Robert Gordon, an economist at Northwest University, recently published a working paper with the National Bureau of Economics Research, titled "Is US economic growth over? Faltering Innovation Confronts the Six Headwinds." His basic claim is that the innovation of the last few decades (largely in electronics) has contributed less to productivity growth than technological innovation in the 19th and early 20th centuries (the innovation he highlights is indoor plumbing). This faltering innovation, in turn confronts six headwinds: (1) Demography (population aging) (2) Education (stabilizing in the number of Americans with higher degrees) (3) Rising inequality (4) Globalization (5) Energy limits (6) Debt reversal.
By using the "headwinds" metaphor, Gordon subtly suggests that these 6 factors are all beyond US policymakers' control. They represent natural phenomena and are not primarily the consequences of specific, identifiable policy choices.
Gordon suggests that "Globalization" in particular is both exogenous and unavoidable:
"Some of the headwinds contain a sense of inevitability. The most daunting is headwind (4), the interplay between globalization and modern technology, which accelerates the process of catching up of the emerging markets and the downward pressure on wages and real incomes in the advanced nations." (p. 20).
Is this assumption correct? One would like to see evidence, particularly from other high income societies. If it's true that "Globalization" is an exogenous "head wind" then all societies with per capita incomes substantially higher than India and China should be seeing income declines. This is obviously not the case. Incomes in socieites as diverse as Singapore, South Korea, Israel and Switzerland are substantially higher today, in real terms, than ten years ago. Moreover, all of these countries have attained full employment. Middle-income societies that are much wealthier than China/India have seen dramatic economic growth over the last decade, with Argentina growing by 7-8% a year, every year from 2001-2009 and Brazil and Mexico also showing impressive growth.
Gordon is trying to convince Americans to fatalistically accept a diminished future. They shouldn't. Instead they should demand that their policymakers adopt the same mix of policies successfully employed in Israel, South Korea and Singapore: massive currency intervention to depreciate the national currency and make domestic manufacturing competitive, combined with an expanded social safety net to enhance workers' buying power.
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