World Monitor Magazine April 2017 - Page 105

books It’s been quite a decade for the global economy The popping of the American housing bubble in 2006, the subprime mortgage fi- nancial crisis and its spread to Wall Street in 2007–08, the collapse of the world economy into the first global recession in decades in 2008–09, the knock-on eurozone financial crisis that began in 2010, and a slow, often faltering recovery — it’s been a tumultuous 10 years. And the period has produced a bumper crop of excellent economics books by academ- ics, journalists, and practitioners who have attempted to grapple with the extraordinary macroeconomic disaster. They have examined why it happened, how to fix it, what it means, and how to avoid a recurrence of anything even remotely as hellish. low. The era of modern economic growth got started only in 1870, with the simultaneous advent of the iron-hulled screw-propelled oceango- ing steamship, the submarine telegraph cable, and the industrial research lab. It was then that the pace of growth kicked up a notch to a steady, long-term per capita economic growth rate of 2 percent per year. That may not sound like much. But it meant that in an average year, the share of the average household’s resources that was needed to acquire what that household had acquired the pre- vious year shrank by one-fiftieth. With a 2 percent growth rate, well-being rises faster, because the resources released by that growth for other purposes can be spent acquiring not just more of the same but all of the new goods and ser- vices that are the fruits of ongoing invention and innovation. Over time, as this growth compounds, it leads to enormous increases in economic output and standard of living. But Gordon, whose pessimism is driven by data, believes this era of growth has come to an end: In the coming decades, frontier economies will see a measured pace of growth of only 1 percent per year. Why? Between 1850 and 1950, we saw the invention of lifechanging technologies such as jet aircraft, telephones, indoor plumbing, gas cooking and heating, electric refrigerators, streetcars, automobiles, radio and television, antibiotics, and steel- and-concrete construction. Between 1950 and 2015, we saw the widespread diffusion of those technologies — and the coming of computers, mobile phones, and the Internet. But what comes next? Gordon says: less. You can only industrialize your society once, af- ter all. And that slows down the pace of innovation. In addition, economies to- day face significant headwinds that they didn’t face in the past: an aging population, an average education level that has hit a ceiling, rising income inequality and wealth inequality, and struggles to continue to run pay-as-you-go social in- surance. Add it up, Gordon says, and for the first time, an American generation faces the possibility of not living better than its parents did. best book 2016 econom But we may have arrived at a crossroads. Recently, Martin Wolf ’s The Shifts and the Shocks: What We’ve Learned — and Have Still to Learn — from the Fi- nancial Crisis (one of s+b’s top economics books of 2015) and Barry Eichen- green’s Hall of Mirrors: The Great Depression, the Great Recession, and the Uses — and Misuses — of History (which received a highly favorable review in s+b) put a capstone on the intellectual structure of analysis on the crisis. And this year, in my view at least, the most compelling books on economics are widening the lens. Only one of the three, Adair Turner’s Between Debt and the Devil: Money, Credit, and Fixing Global Finance, deals with the 2006–10 period. The others take a broader view. Robert J. Gordon’s The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War tries to make sense of the econo- my not in a five-year period in the recent past but over the entire 150-year sweep starting in 1865. Jacob S. Hacker and Paul Pierson’s American Amnesia: How the War on Government Led Us to Forget What Made America Prosper argues power- fully that the voluntary donning of ideological blinders has made U.S. economic policy lousy and the country’s political economy so badly dysfunctional. In The Rise and Fall of American Growth, Robert J. Gordon, a professor of economics at Northwestern University and one of our greatest economic historians, paints a pessimistic picture. It’s unappreciated that for much of history, growth in economic frontiers — what we would call development markets — was actually quite Now there still are techno-optimists, those who point to the immense value creation emanating from Silicon Valley as proof that we may be in the second inning of the ball game rather than the ninth. I certainly want to be a techno-optimist. But Gordon’s exhaustive research program — this highly readable book checks in at 784 pages — has knocked me back on my intellectual heels. After one plows through this volume, the boulder one must roll uphill to make the case for techno-optimism is considerably heavier. supported by EUROBAK 101