52: Ever Since Texting, It's Been Downhill for the U.S. Economy

Episode Summary

Executive Summary: The episode centers on economist Robert Gordon’s argument that the era of transformative, economy-wide innovation is largely behind us, leading to slower productivity growth, lower long-term interest rates, and a muted economic outlook. He says today’s technologies improve consumer convenience more than measured GDP, while demographics and aging will further restrain growth. Still, he sees near-term U.S. job gains and wage pressure.

Main Topics: The limits of modern innovation (Priority: 5/5): Gordon argues that recent technologies like smartphones, Uber, Airbnb, and AI are useful but mostly incremental, lacking the broad productivity impact of electricity, automobiles, or indoor plumbing. Historical waves of transformative growth (Priority: 5/5): He contrasts today’s innovation with the period from 1870 to 1970, when electricity, engines, mass communication, and sanitation fundamentally changed daily life and productivity. Secular stagnation and low interest rates (Priority: 5/5): Gordon supports the view that weak productivity and slow GDP growth will keep interest rates low for a long time, affecting policy, debt, and pensions. Demographics as a growth drag (Priority: 4/5): An aging population and retiring baby boomers are shrinking labor-force growth, which Gordon says materially lowers overall GDP growth. Immigration and policy responses (Priority: 4/5): He argues immigration reform could help offset demographic decline by boosting labor-force and economic growth, and criticizes anti-immigration politics. Education and infrastructure as partial remedies (Priority: 4/5): Gordon endorses infrastructure spending given low borrowing costs, but says preschool and early-childhood interventions are more important for long-run productivity and inequality reduction. Short-term optimism in the U.S. economy (Priority: 3/5): Despite his pessimism on long-run productivity, Gordon expects strong job creation, falling unemployment, and improving wages in the next few years.

Key Arguments: Recent digital technologies have improved convenience and consumer welfare but have not delivered the same economy-wide productivity gains as past breakthroughs. The big productivity jump from the first digital revolution occurred earlier, especially from 1995 to 2005; the last decade has mostly been a completion of that transition. Measuring growth requires looking at output per hour, not just employment; strong job gains can coexist with weak GDP growth. The 1870–1970 period was uniquely transformative because of electricity, sanitation, engines, and mass communication. Modern tech like Uber does not necessarily increase productivity because it often substitutes for existing labor rather than changing output per worker. Low productivity growth and aging demographics imply structurally lower long-term interest rates and limited Fed room to normalize rates. Immigration reform could raise labor-force growth and help future GDP, particularly if modeled on Canada or Australia. Infrastructure spending is attractive when borrowing costs are low, but education—especially early-childhood support—has a bigger long-term payoff. The U.S. is likely to experience a favorable near-term cycle of job growth and wage gains even if structural growth remains subdued.

Data Points: Americans sending text messages: about 10% - A 2003 Bloomberg story cited at the start as a contrast with how quickly technology changes. Time since text-messaging story: 13 years - Used to show how outdated early assumptions about adoption can become. Jobs created since 2009: 15 million - Gordon cites strong employment growth alongside slow output growth. Period of productivity revival: 1995 to 2005 - He says the first digital revolution produced a major productivity payoff in this decade. Historical innovation window: 1870 to 1970 - The era he identifies as having the most profound economy-wide technological change. Labor force growth in late 20th century: about 1.5% per year - He contrasts this with slower recent growth due to aging. Current labor force growth: about 1.5% per year - He says it is slower than population growth because of retirements. Contribution of demographic shift to GDP growth decline: 1 percentage point - He estimates aging and labor-force slowdown explain a full percentage point of lower GDP growth. Baby boom retirement drag window: 2008 to 2035 - He says this period will continue to weigh on labor-force growth. Expected 10-year bond rate: around 1.5% to 2% - He argues low rates will persist and affect debt and pensions. Prior expected 10-year bond rate: 4% to 5% - He contrasts current expectations with pre-2007 norms. Desired unemployment rate: closer to 4% than 5% - He predicts U.S. unemployment could fall toward 1999–2000 levels. Average poor child vocabulary: about a third of middle-class children - He uses this to argue for early-childhood interventions.

Pivotal Quotes: "What’s happened in the last 10 years is that the conversion to that new world ... has primarily been finished." — Robert Gordon: Explaining why recent innovation has not produced another productivity boom. "The diagnosis that I have developed is that this lack of economy-wide impact of today’s innovations is pulling down the rate of productivity growth and the rate of growth of the economy overall." — Robert Gordon: His core thesis on secular stagnation and long-term economic slowdown. "I think we’re in for a good period of years with no symptoms of an onset of a recession." — Robert Gordon: His short-term outlook remains relatively upbeat despite his long-run structural concerns.

Implications: Listeners should expect slower long-run growth, persistently low rates, and policy debates centered on demographics, immigration, education, and infrastructure rather than a new tech boom. Short-term labor markets may still stay strong, even if productivity remains weak.