books
It’s been quite a
decade for the global
economy
The popping of the American housing bubble in 2006, the
subprime mortgage fi- nancial crisis and its spread to Wall
Street in 2007–08, the collapse of the world economy
into the first global recession in decades in 2008–09, the
knock-on eurozone financial crisis that began in 2010, and
a slow, often faltering recovery — it’s been a tumultuous
10 years. And the period has produced a bumper crop of
excellent economics books by academ- ics, journalists,
and practitioners who have attempted to grapple with
the extraordinary macroeconomic disaster. They have
examined why it happened, how to fix it, what it means,
and how to avoid a recurrence of anything even remotely
as hellish.
low. The era of modern economic growth got started only
in 1870, with the simultaneous advent of the iron-hulled
screw-propelled oceango- ing steamship, the submarine
telegraph cable, and the industrial research lab. It was
then that the pace of growth kicked up a notch to a
steady, long-term per capita economic growth rate of 2
percent per year. That may not sound like much. But it
meant that in an average year, the share of the average
household’s resources that was needed to acquire what
that household had acquired the pre- vious year shrank by
one-fiftieth. With a 2 percent growth rate, well-being rises
faster, because the resources released by that growth for
other purposes can be spent acquiring not just more of the
same but all of the new goods and ser- vices that are the
fruits of ongoing invention and innovation. Over time, as
this growth compounds, it leads to enormous increases in
economic output and standard of living.
But Gordon, whose pessimism is driven by data, believes
this era of growth has come to an end: In the coming
decades, frontier economies will see a measured pace of
growth of only 1 percent per year. Why? Between 1850 and
1950, we saw the invention of lifechanging technologies
such as jet aircraft, telephones, indoor plumbing, gas
cooking and heating, electric refrigerators, streetcars,
automobiles, radio and television, antibiotics, and steel-
and-concrete construction. Between 1950 and 2015, we
saw the widespread diffusion of those technologies —
and the coming of computers, mobile phones, and the
Internet. But what comes next? Gordon says: less. You can
only industrialize your society once, af- ter all. And that
slows down the pace of innovation. In addition, economies
to- day face significant headwinds that they didn’t face in
the past: an aging population, an average education level
that has hit a ceiling, rising income inequality and wealth
inequality, and struggles to continue to run pay-as-you-go
social in- surance. Add it up, Gordon says, and for the first
time, an American generation faces the possibility of not
living better than its parents did.
best
book
2016
econom
But we may have arrived at a crossroads. Recently, Martin
Wolf ’s The Shifts and the Shocks: What We’ve Learned —
and Have Still to Learn — from the Fi- nancial Crisis (one
of s+b’s top economics books of 2015) and Barry Eichen-
green’s Hall of Mirrors: The Great Depression, the Great
Recession, and the Uses — and Misuses — of History
(which received a highly favorable review in s+b) put a
capstone on the intellectual structure of analysis on the
crisis. And this year, in my view at least, the most compelling
books on economics are widening the lens. Only one of the
three, Adair Turner’s Between Debt and the Devil: Money,
Credit, and Fixing Global Finance, deals with the 2006–10
period. The others take a broader view. Robert J. Gordon’s
The Rise and Fall of American Growth: The U.S. Standard
of Living since the Civil War tries to make sense of the
econo- my not in a five-year period in the recent past but
over the entire 150-year sweep starting in 1865. Jacob
S. Hacker and Paul Pierson’s American Amnesia: How the
War on Government Led Us to Forget What Made America
Prosper argues power- fully that the voluntary donning of
ideological blinders has made U.S. economic policy lousy
and the country’s political economy so badly dysfunctional.
In The Rise and Fall of American Growth, Robert J.
Gordon, a professor of economics at Northwestern
University and one of our greatest economic historians,
paints a pessimistic picture. It’s unappreciated that for
much of history, growth in economic frontiers — what
we would call development markets — was actually quite
Now there still are techno-optimists, those who point
to the immense value creation emanating from Silicon
Valley as proof that we may be in the second inning of
the ball game rather than the ninth. I certainly want to
be a techno-optimist. But Gordon’s exhaustive research
program — this highly readable book checks in at 784
pages — has knocked me back on my intellectual heels.
After one plows through this volume, the boulder one
must roll uphill to make the case for techno-optimism is
considerably heavier.
supported by EUROBAK
101