmark podcast spoke in recent weeks with two of the most prominent professors on opposite sides of the debate: The pessimist, Northwestern University's Robert Gordon, the author of this year's book, "The Rise and Fall of American Growth," and the optimist, Erik Brynjolfsson of the Massachusetts Institute of Technology, the co-author (with Andrew McAfee) of "The Second Machine Age" (2014).
Each dutifully made his case. Yet some of their views might surprise you: Gordon is actually optimistic about the next few years of growth in the U.S. economy, while Brynjolfsson is concerned that the political system won't do its part to make sure that the nation can benefit from the rush of innovation.
Below is a partial transcript of their separate interviews.
Gordon: We did get a big productivity payoff in the first round of the digital revolution back in the 1980s and 1990s. What's happened in the last 10 years is that the conversion to that new world of personal computers and laptops and getting rid of paper, the conversion from card catalogs and paper catalogs to electronic catalogs — that's primarily been finished. We've made our transition to ATM machines for getting cash, bar-code scanning for checking out of the supermarket — that's all happened more than 10 years ago. So it's the lack of really profound, economy-wide impacting innovation in the past few years that's been the problem.
Brynjolfsson: I think much better days are ahead of us. And my optimism comes not from extrapolating what happened with productivity recently. It comes from going out and visiting companies. In particular, I think we should remember that this is not the first time people talked about secular stagnation. The term was actually coined by Alvin Hansen back in the 1930s, another really bad period for growth. It turned out that he was 180 degrees wrong. Literally, the best three decades we've ever had, so far, were right after Alvin promulgated the idea of secular stagnation. The '40s, '50s and '60s were just blockbuster decades for growth and productivity. And I think we should take that as a warning and be a little humble about what we think what will happen going forward.
The Promise of Artificial Intelligence
Brynjolfsson: When we wrote the book, humans could see better than machines; now, in many tasks, machines are much better, for instance at recognizing street signs or interpreting images in big databases like ImageNet. The same technology has vastly improved voice recognition. And even in mundane things that we don't hear much about, like power use in data centers. Google's DeepMind team, a group of AI researchers, turned their technology on their own data centers and very quickly found that they were able to run them 15 percent more efficiently. They're working to diagnose diseases better. So what we're doing is taking this core technology of artificial intelligence, machine learning, and combining it with knowledge in lots of different areas to create new products and services.
Gordon: The new world of artificial intelligence and computer-driven intelligence is taking up a lot of innovative energy. But, so far, the impact is in little niches of the economy rather than across the board. We've got voice-recognition language translation, reading radiology scans, some of the uses of computer technology doing legal searches — computers are really good for doing searching and can do it more efficiently than humans. So there's a very gradual transition to take advantage of these new technologies.
How Government Can Help
Brynjolfsson: Technology is a catalyst for bigger changes, but by itself technology doesn't raise living standards. It requires a host of complementary innovations, just as it did in the industrial revolution: investments in education, reorganization of work, new policies. I don’t see us being nearly as good as those complementary innovations or nearly as fast at those complementary innovations as we have been in the core technologies. And the political system doesn’t give me a lot of optimism. That's the part that if anything I'm more depressed about than I was in the past.
Gordon: There's a great call from both candidates and economists like Paul Krugman and Larry Summers for a massive program of infrastructure spending. I think the case for that becomes very strong when you consider how low interest rates are, and how the government can borrow at very low interest rates to finance repairs of highways, bridges, subsidies to improve and extend mass transit in many places where it's lacking. And the caution I would have about more infrastructure is that that's not necessarily going to revive productivity growth. I'm a big believer … in major attention to preschool education, especially through the poverty population — going way back before age 3 and 4 and almost to birth.
Gordon: The United States is still ahead of all but a couple of small countries in the level of its productivity, and we are entering a period of the next two or three years that I think will go down in history as some of the best years of the American economy. We're going to continue to create jobs, the unemployment rate is going to continue to go down toward where it was in 1999 and 2000 — closer to 4 percent than 5 percent — and as a result it's going to be easier to get jobs. Firms are going to compete for workers and push up wages.
Brynjolfsson: I'm pretty optimistic because I see such amazing technologies in the pipeline. I'm concerned because it's not automatic that those technologies are going to benefit everybody or benefit people more broadly. So I'd like to see the U.S. and other countries work toward shared prosperity. But I don’t see it as a contest between one country and another. I see it as a contest between good policies and bad policies worldwide.