The fall of growth
Posted: Thu Apr 02, 2026 9:59 am
I have been reading Robert J. Gordon's much lauded classic of economic history, The Rise and Fall of American Growth. It's a quite different book from what I expected. I thought it was going to be all about the causes of the US Depression, etc. But there's nothing about that at all. I think I overlooked its subtitle, The U.S. Standard of Living Since the Civil War. What it actually does is look at important aspects of life, like food and housing, and examine how they changed over time.
But, quite explicitly, Gordon remarks that it is not surprising that economic growth in the wealthy world is today much lower than it was in the "magic century" of 1870-1970. And his reasoning for that is quite interesting.
His argument is when you look at what people spend their money on, then food, alcohol, shelter, heating, water, light, furnishings, transportation, and health services are a lot of it. All of these had massive revolutions in their production during the magic century. Some inventions came earlier, but it was in the magic century that the real impact of those great inventions was most felt. When you look at the house of a reasonably well-off person in 1940 in the US (the equivalent date would be a bit later in Europe), it isn't really very different from a house of today. It already had most of the "networked services" - electricity, piped gas, running water, mains sewerage, telephone, radio - that made it so very different from the typical house of 1870, that had none of those things.
Today amazing inventions are being made that are revolutionising telecommunications, information technology and entertainment. But these things amount to only about 8% of GDP. So there just isn't the space in the economic accounts for them to contribute large things to growth. Meanwhile the big things we spend our money on, the changes there are not at all on the scale of the changes in the "magic century".
One exception is lighting. A famous narrative of economic history is how the price per lumen-hour of lighting fell by orders of magnitude as tallow lamps and beeswax candles were replaced variously by whale oil, paraffin wax, kerosene, gas and then most significantly by electric incandescent lighting. A further order of magnitude has come with LED lighting, but the amount of money people spend on lighting is small, so that this does not contribute substantially to growth.
Well I found this interesting. And shall stop looking for pre-1970 rates of growth in our life going forward.
But, quite explicitly, Gordon remarks that it is not surprising that economic growth in the wealthy world is today much lower than it was in the "magic century" of 1870-1970. And his reasoning for that is quite interesting.
His argument is when you look at what people spend their money on, then food, alcohol, shelter, heating, water, light, furnishings, transportation, and health services are a lot of it. All of these had massive revolutions in their production during the magic century. Some inventions came earlier, but it was in the magic century that the real impact of those great inventions was most felt. When you look at the house of a reasonably well-off person in 1940 in the US (the equivalent date would be a bit later in Europe), it isn't really very different from a house of today. It already had most of the "networked services" - electricity, piped gas, running water, mains sewerage, telephone, radio - that made it so very different from the typical house of 1870, that had none of those things.
Today amazing inventions are being made that are revolutionising telecommunications, information technology and entertainment. But these things amount to only about 8% of GDP. So there just isn't the space in the economic accounts for them to contribute large things to growth. Meanwhile the big things we spend our money on, the changes there are not at all on the scale of the changes in the "magic century".
One exception is lighting. A famous narrative of economic history is how the price per lumen-hour of lighting fell by orders of magnitude as tallow lamps and beeswax candles were replaced variously by whale oil, paraffin wax, kerosene, gas and then most significantly by electric incandescent lighting. A further order of magnitude has come with LED lighting, but the amount of money people spend on lighting is small, so that this does not contribute substantially to growth.
Well I found this interesting. And shall stop looking for pre-1970 rates of growth in our life going forward.