Since 1973 the US economy has experienced a slow down in growth rates. In particular, median household income has stagnated. This is linked to a slowdown in measured productivity growth. The reasons for this are not understood.
This is the first in a series of posts which will examine the issues raised by Tyler Cowen's e-book 'The Great Stagnation'. In this book Professor Cowen argues that a slowdown in technological progress was the reason. This book has been generally well received in the media.
Initially, I found this idea persuasive. From 1880 to 1970 the US underwent profound change. In 1880 41% of the labor force worked in agriculture. By 1970 this had fallen to 4%. Life expectancy at birth rose from 39 to 71. Per capita GDP rose by more than a factor of 5, from $3380 to $18400.
I think that a lot of this was driven by 3 major areas of technology. One was the oil fueled, mass produced internal combustion engine. This enabled the automobile, the airplane and the mechanization of agriculture. Another was the electrical power grid. This provided electric lighting at night, and allowed factories to be reorganized for better efficiency. Eventually, electric motors would drive refrigeration and air conditioners. The third was the near elimination of deaths from infectious diseases among children, thanks to vaccinations and improved sanitation.
Thinking about this further, I realized that there are some very significant areas of technological progress which Professor Cowen overlooks. There is a group of technologies I will call the globalization cluster. These are the shipping container, the jet airplane, the telecommunications satellite and the fiber optic cable. These helped to enable the global supply chain.
A far more important area is semiconductor technology. This lead to vast improvements in electronics, which lead to a revolution in office machinery. This should have been very significant for GDP, since much of America's GDP is produced by offices. Semiconductor based technology, which includes the Internet, is still a very active area of development.
I'm going to divide technological history into the period before 1880, 1880-1970, and 1970 to the present. Why those dates? Because the first power grid in the world was switched on in Lower Manhattan in 1880. Then in 1886 Benz introduced the first automobile. Those two inventions would define the 20th century. I choose 1970 because that was around the time that the US economy started to slow down.
In my next few posts, I will look at a few major threads of technological development, including ones that Dr Cowen ignores. Then I will look at what industries make up the US economy, and how they have changed over time. I will develop a simple model of the economy that just focuses on the major industries. Finally I will go on to look at how technology has affected each of those major industries.