The End of Innovation?
Until recently I would not have considered the advent of cold cereal, powered soda drinks or frozen food stuffs as seismic events in the history of the American economy. I rarely reflected upon the bungalow as anything more than a quaint architectural relic, let alone a social revolution that redefined how Americans lived, ate and shopped. Nor did I understand that Henry Ford pioneered not only the first mass-produced passenger car but also the concept of consumer credit, an innovation almost as important as the automobile itself.
The signal achievement of Robert J. Gordon’s book, The Rise and Fall of American Growth, is the way he confers transcendent qualities on such everyday items and services as the light bulb and refrigerated transport. But he goes one step further: in proving his thesis – there are no life-altering things left to invent so everything is pretty much downhill from here – he challenges the intrinsic value of our own signature contributions. The hundred years following the Civil War, Gordon writes, was a “special century,” fecund with qualitative advances in industry, transportation, medicine, and media that helped grow the economy 50 times over from 1870 to 1970. Since then growth has slowed markedly as the returns on the “Great Inventions” have diminished and contemporary breakthroughs – concentrated as they are in services such as the entertainment, communications, and information sectors – have accounted for a relatively small slice of employment and investment. In other words, if the most important innovations since the Civil War were placed inside a time capsule a century from now it’s a good bet Facebook, Twitter and cable television wouldn’t make the cut.
The Rise and Fall of American Growth was published early last year by the Princeton University Press and despite its cinder-block heft and arid composition was a surprise hit beyond academia. For anyone concerned about tepid U.S. growth and diminished productivity Gordon’s book offers a fresh explanation if not, alas, a solution. He writes how almost overnight the networking of apartment blocks and commercial districts with running water, electricity, and gas saved housewives the daily burden of carrying dozens of gallons of water and raw sewage into and out of the home, allowed shops and companies to remain open beyond daylight hours and eliminated the mortal hazards of heating buildings with steam or coal. The opening of the transcontinental railway not only annihilated time and space for travelers but it also made coast-to-coast communications nearly instantaneous thanks for the telegraph wires that were strung along the tracks. (It wasn’t all smooth running; the railroad bosses had a weakness for over-leveraging which led to ruinous boom-bust cycles that nearly took down the national economy – sound familiar?)
Clarence Birdseye, studying how Inuit tribes preserved frozen fish, discovered how to capture flavor in frozen food and thus created diversity in a hitherto monochromatic American diet. Henry Ford, by winning over consumers with easy credit, could afford to sell his Model T at increasingly affordable prices. The bungalow played a central role in the democratization of owner-occupied housing, an attractive, energy-efficient and fertile source of employment that was sold largely through the Sears Roebuck Co. for $750 to $2,000.
Needless to say, Gordon’s book generated little buzz during last year’s presidential campaign and as far as I know there is no mention of it on the president-elect’s Twitter feed. This is a shame because the leitmotif of The Rise and Fall of American Growth begs an important question that not just economists, but the citizenry as a whole, needs to consider: If Gordon is right and our growth prospects are being eroded by the dwindling returns on human needs, where are the sources of economic activity looking forward? How can we provide stable sources of employment in an economy where innovations represent mere quantifiable improvements on what came before? One of the most overlooked comments of 2016 was uttered by Steve Howard, a senior Ikea official who warned that the global economy had reached “peak stuff,” a reference to finite demand for everything from hydrocarbon fuel to home furnishings and its consequences. Keep in mind that the U.S. economy, since the mid-19th century the world’s foundry of qualitative advances, hasn’t produced a “next big thing” since the internet more than three decades ago. And let’s face it: what is Amazon but a narcotic, digital version of the Sears catalogue? For that matter, what is the tiny house movement but a modern-day bungalow revolution against the calcifying excesses of peak stuff?
So what to do? For starters we can find inspiration in the fact that quantitative change, though not necessarily transcendent progress, is progress nevertheless. Renewable energy, driverless cars and waterless toilets may not lighten our already significantly reduced household labor but they represent cheaper and less destructive technologies that should be promoted as public policy. As Gordon points out repeatedly in his book, most of the great inventions would have failed if not for vigorous government assistance, be it in the form of transportation authorities, sanitation agencies or public-health laboratories. The president-elect should redeem his campaign pledge to rebuild the nation’s battered infrastructure and he should do it soon while the dollar is still the reserve currency and Wall Street is still on board. To capture the public imagination he’ll need the equivalent of a moon-shot project. I suggest subterranean, trans-oceanic bullet-train service from New York to London and Los Angeles to Tokyo by 2030.
At the same time he should incentivize the banks to lend as much against bold, original ideas as cash flow. If that means deregulation then so be it though not at the price of rousing the same animal spirits that unleashed a global catastrophe nearly a decade ago. That is just the kind of “innovation” that we don’t need.