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Do we face secular stagnation or a new industrial revolution?

Larry Kummer, Editor

Summary:  US growth is slowing when it should be accelerating as we shake off the effects of the crash. The possibility of a fifth year of slow growth strengthens fears of stagnation like that afflicting Japan since 1990. Yet there’s good reason to suspect that a new industrial revolution has begun, potentially generating incredible new wealth — if we manage the process well politically. Which future is correct? Both of them.  {1st of 2 posts today.}

“There are decades when nothing happens; and there are weeks when decades happen.”
— Attributed to Lenin.

Contents

  1. We’re becoming Japan.
  2. We’re accelerating to take off speed!
  3. The 3rd industrial revolution?
  4. Conclusions
  5. For More Information.

(1)  We’re becoming Japan.

Compare growth in per capita GDP of America and Japan. We following in their footsteps.

This is a big story. It’s called secular stagnation (see the posts describing this theory, with links). Readers of the FM website have known about this since 2010, with more details given in 2013 and even more last year.  Larry Summers introduced it to the world in 2013. It’s still controversial, as seen in Ben Bernanke’s rebuttal this week (see Larry Summers devastating reply). I suspect time will prove Summers is correct.

Also, Japan has still not pulled out of their stagnation, despite the 3 arrows of Abenomics.

(2)  But we’re accelerating to take off speed!

No, we’re slowing, as shown by the Atlanta Fed’s GDPnow forecast for Q1 of zero growth. Yet the experts remain hopeful for a better year than 2014. The Fed foresees growth in 2015 of 2.3% – 2.7%. But then in September 2012 they expected growth in 2015 of 3.0 – 3.8%. The February survey of Professional Forecasters shows a median expectation of 3.2% for 2015 (note this calculates annual GDP slightly differently than does the Fed). I expect they will be disappointed, yet again.

(3)  What about the 3rd industrial revolution?

I and others have said that the 3rd industrial revolution has begun. Some even expect the singularity to occur during the lives of some alive today, as the rate of tech evolution goes vertical — especially in the breakthrough fields of AI, nanotechnology, genetics, and fusion (see the details here).

But these things take time to develop. Despite frequent claims, tech is not developing faster than in previous revolutions. For example, the below graph shows the rate of internet adoption was slightly slower in its first decade than that of radio and television (but faster than that of the telephone, which required more infrastructure). For details see Gisle Hannemyr’s “The Internet as hyperbole: A Critical Examination of Adoption Rates“. The start date assumed for the internet is 1998.

“The Internet as hyperbole: A Critical Examination of Adoption Rates” by Gisle Hannemyr, The Information Society, 2003 v2.

But once these developmental processes start, they move with astonishing speed. America’s cities were wired for electricity and telephone over 2 decades. For example see this photo of Niagara Falls in 1904, with each factory generating its own power. In 20 years they were all using grid power — as were tens of thousands of factories across America.

Niagara Falls in 1904.

There are scores of technologies in such early stage roll-outs — 3-D printing, new health care tools, robots for manufacturing and services, electric and self-driving vehicles, software automating countless jobs — now appearing on a small scale. It will take years for their effects to shake the economy. But the revolution will arrive.

(4)  Conclusions

The coming years of stagnation will put immense social stress on America, especially as the 1% continues to boldly exploit their increased wealth and power (social but not political stress unless we organize and act together in response; flocks of sheep don’t have politics). Beyond that we probably will experience a shift from stagnation to rapid growth, with political and social effects that we can only dimly foresee. I suspect it will be as turbulent as the years of dizzying change in the west between 1870 and 1920. That history has been sanitized for Americans, but it was ugly and bloody (see Prof Eric Loomis’ this day in labor history series).

We have time to prepare. Only large-scale organization will prevent the 1% from taking most of the gains from the new tech, as they have captured most of the slower productivity gain during the past 30 years. Will we use this time wisely?

(5)  For More Information

If you liked this post, like us on Facebook and follow us on Twitter. See all posts describing how the 3rd industrial revolution has begun. And posts about the theory that we’ve entered a period of secular stagnation.

For deeper analysis see these books:

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