Americans have a lover’s faith in technology. And no wonder: for much of American history, technological innovation has lifted millions out of poverty, giving birth to new industries that require vast armies of workers.
True, many businesses have fallen by the wayside in the process, but those job losses were usually compensated by the opportunities created by new industries. The buggy whip business was devastated by the automobile, but car companies required many times more workers than the buggy shops, so this “creative destruction” was a net positive for the economy. Railways, the telephone, refrigeration, and air travel are only some of the technological advances that drove median household incomes and national GDP steadily upward for generations.
In his penetrating new book The Great Stagnation, economist Tyler Cowen warns that this may have been a temporary and anomalous phenomenon. Cowen calls the period from roughly the early 19th to the mid-20th centuries the era of “low hanging fruit.” According to Cowen, technological advances in this period were relatively easy to produce and exploit, resulting in a staggering explosion of living standards.
But by around 1970, most of this low hanging fruit had been plucked and growth rates began to slow. Indeed, growth rates are “lower today than before 1973, no matter what exact numbers you settle on for the absolute living standard.” Cowen sees this fact directly tied to the innovation plateau that was reached around the same time: “The United States produced more patents in 1966 (54,600) than in 1993 (53,200),” he notes. “Meaningful innovation has become harder, and so we must spend more money to accomplish real innovations, which means a lower and declining rate of return on technology.”
What’s worse, our few recent innovations tend to be job destroyers. The Internet, for example, has decimated whole sectors of the economy (try finding a travel agent these days), and created very few new jobs: Cowen notes that Google employs a mere 20,000; the increasingly ubiquitous Twitter only 300. Facebook has millions of users, but only about 1,700 workers.
This digital depressant trickles all the way down to old fashioned companies. McDonald’s recently announced it will do away with cashiers in many of its European restaurants, replacing them with touch-screen ordering systems. This innovation may (or may not) make ordering your Big Mac a faster experience, but it will definitely eliminate countless opportunities for young and low-skilled workers.
This is the great paradox of our modern economy. We possess more things that give us more pleasure and comfort than ever before, but those things, by and large, were invented a long time ago. Their economic potential has long since maxed out.