I have often wondered, in contrast to many statements I have made about how wealth is created, if energy was the key to economic success. I am of the opinion that if we see a spike upward or downward in our energy capabilities, we are certain to face a technological revolution or dark age, respectively. From John Maudlin’s column last week:
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)?
. . .
“[T]he scope of [one such proponent’s] bleakness has given him, over the past year, a newfound public profile,” Wallace-Wells notes. [He] 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.
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 we’ve 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.
For all of measurable human history up until the year 1750, nothing happened that mattered. This isn’t to say history was stagnant, or that life was only grim and blank, but the well-being of average people did not perceptibly improve. All of the wars, literature, love affairs, and religious schisms, the schemes for empire-making and ocean-crossing and simple profit and freedom, the entire human theater of ambition and deceit and redemption took place on a scale too small to register, too minor to much improve the lot of ordinary human beings. In England before the middle of the eighteenth century, where industrialization first began, the pace of progress was so slow that it took 350 years for a family to double its standard of living. In Sweden, during a similar 200-year period, there was essentially no improvement at all. By the middle of the eighteenth century, the state of technology and the luxury and quality of life afforded the average individual were littl e better than they had been two millennia earlier, in ancient Rome.
Then two things happened that did matter, and they were so grand that they dwarfed everything that had come before and encompassed most everything that has come since: the first industrial revolution, beginning in 1750 or so in the north of England, and the second industrial revolution, beginning around 1870 and created mostly in this country. That the second industrial revolution happened just as the first had begun to dissipate was an incredible stroke of good luck. It meant that during the whole modern era from 1750 onward – which contains, not coincidentally, the full life span of the United States – human well-being accelerated at a rate that could barely have been contemplated before. Instead of permanent stagnation, growth became so rapid and so seemingly automatic that by the fifties and sixties the average American would roughly double his or her parents’ standard of living. In the space of a single generation, for most everybody, life was get ting twice as good.
At some point in the late sixties or early seventies, this great acceleration began to taper off. The shift was modest at first, and it was concealed in the hectic up-and-down of yearly data. But if you examine the growth data since the early seventies, and if you are mathematically astute enough to fit a curve to it, you can see a clear trend: The rate at which life is improving here, on the frontier of human well-being, has slowed.
“Some things,” Gordon says, and he says it often enough that it has become both a battle cry and a mantra, “can happen only once.”
Gordon has two predictions to offer, the first of which is about the near future. For at least the next fifteen years or so, Gordon argues, our economy will grow at less than half the rate it has averaged since the late-nineteenth century because of a set of structural headwinds that Gordon believes will be even more severe than most other economists do: the aging of the American population; the stagnation in educational achievement; the fiscal tightening to fix our public and private debt; the costs of health care and energy; the pressures of globalization and growing inequality.
Gordon’s second prediction is almost literary in its scope. The forces of the second industrial revolution, he believes, were so powerful and so unique that they will not be repeated. The consequences of that breakthrough took a century to be fully realized, and as the internal combustion engine gave rise to the car and eventually the airplane, and electricity to radio and the telephone and then mass media, they came to rearrange social forces and transform everyday lives. Mechanized farm equipment permitted people to stay in school longer and to leave rural areas and move to cities. Electrical appliances allowed women of all social classes to leave behind housework for more fulfilling and productive jobs. Air-conditioning moved work indoors. The introduction of public sewers and sanitation reduced illness and infant mortality, improving health and extending lives. The car, mass media, and commercial aircraft led to a liberation from the narrow confines of geograp hy and an introduction to a far broader and richer world. Education beyond high school was made accessible, in the aftermath of World War II, to the middle and working classes. These are all consequences of the second industrial revolution, and it is hard to imagine how those improvements might be extended: Women cannot be liberated from housework to join the labor force again, travel is not getting faster, cities are unlikely to get much more dense, and educational attainment has plateaued. The classic example of the scale of these transformations is Paul Krugman’s description of his kitchen: The modern kitchen, absent a few surface improvements, is the same one that existed half a century ago. But go back half a century before that, and you are talking about no refrigeration, just huge blocks of ice in a box, and no gas-fired stove, just piles of wood. If you take this perspective, it is no wonder that the productivity gains have diminished since the early seventies. The socia l transformations brought by computers and the Internet cannot match any of this.
But even if they could, that would not be enough. “The growth rate is a heavy taskmaster,” Gordon says. The math is punishing. The American population is far larger than it was in 1870, and far wealthier to begin with, which means that the innovations will need to be more transformative to have the same economic effect. “I like to think of it this way,” he says. “We need innovations that are eight times as important as those we had before.” [emphasis mine]
It is hard not to nod your head as you peruse Gordon’s work, as it is well-written and speaks to many of our prejudices. But it makes several assumptions that are wrong, in my opinion.
First, we will not need innovations that are eight times as important. We just need eight times as many innovations. And there I bring hope, because we will see many times that number.
Let’s go back to James Watt and the steam engine. When Watt was tinkering with the power of steam, there were maybe a dozen scientists in all of Europe who could understand what he was doing and fewer who had access to his tools. Today we routinely throw 1000 scientists and engineers at what are relatively trivial problems. In the grand scheme of things, perhaps most of them are wasting their time. But certainly not all, and the number of scientists and engineers is multiplying at an exponential rate.
Watt was able build his engine precisely because he was (1) building on significant research in a dozen different arenas (including metallurgy, fabrication, and mechanics) and (maybe more importantly!) (2) funded by an entrepreneurial investor who saw the potential for income from the invention. But the steam engine did not really take off until it was introduced to John Wilkinson, who immediately adapted his techniques for boring cannons to creating the cylinder for the steam engine, ultimately enabling the engine to increase its power by orders of magnitude.
Other scientists and engineers tinkered, modified, adapted, improved, and collaborated until we had railroads and steam turbines and so on. The steam engine was not just one invention but a series of inventions. Watt was not really the creator of the steam engine, as the concept had been around for decades. He was simply the first to make an effective, commercially viable apparatus.
The real sources of intellectual fuel and entrepreneurial oxygen that fired the Industrial Revolution were the cumulative mass of information available to scientists and inventors and the ability of entrepreneurs to profit from their own risk-taking ventures. Notice that for the vast bulk of human history up to the industrial age, feudal lords and dictators held tight control over the means of production and the ability to truly profit from personal endeavor.
Let me employ a crude analogy but one that I think illustrates the point. If one inch were added to the circumference of the standard ping-pong ball, I think most of us could immediately tell the difference. A competent player could tell the difference if you added one inch to the circumference of the tennis ball. It would take a professional to tell the difference if you added one inch to the circumference of a regulation basketball.
If you added one inch to the circumference of the earth, who would know? Or really even care? Think of the steam engine as adding one inch to the circumference of a tennis ball: the steam engine made a difference that competent inventors and manufacturers of the day definitely noticed! Are there likely to be innovations today that will have similarly profound effects, but on a global scale? I can think of a few, though they are mostly only discussed in science fiction novels now.