The Rise and Fall of American Growth: The U.S. Standard of Living Since the Civil War
Tags: #economics #history #technology #innovation #inequality #society
Authors: Robert J. Gordon
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Overview
My book, The Rise and Fall of American Growth, explores the economic history of the United States since the Civil War, focusing on the dramatic transformation of the American standard of living and the forces that have shaped its trajectory. The central theme of my work is that economic growth is not a steady, continuous process but rather unfolds in distinct periods of rapid progress followed by periods of relative stagnation. The century between 1870 and 1970 was a unique period of rapid growth, driven by a cluster of “Great Inventions” that fundamentally altered daily life. These inventions, such as electricity, the internal combustion engine, and running water, brought about unprecedented improvements in the standard of living. However, since 1970, the pace of economic growth has slowed significantly. I argue that this slowdown is not simply a cyclical phenomenon but rather a structural shift driven by a confluence of headwinds, including rising inequality, a decline in educational attainment, and an aging population, all of which are constraining future economic prospects. My book is intended for a broad audience interested in understanding the long-term evolution of the American economy and its implications for the future. It is particularly relevant to those concerned about the current state of economic inequality and the growing challenges faced by those at the bottom of the income distribution. By exploring the historical roots of America’s economic success and its recent struggles, my book offers a framework for understanding the challenges and opportunities facing the nation in the decades to come.
Book Outline
1. Introduction: The Ascent and Descent of Growth
This chapter introduces the central theme of the book: The century following the Civil War was a period of unprecedented economic transformation in the United States, driven by a cluster of “Great Inventions.” These inventions, like electricity, the internal combustion engine, and running water, fundamentally changed daily life and brought about improvements in the standard of living that were unparalleled in human history. This period, which I call the “special century,” is marked by a unique confluence of innovations that, once achieved, could not be repeated.
Key concept: The economic revolution of 1870 to 1970 was unique in human history, unrepeatable because so many of its achievements could happen only once.
2. The Starting Point: Life and Work in 1870
This chapter examines everyday life in America in 1870, setting the stage for understanding the magnitude of the transformations that would occur in the “special century.” I paint a picture of a nation still largely rural, where daily life was characterized by hard manual labor, lack of basic amenities like electricity and indoor plumbing, and a limited variety of food and consumer goods.
Key concept: The networked house, together with modern appliances, changed the nature of housework.
3. What They Ate and Wore and Where They Bought It
I explore the transformation of the American diet and how the emergence of processed foods, driven by inventions like the Mason jar and the refrigerated rail car, brought greater variety and year-round availability of previously seasonal foods. The rise of national brands and the development of chain stores like A&P fundamentally altered the consumer experience and contributed to lower food prices. The chapter also delves into the issue of food safety and how public awareness of contamination, driven in part by Upton Sinclair’s muckraking novel The Jungle, led to crucial government regulation of food production and distribution.
Key concept: The initial food and drug legislation in 1906 began the long process of ridding the food supply chain of rotten meat, diluted milk, and intentional measurement errors.
4. The American Home: From Dark and Isolated to Bright and Networked
The focus of this chapter is the revolution in American housing that took place between 1870 and 1940. The most significant development was the transition from homes that were dark, isolated, and lacking basic utilities to the “networked” homes of 1940, connected to electricity, running water, and sewer systems. This transformation involved not just new inventions but also the development of municipal infrastructure and the gradual shift from rural to urban living. I explore the evolution of home lighting, from candles and oil lamps to electric light, as well as the development of indoor plumbing and central heating.
Key concept: By 1940, fully 57 percent of Americans lived in cities having 2,500 or more inhabitants, a percentage that had more than doubled from 1870. A single word summarizes the interior revolution achieved in urban America during this period: networked.
5. Motors Overtake Horses and Rail: Inventions and Incremental Improvements
This chapter traces the remarkable transformation in transportation brought about by the invention of the internal combustion engine and the automobile. I argue that the impact of the automobile on everyday life, particularly in rural areas, was even more profound than that of the railroad. I highlight the role of the Model T Ford in making the automobile affordable for the masses and detail how the rise of the automobile coincided with the development of paved roads and the emergence of car-dependent suburbs. The chapter also discusses the evolution of urban public transportation, from horse-drawn omnibuses and streetcars to cable cars, electrified streetcars, and finally, rapid transit systems.
Key concept: Just as the thousands of elevators installed in the building boom of the 1920s facilitated vertical travel and urban density, so the growing number of automobiles and trucks speeded horizontal movement on the farm and in the city.
6. From Telegraph to Talkies: Information, Communication, and Entertainment
I delve into the revolutions in information, communication, and entertainment that occurred during the late nineteenth and early twentieth centuries. The spread of literacy, the growth of newspapers and magazines, and the invention of the telegraph dramatically increased access to information and transformed how Americans learned about current events and business affairs. The invention of the telephone, the phonograph, and the radio further revolutionized communication and entertainment, allowing for instantaneous connection and bringing professionally performed music and news into the home.
Key concept: The year 1870 has been called the dawn of the “age of mass communication.”
7. Nasty, Brutish, and Short: Illness and Early Death
I focus on the dramatic improvement in life expectancy, especially in the early decades of the twentieth century, that was driven not primarily by advances in medical technology but rather by improvements in public health. I attribute this progress to several factors, including the development of urban sanitation infrastructure (running water, sewer systems), the rise of the germ theory of disease and its impact on public awareness of hygiene and sanitation, the decline of the urban horse and its associated filth, the introduction of food safety regulations, and the gradual improvement of medical schools and hospitals. I conclude that the greatest achievements of this era were outside the traditional realm of medical care.
Key concept: No period illustrates better than 1870–1940 that health and longevity depend on more than expenditures on doctors and hospitals.
8. Working Conditions on the Job and at Home
This chapter explores the changing nature of work and the steady improvement in working conditions, both at home and on the job. The shift from agriculture to manufacturing and then to services, combined with technological advances that reduced the physical demands of labor, led to a gradual decline in the share of arduous and unpleasant jobs. Meanwhile, working hours declined substantially, from a typical sixty-hour work week in 1900 to a standard forty-hour work week after 1940. I argue that improvements in working conditions were crucial to raising the standard of living for both men and women.
Key concept: The unpleasantness (economists call this the “disutility”) of work declined sharply over the past fourteen decades.
9. Taking and Mitigating Risks: Consumer Credit, Insurance, and the Government
This chapter examines the development of institutions and government policies that helped to mitigate economic risk for American families. I explain the growth of consumer credit, from informal arrangements with local merchants to the installment plans that fueled the consumer durables boom of the 1920s. I also trace the evolution of insurance, including life insurance, fire insurance, and automobile insurance, as institutions that provided financial security and peace of mind in an era of significant economic uncertainty.
Key concept: Household well-being depends not just on the level of income, but also on its volatility.
10. Fast Food, Synthetic Fibers, and Split-Level Subdivisions: The Slowing Transformation of Food, Clothing, and Housing
This chapter traces the evolution of food, clothing, and housing in postwar America. I explain that food consumption patterns, though influenced by factors such as increased immigration and changing demographics, have remained relatively stable, with a continued emphasis on processed foods and a gradual shift towards poultry consumption. The development of the self-service supermarket revolutionized food retailing, offering greater variety and lower prices to consumers, while the frozen food industry expanded rapidly, offering convenience but sometimes compromising on quality.
Key concept: The most important change in food marketing was the gradual shift to the modern supermarket that was accomplished between the 1930s and 1960s.
11. See the USA in Your Chevrolet or from a Plane Flying High Above
I continue the story of the transportation revolution in postwar America, focusing on the role of the automobile and the development of the Interstate Highway System. The automobile’s influence on society extended far beyond transportation, as it contributed to the growth of suburbs, fueled the rise of new industries like fast food and motels, and transformed leisure time activities. The Interstate Highway System, completed in the 1970s, further enhanced mobility and boosted economic growth by increasing the efficiency of truck transportation. I also explore the evolution of commercial air travel, from the early days of the Douglas DC-3 to the jet age and the rise of mass air transportation.
Key concept: How the curse of distance was lifted from the human race.
12. Entertainment and Communications from Milton Berle to the iPhone
This chapter examines the transformation of entertainment and communication in the postwar era, focusing on the arrival of television as the dominant medium. I argue that while television’s impact was undeniable, it did not lead to the demise of other media like radio and movies. Instead, these media adapted, with radio becoming more personalized and movies finding new outlets through television and home video. I explore the evolution of television technology, from black-and-white to color, from limited network programming to the explosion of choice offered by cable television, and from the passive viewer to the active time-shifter enabled by the VCR and DVR. The chapter also delves into the impact of new technologies on music listening, from vinyl records to cassette tapes to CDs, and the increasing importance of mobility in the consumption of music.
Key concept: Everything involving information, communication, and entertainment utterly changed from 1870 to 1940.
13. Computers and the Internet from the Mainframe to Facebook
I chronicle the development of computer technology from the early mainframe computers of the 1960s to the personal computers and the Internet revolution of the 1980s and 1990s. I explain how Moore’s Law, which predicted the doubling of chip density every two years, became a self-fulfilling prophecy that drove a rapid decline in the price of computing power and a dramatic increase in the accessibility and capabilities of computers. This chapter also explores the social and economic impact of the Internet, from its early use in academia and business to its widespread adoption by the general public. I highlight how the Internet has transformed communication, access to information, and shopping habits. I conclude by examining the potential downsides of the Internet revolution, including the digital divide, the loss of privacy, and the potential for job displacement by automation.
Key concept: The improvement in the performance of computers relative to their price has been continuous and exponential since 1960, and the rate of improvement dwarfs any precedent in the history of technology.
14. Antibiotics, CT Scans, and the Evolution of Health and Medicine
This chapter explores the evolution of health and medicine after 1940, highlighting the shift in focus from combating infectious diseases to managing chronic illnesses. I discuss the impact of antibiotics and vaccines in conquering diseases like tuberculosis and polio, as well as the development of treatments for cardiovascular disease and cancer. The chapter also examines the increasing role of technology in medicine, from the development of imaging techniques like CT and MRI scans to the more recent advances in genomics and stem cell therapy. I conclude by discussing the challenges of rising health care costs, the complexities of health insurance, and the ongoing inequalities in access to quality medical care.
Key concept: By the 1950s, the acute infectious killers had, by and large, been eliminated. This left chronic diseases, such as heart disease and cancer, as the main threats to American health.
15. Work, Youth, and Retirement at Home and on the Job
I examine the changing nature of work and family life in postwar America, focusing on the increasing participation of women in the labor force, the rise of universal high school education, and the emergence of retirement as a distinct life stage. I argue that the post-1975 slowdown in economic growth has eroded the foundations of the American dream, as wages have stagnated for many workers, as college graduates face a growing burden of student debt, and as the financial viability of retirement has been threatened by the shift from defined-benefit to defined-contribution pension plans. The chapter also highlights the ongoing challenge of social breakdown, particularly for those at the bottom of the income distribution.
Key concept: The $20 hourly wage, introduced on a huge scale in the middle of the last century, allowed masses of Americans with no more than high school education to rise to the middle class. It was a maker, of sorts. And it is on its way to extinction.
16. The Great Leap Forward from the 1920s to the 1950s: What Set of Miracles Created It?
This chapter revisits the puzzle of the “Great Leap Forward” in productivity that occurred between the 1920s and 1950s, examining the factors that contributed to this remarkable period of economic growth. I argue that the Great Leap was not solely the result of technological innovation but was also significantly influenced by the economic disruptions of the Great Depression and World War II. These events spurred a shift towards labor-saving technologies, fostered a culture of efficiency and cost-cutting in businesses, and led to the creation of a vast new stock of modern capital equipment, all of which contributed to the rapid increase in productivity. I challenge the traditional view that World War II hampered economic progress and argue instead that it played a crucial role in accelerating the adoption of new technologies and improving industrial efficiency.
Key concept: The surprising answer of chapter 16 is that both the Great Depression and World War II directly contributed to the Great Leap.
17. Innovation: Can the Future Match the Great Inventions of the Past?
This chapter examines the nature of innovation and its role in driving economic growth. I emphasize the historical shift from individual inventors to corporate research laboratories as the primary source of new technologies, then trace the recent return of the individual entrepreneur in the digital age. I argue that the pace of innovation does not always translate into rapid economic growth; indeed, the most recent decade has been characterized by slow productivity growth despite a rapid pace of innovation in areas like digital technology. I explore the limitations of using patent data to measure innovation and offer alternative approaches, such as examining the publication dates of technical books. The chapter concludes with a discussion of whether future innovation can be predicted and offers several examples of successful (and unsuccessful) predictions from the past.
Key concept: Inventions do not spring up perfect and ready for use.
18. Inequality and the Other Headwinds: Long-Run American Economic Growth Slows to a Crawl
I delve into the four major headwinds facing the U.S. economy–inequality, education, demographics, and debt–that are contributing to the slowdown in economic growth and the erosion of the American dream. I argue that the rising concentration of income and wealth at the very top, combined with stagnant wages for the majority of Americans, is creating a society of growing disparities. The declining quality and increasing cost of education, combined with the challenges faced by those who lack a college degree, is creating a less skilled and less productive workforce. Demographic trends, including the retirement of the baby boomers and declining labor force participation at younger ages, are reducing hours worked per person and contributing to slower economic growth. And finally, the unsustainable trajectory of government debt, fueled by an aging population and rising health care costs, will require painful fiscal adjustments in the future that will further slow economic growth.
Key concept: The American family is changing—and the changes guarantee that inequality will be greater in the next generation. For the first time, America’s children will almost certainly not be as well educated, healthy, or wealthy as their parents.
Essential Questions
1. What made the period between 1870 and 1970 a “special century” in American economic history?
This “special century” was fueled by a unique cluster of transformative inventions that redefined everyday life in ways that could only happen once. These inventions, such as electricity, indoor plumbing, the internal combustion engine, and mass communication technologies, were not just technological breakthroughs but also brought about social and economic revolutions that fundamentally changed the fabric of American society. The unprecedented speed and scale of these transformations led to a dramatic increase in productivity, a rise in living standards, and an expansion of the middle class, making this period a truly exceptional era in American history.
2. Why has economic growth slowed down since 1970, even as technological innovation continues?
While the period after 1970 has witnessed continued technological advancement, particularly in information and communication technology, the pace of innovation has been less broad and less transformative than in the “special century.” The innovations of the digital revolution have primarily impacted entertainment, communication, and information processing, while progress in areas like food, clothing, transportation, health (beyond the initial impact of antibiotics), and working conditions has been more incremental. Moreover, rising inequality, declining educational attainment, and other headwinds have constrained the distribution of the benefits of economic growth, leading to a slowdown in the improvement of living standards for the majority of Americans.
3. What factors contributed to the “Great Leap Forward” in productivity that occurred between the 1920s and 1950s?
The Great Leap Forward in productivity that occurred between the 1920s and 1950s was not solely the result of technological innovation but was also significantly influenced by the economic disruptions of the Great Depression and World War II. These events spurred a shift towards labor-saving technologies, fostered a culture of efficiency and cost-cutting in businesses, and led to the creation of a vast new stock of modern capital equipment, all of which contributed to the rapid increase in productivity.
4. Can the future of innovation match the transformative power of the great inventions of the past?
The optimistic forecasts of rapid future productivity growth by “techno-optimists” are not supported by the data or by the historical record. The transformative power of the digital revolution appears to have largely run its course, as many of its benefits have already been realized. Moreover, the slowdown in Moore’s Law, the declining rate of net investment, and the plateau in business dynamism suggest that the conditions that fueled the 1990s productivity revival are unlikely to be repeated. Future innovation is likely to proceed at a slower pace, more in line with the experience of the past decade.
5. What are the implications of the headwinds for future economic growth, and are there any policy solutions that can effectively address these challenges?
The headwinds are powerful and interconnected forces that are likely to continue to constrain future economic growth. Policy solutions are available, but they are likely to be politically contentious and will require difficult trade-offs. The most promising areas for policy intervention include education reform, particularly at the preschool level; a carbon tax to address environmental challenges and generate revenue; and immigration reform to raise the average skill level of the workforce. Addressing income inequality and promoting greater social mobility will require a comprehensive approach that includes raising the minimum wage, expanding the Earned Income Tax Credit, reforming incarceration policy, and combating overly zealous regulations. The future of the American economy depends on the nation’s ability to effectively address these challenges and create a more equitable and sustainable society.
Key Takeaways
1. Technological Progress Is Not a Panacea
While the innovations of the digital age have brought many benefits, they have not been as transformative as the inventions of the Second Industrial Revolution. The digital revolution has primarily impacted a narrower sphere of human activity, while progress in other areas like food, clothing, transportation, and health (beyond the initial impact of antibiotics) has been more incremental. This suggests that technological progress alone is not enough to ensure continued rapid economic growth and that a broader focus on addressing social and economic challenges is necessary.
Practical Application:
Understanding the limitations of technological progress in addressing social and economic challenges can help AI product engineers to develop solutions that are both innovative and impactful. For example, rather than simply focusing on automating tasks, AI engineers could focus on developing AI systems that augment human capabilities and enhance human well-being, such as AI-powered tools for education, healthcare, or environmental sustainability.
2. Rising Inequality Is a Threat to the American Dream
Rising income inequality has become a significant headwind that is constraining economic growth and undermining social mobility. The concentration of income and wealth at the very top, combined with stagnant wages for the majority of Americans, has created a society of growing disparities. This trend has been exacerbated by globalization, automation, and a decline in the bargaining power of labor unions. Addressing inequality is a major challenge for policymakers and will require a comprehensive approach that includes policies aimed at boosting wages, strengthening labor unions, and promoting greater social mobility.
Practical Application:
AI engineers should be mindful of the potential for rising inequality as AI systems become more sophisticated and are deployed in the workplace. They could, for instance, develop AI tools that help workers adapt to the changing demands of the labor market or design AI systems that promote fairness and equity in hiring and promotion decisions.
3. Economic Measures Can Miss the Big Picture
Traditional economic measures, such as GDP per capita, often fail to capture the full extent of improvement in living standards. The Great Inventions of the late nineteenth century, such as electricity, indoor plumbing, and the internal combustion engine, not only boosted economic output but also brought about improvements in the quality of life that were not reflected in GDP. This suggests that a broader perspective on economic progress is necessary and that policies should be evaluated not only on their impact on economic growth but also on their impact on human well-being.
Practical Application:
Understanding the limitations of traditional economic measures can help AI engineers to develop more accurate and comprehensive ways of assessing the social and economic impact of AI. For example, rather than simply focusing on measures like GDP growth, AI engineers could consider a broader range of metrics, such as measures of human well-being, environmental sustainability, or social equity.
Suggested Deep Dive
Chapter: Chapter 16: The Great Leap Forward from the 1920s to the 1950s
This chapter offers a compelling and nuanced explanation of the “Great Leap Forward” in productivity that challenges the traditional narrative and highlights the often-overlooked role of the Great Depression and World War II in driving technological progress.
Memorable Quotes
Chapter 1: Introduction. 1
The century after the Civil War was to be an Age of Revolution—of countless, little-noticed revolutions, which occurred not in the halls of legislatures or on battlefields or on the barricades but in homes and farms and factories and schools and stores, across the landscape and in the air—so little noticed because they came so swiftly, because they touched Americans everywhere and every day.
Chapter 1: Introduction. 3
This book adopts the “special century” approach to economic growth, holding that economic growth witnessed a singular interval of rapid growth that will not be repeated—the designation of the century between 1870 and 1970 as the special epoch applies only to the United States, the nation which has carved out the technological frontier for all developed nations since the Civil War.
Chapter 1: Introduction. 13
This theme of mismeasurement interacts with the designation of the one hundred years between 1870 and 1970 as the “special century.” Measurement errors are greatest in the early years, both in the scope of the standard of living and in the extent of price index bias.
Chapter 11: See the USA in your Chevrolet or from a Plane Flying High Above. 408
Progress in the eight decades since the first flight of the DC-3 is so gradual by comparison that it can be described briefly. Developed during the war, the four-engine DC-6 began airline operations in 1946 and was capable of flying nonstop from Honolulu to San Francisco, the same route flown eleven years earlier by the 1935 flying boat.
Chapter 16: The Great Leap Forward. 579
The trauma of the Great Depression did not slow down the American invention machine. If anything, the pace of innovation picked up in the last half of the 1930s.
Comparative Analysis
While my book shares the exploration of long-term economic trends with other notable works like Landes’s The Unbound Prometheus and Mokyr’s The Lever of Riches, it departs by emphasizing the uniqueness of the period between 1870 and 1970 as a singular interval of rapid economic growth, unlikely to be repeated. Unlike techno-optimists like Brynjolfsson and McAfee who focus on the exponential growth of computing power, I emphasize the limitations of digital innovation in addressing the broader spectrum of human needs and desires, ultimately arguing that the impact of the digital revolution is less transformative than that of the Second Industrial Revolution. My work aligns with Thomas Piketty’s Capital in the Twenty-First Century in highlighting the growing problem of income inequality, but I go further by linking rising inequality to the slowdown in economic growth, arguing that it is a significant headwind constraining future economic prospects.
Reflection
My book attempts to offer a fresh perspective on the history of American economic growth and to challenge conventional wisdom about the future of technological progress. I argue that the unprecedented economic transformation that occurred in the “special century” was the result of a unique confluence of factors that are unlikely to be replicated. While I acknowledge the impressive progress in areas like ICT, I remain skeptical that future innovations will have the same transformative power as the Great Inventions of the past. My views on the headwinds, particularly rising inequality and its social consequences, may strike some readers as overly pessimistic. However, I believe it is crucial to confront these challenges head-on and to develop policy solutions that can promote greater equity and opportunity for all Americans. By understanding the forces that have shaped America’s past, we can better prepare for the challenges and opportunities of the future.
Flashcards
What is the “special century” in American economic history?
The century between 1870 and 1970, marked by a cluster of transformative inventions like electricity, the internal combustion engine, and running water.
What is TFP?
Total Factor Productivity, a measure of how efficiently labor and capital inputs are combined to produce output.
What was the “Great Leap Forward”?
A period of rapid economic growth in the United States between the 1920s and 1950s, driven by factors including electrification, mass production, and the rise of the automobile.
What is “Baumol’s Disease”?
The theory that productivity gains in labor-intensive sectors like string quartets are limited because you can’t have four musicians play faster, leading to rising costs in these sectors.
What is the “Economics of Superstars”?
A theory that explains the rapid growth of superstar incomes as a result of large audiences and the ability to reach millions through mass media.
What is the relationship between innovation and capital accumulation?
The theory that innovation leads to investment in new capital equipment, rather than the other way around.
What are the four main “headwinds” facing the U.S. economy?
Rising income inequality, declining educational attainment, adverse demographic trends, and the need for fiscal consolidation.