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Northwestern University

The U.S. Slowdown

In his latest book, noted Northwestern University economist Robert J. Gordon investigates the declining pace of American growth and what it means for the nation’s future

In post-Civil War America, the standard of living for U.S. residents began to change in dynamic, seemingly improbable ways.

A populace that once moved only as fast as the horse or sailboat began to speed through life in automobiles and on airplanes; traded candles for electric lighting, which transformed everyday living; and saw life expectancy climb from 45 to 72 thanks to medical advancements.

By the 1970s, however, the pace and scope of innovation began to decline. The trend continues into the present day, a reality eloquently detailed with telling statistics and rich anecdotes by economist Robert J. Gordon, the Stanley G. Harris Professor of the Social Sciences at Northwestern University, in The Rise and Fall of American Growth: The U.S. Standard of Living Since the Civil War.

A distinguished fellow of the American Economic Association now in his 43rd year at Northwestern, Gordon discusses his latest tome and the nation’s decelerating growth.

What motivated you to investigate this topic?

For a long time, we’ve known that economic growth was fastest in the 30 years between 1920 to 1950, continuing momentum that started accelerating after the Civil War. As a research assistant during grad school, I was assigned to gather data on long-term U.S. economic growth.  In that job, I discovered the anomaly that output doubled between 1930 and 1950 with virtually no growth in capital input, and I began to wonder why.  Now, I’m coming back to this old theme and a puzzle that has long befuddled economists.

When did American growth begin to slow?

Very gradually, productivity growth began to slow in the mid-1960s. About that time, for example, the interstate highway system was built in an amazingly short period of time, which boosted vehicle speeds and reduced transportation costs.  At the same time, commercial airlines converted to modern jet engines. Both of these developments reached the limit of their possibilities by the early 1970s and, as a result, productivity growth slowed.

What does this slowing American growth mean for the average American?

It means a continuation of the much-discussed issues of wage stagnation and household incomes, and that we’re going to see more of the same. Today’s younger generation is in line to be the first in American history that fails to double the standard of living of its parents, and many individuals in this generation will wind up with real incomes below that of their parents.

What is holding back the nation’s growth?

There are four significant headwinds: economic inequality, stagnating education, the demographics of an aging population and fiscal realities, namely rising debt and the enormous growth in Social Security and Medicare expenditures.

You provide solutions in The Rise and Fall of American Growth, including some contentious policy prescriptions such as higher taxes on the top 1 percent and government-financed education. How do you address the controversy that swirls around those positions?

We can’t create more growth by cutting tax rates on the rich. The reverse is true if we use higher taxes on the most successful Americans to fund universal preschool education.  The government does not need to worry about the pace of innovation; this country has a hyperactive venture capital industry that is constantly scouting for new innovations.  Invention continues to happen, it’s just that its impact is less broad and deep than the profound changes that occurred in the special century between 1870 and 1970. 

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