American Economic Review: Papers & Proceedings 2016, 106(5): 6871

http://dx.doi.org/10.1257/aer.p20161072

Winter Is Coming: Robert Gordon

and the Future of Economic Growth
By Gregory Clark*

The Rise and Fall of American Growth is a

comprehensive survey of the growth of living
standards in the United States from 1870 to
2014, and a projection of growth rates for future
decades. The book is magisterial in the scope of
its account of the history of growth. But, most
notable is the claim that the period 18701970,
when output per capita grew at more than 2percent a year, represents a Golden Era that will not
be seen again in the foreseeable future. Instead,
slower technological advancecombined with
an aging population, an end to rising education
levels, a growing government debt, and rising
inequalitywill leave virtually no room for
growth over the next 25 years in median disposable real income per person (Gordon 2016,
p.642).
I focus here on the prediction that the growth
rate of total factor productivity (TFP) in future
decades will be substantially slower than in
18701970. Despite news headlines replete with
technological breakthroughs, despite the dizzying values attributed to tech IPOs, Gordon is
pessimistic about future TFP growth. We must
anticipate modest gains, similar to those witnessed in the last ten years, where US economic
efficiency grew by only 0.4 percent per year.
US output per person in 2004 was nearly 16
times that of 1870. Income per person doubled
per generation. But at recent rates of efficiency
growth it will take 130 years to double output
per person, more than four generations, even
absent adverse shocks.
But can we predict that TFP growth in the
last ten years represents the future? Can a nyone

predict technological advance? Gordon, however, convinces us that there are crucial limitations on technological advance in the near
future, key technological bottlenecks, that will
make future gains in living standards through
technological advance harder to attain.
I. The Gordonian Gloom

The core of Gordons pessimism about

future technological advance is that the modern US economy is now heavily based around
services, accounting for 80percent of output.
Manufacturing, traditionally a sector with higher
efficiency advance, has shrunk to 12percent of
the economy.1
Most of these service occupations, argues
Gordon, have little prospect of being technologically transformed soon by Information
Technology. To reinforce Gordons pessimism,
consider the job distribution in the current US
economy. A surprising share of modern jobs
are the timeless ones of the pre-industrial era
cooking, serving food, cleaning, gardening, selling, monitoring, guarding, imprisoning, personal
service, guiding vehicles, carrying packages.
Food production and serving, for example, now
employs significantly more people (9.1percent)
than do production jobs (6.6percent). One in
ten workers is employed in sales.2 The information technology revolution to date has left these
jobs largely untransformed. Workers in these
types of jobs in Europe in 1300, if transplanted
to modern America, would need little retraining.
Even outside services, we can find jobs with
no gain in productivity since the Industrial
Revolution. Builders price books in eighteenth
century London show the rate at which bricklayers laid bricks in house construction. In 1787

*Department of Economics, University of California, 1

Shields Avenue, Davis, CA 95616 (e-mail: gclark@ucdavis.
edu). I thank Nick Crafts, Alex Field, and Robert Gordon
for comments.

Go to http://dx.doi.org/10.1257/aer.p20161072 to visit
the article page for additional materials and author disclosure statement.

US Bureau of Economic Analysis (2015).

US Bureau of Labor Statistics (2015).

1
2

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Winter is Coming: Robert Gordon and the Future of Economic Growth

this was 75 bricks laid per hour.3 For modern

England the rates are lower, 225 years later, at
around 5070 per hour.4
William Baumol, in an earlier version of the
Gordon argument, proposed the cost disease
of the personal services. There were certain
activities, such as the performing arts, where
productivity advance was impossible. Baumol
later extended this to a whole range of personal
serviceseducation, health, law.5
We might argue that a common feature of
services is human labor and human interaction,
and these are activities inherently difficult to
mechanize. But services are no different in this
respect to much of manufacturing and agriculture, where technological advance involved
mechanizing human labor. The human action
of spinning involved manipulating textile fibers
with the fingers to form thread. The core of the
Industrial Revolution in England (17701870)
was mechanizing that action. That allowed output per worker hour in spinning to rise 300 fold
in the course of 100 years, dramatically reducing the cost of cloth. In farming, key earlier
activities were reaping and threshing grains by
hand. Both of these activities were successfully
mechanized in the nineteenth century. Why has
food preparation resisted mechanization in a
way very unlike food production? Can we be
confident that these other tasks will not be soon
mechanized?
II. More Pessimistic than Gordon

I think we should be even more pessimistic on

TFP advance in these areas than Gordon on two
grounds. First, in recent years areas of rapid TFP
growth have been those with high levels of R&D
expenditures relative to value added.6 Most of
R&D activity is still concentrated in manufacturing, a declining sector of the economy. In

Builders Price-Book (1787).

This rate is implied by the fact that, at piece work, laying 1,000 bricks costs 350500 while, at piece work, the
cost of a bricklayer and assistant is about 24 per hour.
5
Baumol and Bowen (1966); Baumol, Blackman, and
Wolff (1985).
6
Griliches (1994, p. 5, table 1) shows for the United
States that there is a close relationship in 1958 to 1989
between R&D expenditures per dollar of sales and TFP
growth rates across manufacturing industries.
3
4

69

most of the economyservices and constructionthere is very little R&D activity.7

But even in the areas of the economy where
R&D is concentrated we can expect more modest gains in TFP. Information and electronics
manufacture and software absorbs nearly half of
all corporate R&D expenditures, medical substances and devices 20percent, and transportation equipment 15percent. Thus, more than
80percent of all corporate R&D falls in three
areas of the economy that produce together less
than 5percent of value added. There are reasons
to believe the national TFP gains from this concentrated R&D investment will be modest in the
coming decades.
First, while the gains in TFP in the information technology producing sector have been a
mainstay in technological progress in the United
States since the 1970s, there are signs that the
contribution of this sector are declining.
One important fact about the IT industry is
that its size, measured as a share of value added,
is declining. Efficiency growth rates in the economy as a whole can be decomposed into the contribution of each sector through the formula
(1)

gA t= bjtgAj,

where bjt is the value added in sector j in period

t, and gAjis the efficiency growth rate within sector j. Computer and electronic products constituted 2.28percent of value added in 1997, but
only 1.54percent by 2014.8 The quantities of
computer hardware have not risen as rapidly as
prices declined.
In terms of equation (1), this implies that if
information technology devices were to significantly spur aggregate TFP advance back toward
the 1.2percent average rate reported by Gordon
for 18902004 (Gordon 2016, figure 17-2), then
the TFP growth rate within the sector would
have to be even higher than the 10percent per
year reported for the glory years of 19802000.
10percent TFP growth within this sector would
only contribute 0.15percent toward national
7
Thus, in 2000, 82percent of corporate R&D expenditures were in manufacturing. There were about three quarters of the economy, including utilities, construction, and
most of services where there was essentially no corporate
R&D (National Science Board 2015, Appendix table 4-22).
8
US Bureau of Economic Analysis (2015).

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AEA PAPERS AND PROCEEDINGS

TFP growth rates, too little to change much

declining TFP growth rates.
But there are distinct signals that the staggering TFP growth rates of the 19452005 era for
Computer and Electronic Products will not be
sustained in the future. The rapid decline of the
real price of various components of computer
hardware has slowed significantly in the last ten
years.9
Another area of substantial R&D investment
is in health care products. Health care overall
has now become the largest single sector of the
US economy, generating nearly 18percent of
GDP. So, in terms of the logic of equation (1),
it is ever more important in determining overall
rates of technological advance.
But, health care faces unique challenges in
generating more output per unit of input. Since
84percent of the population survives to age 65,
gains in life-years per person must primarily
come for those above age 65. However, people
are likely genetically programmed to die, so that
adding life-years is becoming ever more difficult
as the population ages. One measure of the output of the health sector is years lived per person.
Over the past 150 years, as Gordon documents,
the US health care system has increased this
from 3540 years to near 80 years. But if we
look decade by decade at the increase in spending on health care in the United States and the
gains in life-years per person, we see that the
implied cost of additional life-years per person
have increased dramatically since the 1950s,
being now in 20002010 $100,000 per life-year
per person. There is every prospect that this
incremental cost will rise.
The third area of significant R&D expenditure
is transport equipment. However, much of the
expenditure on vehicles is to mitigate pollution,
and to make energy usage more efficient. These
research expenditures are unlikely to be associated with substantial gains in the measured output of the transportation or energy sectors.
The second reason for pessimism is that the
prospect of machine replacements any time
soon for the many service workers that now
dominate the economy are surprisingly poor,
as reflected in the low levels of investment in

9
This is true, for example, of both the real price of CPU
per unit and of the real price of dynamic random access
memory (DRAM) (Muehlhauser and Rieber 2014).

MAY 2016

such technologies. As Gordon points out, a task

as simple and unskilled to humans such as sorting laundry is immensely difficult currently for
machines.
There have been, for example, attempts for at
least 50 years to develop mechanical bricklayers. Bricks are of standard size, and are laid in
very regular formation. This task would seem an
ideal candidate for automation. But the production version of the current mechanical bricklayer
(SAM) has to work in tandem with a human
bricklayer, doing just the more routine elements
of the task. It can work as fast as four human
bricklayers, but since its cost is $0.5 million,
since it needs a machine tender, and since it can
only operate on straight stretches of wall, it is
estimated to be only economical in large scale
construction projects.10 Mechanization in many
service areasfood preparation and serving
for example, will be a similarly painfully slow
process.
One area of significant recent investment in
services, for example, has been automated vehicles. Driving vehicles is an important activity in
the service sector, employing nearly 7percent of
current US workers. Since the driver of a vehicle
has only to choose speed and direction the task
should be relatively easy to automate. However,
as Gordon points out, Google, a pioneer in this
area, does not expect to have a model for sale
until four to five years from now. And the technology Google relies upon is where the vehicle
has on board a map of the road terrain it operates
within, accurate to within inches. It also depends
on the vehicle knowing exactly where it is on
that map at all times. So, inclement weather,
such as snow or heavy rain, may well make
operation impossible. Less ambitious self-drive
technologies, which serve just to take over from
a driver in a regular vehicle, have less demanding technical and environmental requirements.
But as Gordon argues, even if successful, such
self-driving technologies offer little economic
advantage. Already it is possible to do many
other activities while guiding vehicles, so how
big can the gain be from automation of this task?
Thus it seems reasonable to expect in the
immediate future a world of only the most
modest efficiency advances. The Golden Era of
growth has indeed passed.
Quirke (2015).

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