Even before the COVID-19 pandemic, the long-term economic outlook for the American economy was unimpressive. Maybe not by, say, European standards, but certainly by historical American standards. The CBO’s pre-pandemic forecast from June 2019 saw potential real GDP growth at a mere 1.9 percent from 2019 through 2049. And now during the pandemic? Well, a bit worse in the forecast released in September: 1.8 percent over the next decade, and then 1.5 percent over the 2030s and 2040s.
You’ll find much the same forecast over at the Federal Reserve and at the big Wall Street firms. To predict anything much better means predicting a productivity boom, and that’s a pretty tough thing to do. There are good reasons to think the pandemic will be a drag on productivity going forward, but also some that cut the other way. Pandemic aside, however, plenty of economists have looked at the information-internet revolution over the past generation and have seen little in it that would compel them to anticipate that we are just one more gadget or web service away from higher long-term productivity growth. Perhaps the most well-known techno-pessimist is Northwestern University’s Robert Gordon, author of The Rise and Fall of American Growth, who says the early 1970s saw the end of a Special Century of fast productivity and economic growth thanks to a bunch of great-but-unrepeatable advances such as electrification and the internal combustion engine. As he told me back in 2016:
We’ve had plenty of inventions since 1970, but they’ve been focused on the narrow sphere of entertainment, information, and communications technology. That means everything associated with the television, including time shifting through VCRs and DVRs; computing, going from the mainframe through mini-computers and personal computers through to the laptop and the smartphone; and the mobilization of communication, moving from the landline phone to the dumb mobile and now the smart mobile phone. … Those innovations are everything that we talk about today, but in perspective they’re just a small slice of what human beings care about. If we looked at food, clothing, shelter, transportation, entertainment, motion pictures, we have achieved relatively slow progress since 1970. … Since 1970, we’ve had much slower growth in productivity; that is, the growth in how much each worker hour produces. And that was interrupted by a relatively rapid decade: between 1995 and 2005, what we call the “dot-com decade” — the decade in which the Internet was introduced along with search engines and e-commerce. And we observed productivity temporarily pick up during that period. But my forecast for the future is that it’s going to look very much like the last 40 years.
I mean, maybe, But also maybe not. I think there’s good reason to bet the age of fast growth may not be over. AI might be part of the answer, but it’s also so obvious that, as a nation, we engage in lots of self-sabotage, especially in regulating too much and researching too little. (And we may now be engaging in new self-harm in terms of trade and immigration.) We should not simply accept this new normal. Let me quote George Will from his 2016 review of Gordon’s book: “The ‘fatal conceit’ (Friedrich Hayek’s term) is the optimistic delusion that planners can manage economic growth by substituting their expertise for the information generated by the billions of daily interactions of a complex market society. Gordon’s stimulating book expresses a pessimist’s fatal conceit, the belief that we know the future will be less creative than the ’special century.’”
And if we are going to bring up Hayek, let me offer one of my favorite quotes. As he wrote in The Constitution of Liberty: “We are as little able to conceive what civilization will be, or can be, five hundred or even fifty years hence as our medieval forefathers or even our grandparents. If we are to advance, we must leave room for a continuous revision of our present conceptions and ideals which will be necessitated by further experience.” And that includes being open to the possibility that tomorrow might and can be better than we think.