Ben Bernanke sees the great slowdown in technological progress

Summary: The FM website has a great record of providing unpopular but accurate forecasts to its readers, but a poor record of updating them. Once they become consensus insights we drop them.  Another in a series about the next industrial revolution now starting; see the links at the end to other posts.

Today let’s revisit the slowdown in technological progress. My first post about this — 5 years ago — was wildly controversial. Now it is so uncontroversial that even the Chairman of the Fed can discuss it.

Economic Prospects for the Long Run

By Ben S. Bernanke, Chairman of the Fed.
Excerpt from his speech at Bard College, 18 May 2013.

Indeed, some knowledgeable observers have recently made the case that the IT revolution, as important as it surely is, likely will not generate the transformative economic effects that flowed from the earlier technological revolutions. As a result, these observers argue, economic growth and change in coming decades likely will be noticeably slower than the pace to which Americans have become accustomed.

Such an outcome would have important social and political — as well as economic — consequences for our country and the world.

This provocative assessment of our economic future has attracted plenty of attention among economists and others as well. Does it make sense? Here’s one way to think more concretely about the argument that the pessimists are making:

Fifty years ago, in 1963, I was a 9-year-old growing up in a middle-class home in a small town in South Carolina. As a way of getting a handle on the recent pace of economic change, it’s interesting to ask how my family’s everyday life back then differed from that of a typical family today.

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If I think about it, I could quickly come up with the Internet, cellphones, and microwave ovens as important conveniences that most of your families have today that my family lacked 50 years ago. Health care has improved some since I was young; indeed, life expectancy at birth in the United States has risen from 70 years in 1963 to 78 years today, although some of this improvement is probably due to better nutrition and generally higher levels of income rather than advances in medicine alone.

Nevertheless, though my memory may be selective, it doesn’t seem to me that the differences in daily life between then and now are all that large. Heating, air conditioning, cooking, and sanitation in my childhood were not all that different from today. We had a dishwasher, a washing machine, and a dryer. My family owned a comfortable car with air conditioning and a radio, and the experience of commercial flight was much like today but without the long security lines. For entertainment, we did not have the Internet or video games, as I mentioned, but we had plenty of books, radio, musical recordings, and a color TV (although, I must acknowledge, the colors were garish and there were many fewer channels to choose from).

The comparison of the world of 1963 with that of today suggests quite substantial but perhaps not transformative economic change since then.

Update

In the comments Patrick raises an important point.  The great slowdown is a historical fact, an important event still occurring. We can see a few of its effects, such as how it contributes to the multi-decade stagnation of real wages for most American households.

How long will it last?    Almost everybody sees this as the slowdown as a pause, not an end to progress. The subtitle to Tyler Cowen’s The Great Stagnation is “How America (Eventually) Will Feel Better Again.”

What will follow, slow progress or another burst of innovation? The future is an unknown country, and we can only guess. The August 2012 post discusses the extreme scenario of accelerated progress:  the Singularity.

Posts on the FM website on the next industrial revolution

(a)  About the slowdown in progress since WW2:

(b)  See all posts about the Third Industrial Revolution

(c)  Posts about the question of future growth:

  1. Good news: The Singularity is coming (again), 8 December 2007
  2. Has America grown old, and can no longer grow? Or are wonders like the singularity in our future?, 12 August 2012
  3. Is America on the road to zero growth?, 29 November 2012
  4. Why America’s growth is slowing, and a solution, 28 January 2013
  5. Ben Bernanke sees the great slowdown in technological progress, 20 May 2013
  6. Will 21st Century USA have a surprise boom, as did the 19th Century UK?, 23 October 2013
  7. Recommended: Looking at America’s future: economic stagnation, or will computers take our jobs?, 7 January 2014
  8. 50 years of warnings about the next industrial revolution. Are we ready?, 12 January 2014

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35 thoughts on “Ben Bernanke sees the great slowdown in technological progress

  1. Ben Bernanke most certainly does not “see the great slowdown”. He presented both views, of which this entry quoted only one side (that Bernanke called “the pessimists”). And he hinted that he was on the side of the optimists. Here’s another excerpt:

    I’m sure that I can’t imagine all of the possibilities, but historians of science have commented on our collective tendency to overestimate the short-term effects of new technologies while underestimating their longer-term potential.

    1. Patrick raises an important point, one often confused. The “great slowdown” refers to the past up to today. It is a fact, an important one since its widely misunderstood — and probably contributes to many important social problems. Such as the flatlining of real incomes for most American households during the past few decades.

      What happens next is another question. The future is always an unknown country.

      Bernanke’s speech is clear on this — the distinct questions about the past and future — in a muddled sort of way. Here is the transitional paragraph, where he shifts his view from past to future:

      “Well, that’s sort of depressing. Is it true, then, as baseball player Yogi Berra said, that the future ain’t what it used to be? Nobody really knows; as Berra also astutely observed, it’s tough to make predictions, especially about the future. But there are some good arguments on the other side of this debate.”

      By other side of the debate, he refers to what comes next — not if the great slowdown has occurred.

      My posts show both views by contrasting forecasts of future stagnation (like Tyler Cowen’s) with forecasts for the singularity. See the August 2012 posts shown in the For More Info section for details.

      Also, forecasts for stagnation in the future refer to this as a pause in progress, not an end to it. The subtitle to Cowen’s The Great Stagnation is “How America…(Eventually) Will Feel Better Again.”

  2. Fabius, Fabius, Fabius. Speaking as the country cousin of country cousins, I must ell you that I can now order Jermyn St. shirts online and locate translations of Harry Potter into Ancient Greek.

    This helps keep certain cousins at bay while, yes, we are indeed in the process of raising a pig (Humphrey.)

  3. If Mr. Bernanke conducted his 1963/2013 comparison by looking at the world of work, he would see a completely different situation. In 1963 JIT inventory was impossible. Documents were created on typewriters. IT was in its infancy. Assembly lines were filled with low-skilled jobs, not robots. The air and the rivers were polluted with industrial waste. Much of the alphabet soup that helps/hinders business did not exist. The changes are profound.

    1. All good points! But let’s take a closer look at those changes.

      The wonderful pollution abatement in the developed nations since the 1960s results not so much from new tech (although there is some), but political change. Similarly, the civil rights legislation of the was great and transformative. However, the great slowdown is an economic event, so these things do not count. Economics is part of the quality of life scorecard, not the whole.

      The changes in industrial productivity you mention are profound. But the great slowdown refers to a slowing of tech progress, not a halt. The great slowdown contrasts the past 50 years vs the three previous 50 year periods: 1812-1862, 1862-1912, 1912-1962. The overall changes in tech during the last period are real — but far less by most measures than the previous 3.

      The massive changes in computer and communication tech dazzle us, but hide the relatively small changes in other areas of tech.

      What comes next? We can only guess…

    2. Speaking on behalf of country cousins everywhere ( not to mention Humphrey ) this innovation lends strength to the eccentric, the unique, the individual, the creative, the Dionysian, the Holy Fool, the Cynic, the mad monk in the Desert.

      Thirty years ago, we were oppressed by the normal, the typical, the standard, the disciplined, the Apollonian, the orthodox, the scholastic, the pedantic.

      Three cheers for those on everybody’s ‘B List.’ I have been blackballed from some of the finest clubs around. Nowadays, should matters pertaining to Humphrey somehow arouse their interest, my address is available somewhere and they can look me up.

      The technical implications of this have yet to sink in; and I do not expect Bernanke to understand them.

  4. It seems to me that this slowdown of technological advancement might partially explain the lost decade(s) in Japan and elsewhere.
    When there is minimal technological progress, economic growth must come at diminishing returns from climbing up the asymptote of what is feasible under current technology.
    Japan, with the boundless optimism afforded it by decades of stellar growth in production and productivity achieved a very high point on this asymptote. They built pretty much all the housing, offices, subways, highways, robots, factories, and ports that is necessary and feasible given technological and economic realities. Then they stopped, not because the real estate and stock markets crashed, but because there was nothing left to do besides maintain what had already been built for a stable or shrinking population.
    Maybe if there was a significant technological revolution, then the Japanese economy could resume real growth as it adapts and innovates. For now, however, they’re done, finished, nothing left to do.
    At least that’s how it seems to me.

    1. Rather than supporting your thesis, Japan’s experience refutes it. I would argue that it was economics that drove technology and not the reverse.
      Japan did not have a period of technological progress in the sense that it did more than catch up technologically with the West. When it had caught up it had neither the political nor the institutional tools necessary to continue progressing at the same speed. Any open-minded and inquisitive person present during the years of rapid growth would have noted the shoddiness of the software, the dependence on human labor to overcome systemic weaknesses and the static nature of the social system that undergirded the Japanese “miracle”.
      Unmiraculously, Japan followed the classical track of first growing economically by providing cheap labor and then moving up the technological ladder as their human and economic resources developed. They provided some innovation such as JIT inventory control and a (learned from the West) emphasis on quality control. The lack of other serious innovation ensured that once technological parity with the West was reached, things would slow down, ceteris paribus. “Abenomics”, which is likely to light a bit of a fire under the economy, will have little effect on the institutional brakes on Japan’s progress. Japan is likely to have more stuff, but as in the past, innovation will mostly consist of the equivalent moving the knobs around on stereos without making fundamental changes in technology.
      The lesson that I take away from this is that the phenomenal surge in the cost of attending university in the U.S. combined with the economic draw of financially rewarding but fundamentally unproductive occupations such as finance and banking has collapsed its base of knowledgeable and motivated technological innovators and may well doom us to become a follower rather than a leader in developing technology.
      Our obstacles are institutional and political and those are the ones we are least able to overcome.

    2. Fran’s raises an important point: new technology is a driver of economic growth, but neither a necessary or sufficient condition.

      The world has many poor nations with people and natural resources, often poor despite application of large sums of investment capital. During the past century few poor nations became rich (many damaged by entry into the middle income trap).

      On the other hand, many rich nations were devastated by WW2, their physical plant in ruins — yet they quickly rebuilt and became rich again.

      Cultural infrastructure seems to be the key ingredient. Legal and social structures allowing orderly cooperation of people seem to the vital element.

      There are a host of other factors as well. It s a complex subject.

  5. Bernanke seems to have forgotten that between 1963 and 1969 we went to the MOON….the greatest technological achievement in the history of mankind and when ever we cut NASA spending we as a country go into a technological decline. Bernanke and the Banker/Capitalist friends cannot seem to get the fact that science is the creator of all wealth and not Banks on Wall Street trading pieces of paper.

    1. I will take the other side of that debate. The money spent on manned space travel was IMO wasted (unlike the unmanned aspect, which ran on a separate track and paid large returns). The spinoffs were mostly hokum (eg, fictional or exaggerated).

      my guess is that it need not have been done this was. But it was, and so the money was spent to little gain.

      BTW- spending on manned space travel was far less than on military rockets and space (broadly defined). Most of that produced either little or nothing (many were cancelled early).

  6. Yes we could have gone the unmanned only path and in many ways we did both which was the best way. You can almost chart the American economy over the last 40 years by watching the Space program. Boom during the 60’s then we go into decline during the 70’s then Reagan revives the Manned Space program during the 80’s and the economy booms. Cuts during the 90’s but boom due to Space program spin offs being commercialized and now we are drifting off the path of prosperity again. And who has announced they will go to the moon ASAP a Little Red country called China and they will use the technology that we paid for so dearly most likely by stealing it.

    1. I will take the other side of that analysis. The sums are too tiny to affect the US economy. The benefits you allude to are microscopic.

      The subject has been extensively studied. Not even NASA at its most desperate made such claims.

      As for benefits of the space station affecting the US economy, that is science fiction.

      Can you cite any studies to support your assertions?

    2. To start here is a video of what our competitors have to say about the importance of Space.

      http://www.youtube.com/watch?v=fa1yFl2ftLI

      Personal experience has a lot to do with my views I grew up right smack dab in the middle of it all. Practicaly everybody I grew up with had family that worked in or around the Space program and the problems were enormus and like they said the failures were all right there on TV foe everyone to see, but we learned and overcame them. One example was that there were no known metals at the beginning that would stand up to the stesses of long term space flight, they had to be invented and that is just one small example. And the companies that solved all those problems benefited enormoulsy from that tax payer paid for reasearch.

      Not a big fan of the Space station, we should be going to Mars.

    3. I concur with FM by pointing out the other really significant player in manned space programs: Russia. It had a pioneering and enduring role in this area (e.g. first man on orbit, first and at some point longest-serving space station) — with basically no concrete benefit to show for all this effort on earth. Its distinguished unmanned space program, on the other hand, resulted at least in a long-running, sustainable commercial rocket venture to put satellites into orbit.

    4. NASA’s budget from 1958 to present does not parallel the national income. http://spaceprogram2010.blogspot.sg/2010_05_01_archive.html and http://www.tradingeconomics.com/united-states/gdp
      If there were any relationship, it could be expected to be that the economy, tax revenues or budget expenses would drive the NASA budget and not the reverse. Adding this next chart to the mix makes it clear that NASA expenses live an independent life mostly outside the world of Federal expenditures: http://www.marktaw.com/culture_and_media/TheNationalDebtImages/ReceiptsOutlaysFY2000.gif
      NASA’s budgets are political and have little to do with how the world outside is faring one way or the other.
      Note: these charts are all in real dollars but the base years vary. It is the shape of the charts that matters, not the absolute values.

    5. One of the themes that appears on Fab Max is that the USA is losing its world dominance because of the unique technological and economic position in held after WW2.
      To give a better explanationion of what I mean by the importance of the Space program( manned and unmanned) here is a link to a history channel video on this very subject.

      DO NOT be fooled by the title NAZIS VS. ALIENS. Check you local cable channel listing to see it for free or you can buy it for $1.99 at You Tube. The preview below is free and gives a good idea of what I am talking about as far as a technological driver and how important that is to an economy.

      Bernanke needs to recognize this or perhaps he his with his recent comments. But the point is we can survive with out Wall Street we cannot survive without a technology driver to keep us on the path to long term prosparity

      .

      http://youtu.be/GWTAN6mJHV0

  7. Define Progress… That is the question. It seems to me that a lot of economic activity is just the churn of financial instruments. The contribution of that to (undefined) progress is debatable; witness the US housing bust – a large mis-allocation of resources, and plenty of people drove it like they stole it… whilst it lasted. Plenty of them are now up the creek.

    I am not an engineer, philosopher or economist, so I am ill qualified to define progress but I suspect that such a definition need not be needlessly complex, and might actually be very simple. It might include the following (very general points) in some, more refined form or other:

    Do not make irreversible decisions.
    We should not undermine our humanity through ill conceived policies
    Our policies should expand the number of options available to us in the long term
    We should not undermine our resource base
    Externalities need to be accounted for
    Avoid positive feedback loops in the economy, except in regards to the above points, in order to reinforce them.

    I will go out on a limb and say that I suspect that a definition of progress would also have something to say about energy accounting. What my above points don’t say is anything about GDP or growth – not because I think that growth is unimportant – the right growth is; it is speculative bubbles that should be avoided, as all speculative bubbles will collapse at some point.

    The outcome of a definition of progress might be increasing stability over the long term (political, economic and social), resilience to shocks of all kinds (short term and long term, known and unknown), an increasing broadening and deepening of the capabilities of the physical economy, and I suspect, more productive nation in general and a lot less wasteful in particular.

    Once we have a simple but generally agreed upon definition of Progress (and reflected in our laws), everything we do – from government policies, business ventures to private consumption become a simple cost/benefit calculation.

    1. Agreed. What we should be looking for is “better” (whatever that is), not “more”. Unfortunately, our almost complete misunderstanding of economics has created a theology that equates better with more and an unstable system that can survive only by creating more and more and more. Breaking this connection and getting a near-universal agreement that more ≠ better would likely make for a far better world. I’m not optimistic that that is possible.

    2. I suspect I understand what you mean by we need “better” rather than “more”. That works for me if “better” includes “better distribution” of what we have. That is, a more equal distribution of income — and even more important, of opportunity.

      For example, IMO schools in ghettos should be as well funded than those in rich suburbs. Logically, they should be better funded — as those children need more help to overcome their starting circumstances.

  8. A small quibble perhaps. Concluding that technological progress has slowed because incomes of middle Americans have stagnated makes no sense. Indeed – tech progress is probably aggravating the declining/stagnating working class standard of living. Robotic manufacturing would be one rather obvious example. More work being done by fewer people using new technology.

    1. “Concluding that technological progress has slowed because incomes of middle Americans have stagnated makes no sense.”

      Quite right. Who says that?

  9. I still say there has to be some type of a primary driver (Space program,DOD research,etc.) that has massive support from the Government or the technological progress will slow and then stop.

    1. “a primary driver (Space program,DOD research,etc.) that has massive support from the Government”

      What was this “driver” with “massive support from the gov’t” in 1700? 1820? 1860? 1880? These were the various phases of the industrial revolution (broadly defined).

      There are a few examples, such as railroads which received some gov’t support in the US (but little in Britain), but the support was hardly “massive” in terms of the overall transportation investment picture or the broad economy.

    2. An Industrial Revolution is not the same thing as a technological revolution IMO. I don’t see how you can compare Moon technology and computer and advanced communications tech with steam engine trains and the railroads were basically built by human labor not much tech in that. But here is a coincidence the The Military Channel had a program on last night about this very subject and they essentially track all modern technology advances from the end of WW2 all the way up to Steve Jobs and Apple corporation. If it hadn’t been for the Government supported technology investments we would not be having this conversation over the Internet by using computers. It’s obvious we need to start spending big money of real tangible techonlogy developement to improve our standard of living………….. not on Wall Street Banks.

  10. What I wrote was, if I may refer to the Greek root, bassackwards. I meant to say it makes no sense to conclude a tech slowdown contributes to stagnating wages. Apologies
    “The great slowdown is a historical fact, an important event still occurring. We can see a few of its effects, such as how it contributes to the multi-decade stagnation of real wages for most American households.”
    I need to be shown some evidence.

  11. It is intellectual monopoly that is retarding innovation. The “great slowdown” will last until many more people realise and accept this and we successfully abolish copyright and patent monopoly laws. Ever stronger, further-reaching intellectual monopolies as the USA in particular is fond of pushing for are a disaster, truly sometyhing of a “beatings will continue until morale improves”.

    1. Thank you for posting links to those interesting articles. I’ve added descriptions to them, to encourage people to click through to them.

      The increasing expansion and exploitation of patent and copyright laws has become a barrier to innovation — and a means by which large corps prevent competition.

      This is one example of a larger problem, the increasingly rigidity of the US economy due to rise of guilds (eg, using licensing) and excessive regulation at many levels of government.

    2. When our organization embarks on a project we, as I imagine most similar organizations would, move forward based not on which concepts are patentable and which are not but rather which do the job best. Discussions of patentability are post-facto and don’t drive R&D. If we create compelling/useful products, it will be those products and the talents embedded in the rest of the organization that provide the moat that we need to ensure profitability. We’ll gladly take any patent protections we can get, but they are not on the table or even in the room when we are solving problems or developing new ideas.
      Patents are simply government sponsored economic rents. Generally where you find an economic rent you also find a business opportunity. One could find worse methods for locating market niches to be exploited than looking for rents and then doing whatever the rent is derived from better and cheaper.

  12. Were the Victorians cleverer than us? The decline in general intelligence estimated from a meta-analysis of the slowing of simple reaction time“, Michael A. Woodley et al, Intelligence, in press.

    Abstract

    The Victorian era was marked by an explosion of innovation and genius, per capita rates of which appear to have declined subsequently. The presence of dysgenic fertility for IQ amongst Western nations, starting in the 19th century, suggests that these trends might be related to declining IQ. This is because high-IQ people are more productive and more creative.

    We tested the hypothesis that the Victorians were cleverer than modern populations, using high-quality instruments, namely measures of simple visual reaction time in a meta-analytic study. Simple reaction time measures correlate substantially with measures of general intelligence (g) and are considered elementary measures of cognition. In this study we used the data on the secular slowing of simple reaction time described in a meta-analysis of 14 age-matched studies from Western countries conducted between 1884 and 2004 to estimate the decline in g that may have resulted from the presence of dysgenic fertility.

    Using psychometric meta-analysis we computed the true correlation between simple reaction time and g, yielding a decline of − 1.23 IQ points per decade or fourteen IQ points since Victorian times. These findings strongly indicate that with respect to g the Victorians were substantially cleverer than modern Western populations.

  13. Successful revolutions(including the tech revolution) have a lifecycle. Big changes in the beginning, these changes being numerous and obvious; expectations are very high. Maturity brings complacency; participation becomes routine and the drive for change diminishes; expectations level off. Old age is old age. Duh. There are no expectations but breakdown and eventual collapse; there is talk about the need for revolution; the cycle reboots. Futurists out there – Can technology be replaced?

    The technology revolution is now taken for granted; it is mature. Some lethargy is to be expected. Is this the slowdown being perceived ?

    FM – When you say there has been a technology slowdown what form does this slowing take? Does that mean that there are fewer new technologies being developed or does it mean that the impact of new technologies on society is slowing? Or both? Or …?

    When I entered the workforce in the late 50’s the effect of technology on employment and working class upward mobility was overwhelmingly positive. The adoption of computers by business was particularly beneficial during the next few decades and although futurists were alarmed, saying this trend would lead to widespread unemployment, the opposite happened, and big time. This trend stayed pretty much in place until the 90’s when the paradigm did at last begin to unravel, and the forty year old predictions about automation causing social and economic dislocation began to sound realistic again. Since then it has come to pass that automation, as a refinement to an existing technology, is contributing to unemployment. So – If there is a technological speedup, better automation will further aggravate an already underway automation enabled socio-economic deterioration. More and better process automation now leads to lower manpower requirements just as the sixty year old forecast predicted.

    On the other hand if, as assumed in the original post, – a technological slowdown has contributed to economic stagnation(unemployment?) and that stagnation, if fixed, would in turn lead to large scale job creation sufficient to overwhelm automation induced losses (I’d like to see a flowcharted project plan for this process) then the assertion about the effects of the slowdown makes sense.

    It is my contention that when technology, economics, government policy, legislation, personality, ideology, (add more here) are conglomerated, and the resulting system function is unsatisfactory, then human attempts to tease apart the forces and their effects upon one another into provable cause and effect relationships are not feasible. Thus trial and error based attempts to goose the system into a fully functional state look a lot like the payday crap game at the Staff NCO barracks. Maybe we’ll get lucky. .and maybe we won’t.

    1. ” When you say there has been a technology slowdown what form does this slowing take?”

      Please see the links in the For More Information section. Those posts provide a brief explanation, and links to more detailed information.

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