Tag: Paul Krugman

Monday Smackdown: Robert Waldmann Marks Brad DeLong’s Beliefs about “The Return of Depression Economics” to Market

Posted on by Brad DeLong

Robert Waldmann: Brad DeLong Marks His Beliefs about “The Return of Depression Economics” to Market: “Brad DeLong…reposted his review of Krugman’s ‘The Return of Depression Economics’ from 1999…

…’Just in case I get a swelled-head and think I am right more often than I am …’ Way back in the last century, Brad thought he had a valid criticism of Paul Krugman’s argument that Japan (and more generally countries in a liquidity trap) need higher expected inflation. I think the re-post is not just admirable as a self criticism session, but also shows us something about the power of Macroeconomic orthodoxy. Brad is just about as unorthodox as an economist can be without being banished from the profession, but even he was more influenced by Milton Friedman and Robert Lucas than he should have been…. Japan had slack aggregate demand at a safe nominal interest rate of 0–that i,s it was in the liquidity trap. Krugman argued that higher expected inflation would cause negative expected real interest rates and higher aggregate demand and solve the problem. Brad was unconvinced (way back then):

But at this point Krugman doesn’t have all the answers. For while the fact of regular, moderate inflation would certainly boost aggregate demand for products made in Japan, the expectation of inflation would cause an adverse shift in aggregate supply: firms and workers would demand higher prices and wages in anticipation of the inflation they expected would occur, and this increase in costs would diminish how much real production and employment would be generated by any particular level of aggregate demand.

Would the benefits on the demand side from the fact of regular moderate inflation outweigh the costs on the supply side of a general expectation that Japan is about to resort to deliberate inflationary finance? Probably. I’m with Krugman on this one. But it is just a guess–it is not my field of expertise–I would want to spend a year examining the macroeconomic structure of the Japanese economy in detail before I would be willing to claim even that my guess was an informed guess.

And there is another problem. Suppose that investors do not see the fact of inflation–suppose that Japan does not adopt inflationary finance–but that a drumbeat of advocates claiming that inflation is necessary causes firms and workers to mark up prices and wages. Then we have the supply-side costs but not the demand-side benefits, and so we are worse off than before.

As Brad now notes, this argument makes no sense. I think it might be hard for people who learned about macro in the age of the liquidity trap to understand what he had in mind. I also think the passage might risk being convincing to people who haven’t read enough Krugman or Keynes. The key problems in the first paragraphs are ‘adverse’ and ‘any particular level of aggregate demand’. Brad assumed that an increase in wage and price demands is an adverse shift. The argument that it is depends on the assumption that he can consider a fixed level of nominal aggregate demand (and yet he didn’t feel the need to put in the word ‘nominal’). The butchered sentence ‘would diminish how much real production and employment would be generated by any particular level of [real] aggregate demand.’ clearly makes no sense.

During the 80s, new Keynesian macroeconomists got into the habit of considering a fixed level of nominal aggregate demand when focusing on aggregate supply. Because it wasn’t the focus, they used the simplest existing model of aggregate demand the rigid quantity theory of money in which nominal aggregate demand is a constant times the money supply (which is assumed to be set by the monetary authority). This means that the aggregate demand curve (price level on the y axis and real gdp on the x axis) slopes down. This in turn means that an upward shift in the aggregate supply curve is an adverse shift.

More generally, the way in which a higher price level causes lower real aggregate demand is by reducing the real value of the money supply, but if the economy is in the liquidity trap the reduction in the real money supply has no effect on aggregate demand. In the case considered by Krugman, the aggregate demand curve is vertical. This means that he can discuss the effect of policy on real GDP without considering the aggregate supply curve. The second paragraph just repeats the assumption that higher expected inflation causes ‘costs’. There are no such costs (at least according to current and then existing theory) if the economy is in a liquidity trap. The third paragraph shows confusion about the cause of the ‘demand side benefits’. They are caused by higher expected inflation not by higher actual inflation. If there were higher expected inflation not followed by higher actual inflation, Japan would enjoy the benefits anyway. Those benefits would outweigh the non-existent costs.

Krugman actually did consider a model of aggregate supply, but it is so simple it is easy to miss. As usual (well as became usual as Krugman did this again and again) the model has two periods–the present and the long run. In the present, it is assumed that wages and prices are fixed. In the long run it is assumed that there is full employment and constant inflation. Krugman’s point is that all of the important differences between old Keynesian models and models with rational forward looking agents can be understood with just two periods and very simple math. The problem is that the math is so simple that it is easy to not notice it is there and to assume that he ignored the supply side.

I am going to be dumb (I am not playing dumb–I just worked through each step) and consider different less elegant models of aggregate supply. The following will be extremely boring and pointless:

  1. Fixed nominal wages, flexible prices and profit maximization (this is Keynes’s implicit model of aggregate supply). In this case, the supply curve gives increasing real output as a function of the price level. An ‘adverse’ shift of this curve would be a shift up. It would not affect real output in the liquidity trap since the aggregate demand curve is vertical. it would not impose any costs as the increased price level would reduce the real money supply from plenty of liquidity to still plenty of liquidity. This model of aggregate supply is no good (it doesn’t fit the facts). It is easy to fear that Krugman implicitly assumed it was valid when in a rush (at least this is easy if one hasn’t been reading Krugman every day for years–he doesn’t do things like that).

  2. A fixed expectations-unaugmented Phillips curve which gives inflation as an increasing function of output. An ‘adverse’ shift of he Phillips curve would imply higher inflation. This would have no costs.

  3. An expectations-augmented Phillips curve in which expected inflation is equal to lagged inflation–output becomes a function of the change in inflation. In a liquidity trap, there would be either accelerating inflation or accelerating deflation. For a fixed money supply accelerating inflation would reduce real balances until the economy would no longer be in a liquidity trap. The simple model would imply the possibility of accelerating deflation and ever decreasing output. This model is no good, because such a catastrophe has never occurred, Japan had constant mild deflation which did not accelerate, even during the great depression the periods of deflation ended.

  4. An expectations augmented Phillips curve with rational expectations–oh hell I’ll just assume perfect foresight. Here both the aggregate demand and aggregate supply curves are vertical. If they are at different levels of output, there is no solution. The result is that a liquidity trap is impossible. This is basically a flexible price model. If there were aggregate demand greater than the fixed aggregate supply, the price level would jump up until the real value of money wasn’t enough to satiate liquidity preference. Krugman assumed that, in the long run, people don’t make systematic forecasting mistakes. So he assumed that the economy can’t stay in the liquidity trap for the long run. Ah yes, his model had everything new classical in the long run (this is the point on which Krugman has marked his beliefs to market).

The argument that Krugman would not have reached his conclusions about the economics of economies in liquidity traps if he had considered the supply side only makes sense if it includes the intermediate step that, if one considers the supply side, one must conclude that economies can never be in liquidity traps. This is no good as Japan was in the liquidity trap as are all developed countries at present.

I think the only promising effort here was (3)–a Phillips curve with autoregressive expectations. The problem is: why hasn’t accelerating deflation ever occurred? Way back in 1999, Krugman clearly thought that the answer was just that we had been lucky so far. He warned of the risk of accelerating deflation. Now he thinks he was wrong. Like Krugman, I think the reason is that there is downward nominal rigidity — that it is very hard to get people to accept a lower nominal wage or sell for a lower price. This depends on the change in the wage or price and not in that change minus expected inflation.

Clearly this rigidity isn’t absolute (Japan has had deflation and there were episodes of deflation in the 30s). But it is possible to get write a model in which unemployment is above the non accelerating inflation rate, but nominal wages aren’t cut. In this case expected inflation remains constant–actual deflation doesn’t occur so expected deflation doesn’t occur. The math can work. See here.

Must-read: Paul Krugman: “Trade Deficits: These Times are Different”

Posted on by Brad DeLong

Must-Read: There are big reasons to be for “mercantilist” policies:

  1. In a world in which a country suffers from a shortage of risk-bearing capacity or a savings glut, exports are a very valuable source of aggregate demand.
  2. In a world in which there are substantial spillovers from the creation and maintenance of communities of engineering practice, exports in associated industries are a powerful nurturant and imports a powerful retardant of such communities.
  3. To the claim that subsidies to such communities are better, the proper rebuttal is “subsidies to whom?” Export champions reveal themselves to be competent productive organizations, and policies that encourage competent productive organizations are likely to do more to nurture communities of engineering practice than policies that encourage competent lobbying organizations.

The arguments against “mercantilist” policies are two:

  1. The little one: such policies are inefficient, in that the losers lose more than the winners win.
  2. The big one: such policies are not win-win, and economic policy energy is best devoted to things that are win-win–at least in the behind-the-veil-of-ignorance sense of win-win.

Paul Krugman: Trade Deficits: These Times are Different: “In normal times, the counterpart of a trade deficit is capital inflows…

…which reduce interest rates, and there’s no reason to believe that trade deficits reduce employment on net, even if they do redistribute it. But we are still living in a world awash with excess savings and inadequate demand, where interest rates can’t fall (or at any rate not much) because they’re already near zero. That is, we’re in a liquidity trap. And in that kind of world it’s true both that trade deficits do indeed cost jobs and that there are basically no benefits to capital inflows — we already have more desired savings than we are managing to invest.

One indicator of how the rules differ in these circumstances: Remember all the hand-wringing about our dependence on Chinese financing, and how U.S. interest rates would spike if the Chinese stopped buying our bonds? Well, the Chinese have stopped buying bonds and started selling them…. And US interest rates remain very, very low — still under 2 percent on 10-year bonds.

I’m not saying that Trump has any idea what he’s talking about; he doesn’t. But we are living in a world where, for the time being — and maybe for a long time to come, if secular stagnation theorists are right — mercantilism makes a fair bit of sense. But then Keynes could have told you that.

Must-read: Paul Krugman: “Globalization and Growth”

Posted on by Brad DeLong

Must-Read: Paul Krugman: Globalization and Growth: “Brad DeLong… arguing that the really big benefits of globalization come from technology diffusion…

…which make it a much more positive force than I suggest. I used to believe the same thing, and still find myself thinking along those lines now and then. But I’d argue that economists need to be, at the least, upfront about the argument’s limitations. First, it doesn’t come out of the models. As Brad says, the map is not the territory; but guesses about such things are, well, guesses. There was a time when everyone knew that import-substituting industrialization was the key to economic takeoff, based on loose historical reasoning (America and Germany did it!). Then developing countries tried it en masse, and the results weren’t great.

Furthermore, my sense is that nonstandard free-trade arguments tend to involve, often unintentionally, a kind of bait and switch. Economists love to talk about comparative advantage…. Somewhere Alan Blinder said that economists would almost all agree on the slogan ‘Yay free trade.’ But the seeming authority of the comparative-advantage case then ends up being carried over, illegitimately, to arguments for trade that have nothing to do with comparative advantage. Yes, there could be positive externalities associated with trade, but there could be positive externalities associated with lots of things, and Ricardian models don’t give us any special reason to think that the trade ones are more important.

So how would you test such arguments? Well, in a way we did carry out an experiment. In the early 1990s there was a widespread orthodoxy that ‘outward-looking’ development policies were much more favorable to growth than ‘inward-looking’ policies… the rapid growth of Asian economies, which had followed an export-oriented path rather than… import substitution… in the 50s and 60s. The question, however, was whether you would see dramatic acceleration of growth in other places, such as Latin America, when policy shifted away from inward focus. And the answer turned out to be, not so much. Look at Mexico, which did a radical trade liberalization in 1985-88, then joined NAFTA. It has seen a transformation of its economy in many ways; it has gone from an economy that didn’t export much besides oil and tourism to a major manufacturing export power. And the effect on development has been… underwhelming.

So Brad could be right; but the evidence is far from conclusive. I would still argue very strongly that it’s crucial to keep markets open for poor countries. But we should be cautious in our claims about the virtues of free trade.

The benefits of free trade: Time to fly my neoliberal freak flag high!

Posted on by Brad DeLong

I think Paul Krugman is wrong today on international trade. For we find him in “plague on both your houses” mode. On the one hand:

Paul Krugman: Trade and Tribulation and A Protectionist Moment?: “Protectionists almost always exaggerate the adverse effects of trade liberalization…

…Globalization is only one of several factors behind rising income inequality, and trade agreements are, in turn, only one factor in globalization. Trade deficits have been an important cause of the decline in U.S. manufacturing employment since 2000, but that decline began much earlier. And even our trade deficits are mainly a result of factors other than trade policy, like a strong dollar buoyed by global capital looking for a safe haven.

And yes, Mr. Sanders is demagoguing the issue…. If Sanders were to make it to the White House, he would find it very hard to do anything much about globalization…. The moment he looked into actually tearing up existing trade agreements the diplomatic, foreign-policy costs would be overwhelmingly obvious. In this, as in many other things, Sanders currently benefits from the luxury of irresponsibility….

But on the other hand:

That said… the elite case for ever-freer trade, the one that the public hears, is largely a scam…. [The] claims [are] that trade is an engine of job creation, that trade agreements will have big payoffs in terms of economic growth and that they are good for everyone. Yet… the models… used by real experts say… agreements that lead to more trade neither create nor destroy jobs… make countries more efficient and richer, but that the numbers aren’t huge….

False claims of inevitability, scare tactics (protectionism causes depressions!), vastly exaggerated claims for the benefits of trade liberalization and the costs of protection, hand-waving away the large distributional effects that are what standard models actually predict…. A back-of-the-envelope on the gains from hyperglobalization — only part of which can be attributed to policy — that is less than 5 percent of world GDP over a generation…. Furthermore, as Mark Kleiman sagely observes, the conventional case for trade liberalization relies on the assertion that the government could redistribute income to ensure that everyone wins—but we now have an ideology utterly opposed to such redistribution in full control of one party…. So the elite case for ever-freer trade is largely a scam, which voters probably sense even if they don’t know exactly what form it’s taking….

And, Paul summing up:

Why, then, did we ever pursue these agreements?… Foreign policy: Global trade agreements from the 1940s to the 1980s were used to bind democratic nations together during the Cold War, Nafta was used to reward and encourage Mexican reformers, and so on. And anyone ragging on about those past deals, like Mr. Trump or Mr. Sanders, should be asked what, exactly, he proposes doing now.… The most a progressive can responsibly call for, I’d argue, is a standstill on further deals, or at least a presumption that proposed deals are guilty unless proved innocent.

The hard question to deal with here is the Trans-Pacific Partnership…. I consider myself a soft opponent: It’s not the devil’s work, but I really wish President Obama hadn’t gone there…. Politicians should be honest and realistic about trade, rather than taking cheap shots. Striking poses is easy; figuring out what we can and should do is a lot harder. But you know, that’s a would-be president’s job…. [But] he case for more trade agreements—including TPP, which hasn’t happened yet—is very, very weak. And if a progressive makes it to the White House, she should devote no political capital whatsoever to such things.

So I guess it is time to say “I think Paul Krugman is wrong here!” and fly my neoliberal freak flag high…

On the analytics, the standard HOV models do indeed produce gains from trade by sorting production in countries to the industries in which they have comparative advantages. That leads to very large shifts in incomes toward those who owned the factors of production used intensively in the industries of comparative advantage: Big winners and big losers within a nation, with relatively small net gains.

But the map is not the territory. The model is not the reality. An older increasing-returns tradition sees productivity depend on the division of labor, the division of labor depends on the extent of the market, and free-trade greatly widens the market. Such factors can plausibly quadruple The Knick gains from trade over those from HOV models alone, and so create many more winners.

Moreover, looking around the world we see a world in which income differentials across high civilizations were twofold three centuries ago and are tenfold today. The biggest factor in global economics behind the some twentyfold or more explosion of Global North productivity over the past three centuries has been the failure of the rest of the globe to keep pace with the Global North. And what are the best ways to diffuse Global North technology to the rest of the world? Free trade: both to maximize economic contact and opportunities for learning and imitation, and to make possible the export-led growth and industrialization strategy that is the royal and indeed the only reliable road to anything like convergence.

So I figure that, all in all, not 5% but more like 30% of net global prosperity–and considerable reduction in cross-national inequality–is due to globalization. That is a very big number indeed. But, remember, even the 5% number cited by Krugman is a big deal: $4 trillion a year, and perhaps $130 trillion in present value.

As for the TPP, the real trade liberalization parts are small net goods. The economic question is whether the dispute-resolution and intellectual-property protection pieces are net goods. And on that issue I am agnostic leaning negative. The political question is: Since this is a Republican priority, why is Obama supporting it without requiring Republican support for a sensible Democratic priority as a quid pro quo?

That said, let me wholeheartedly endorse what Paul (and Mark) say here:

as Mark Kleiman sagely observes, the conventional case for trade liberalization relies on the assertion that the government could redistribute income to ensure that everyone wins—but we now have an ideology utterly opposed to such redistribution in full control of one party…. So the elite case for ever-freer trade is largely a scam, which voters probably sense even if they don’t know exactly what form it’s taking….

Must-watch: Thomas Piketty, Paul Krugman, and Joseph Stiglitz: “The Genius of Economics”

Posted on by Brad DeLong

Must-Watch: Mark Thoma sends us to: Thomas Piketty, Paul Krugman and Joseph Stiglitz: The Genius of Economics: “Piketty, arguably the world’s leading expert on income and wealth inequality…

…does more than document the growing concentration of income in the hands of a small economic elite. He also makes a powerful case that we’re on the way back to ‘patrimonial capitalism,’ in which the commanding heights of the economy are dominated not just by wealth, but also by inherited wealth, in which birth matters more than effort and talent,’ wrote Paul Krugman in The New York Times. Krugman and his fellow Nobel laureate Joseph Stiglitz (author of The Great Divide) join Piketty to discuss the genius of economics.

Must-read: Paul Krugman: “Living with Monetary Impotence”

Posted on by Brad DeLong

Must-Read: [And no sooner do I write:]

There are three possible positions for us to take now:

  1. In a liquidity trap, monetary policy is not or will rarely be sufficient to have any substantial effect—active fiscal expansionary support on a large scale is essential for good macroeconomic policy.
  2. In a liquidity trap, monetary policy can have substantial effects, but only if the central bank and government are willing to talk the talk by aggressive and consistent promises of inflation—backed up, if necessary, by régime change.
  3. We are barking up the wrong tree: there is something we have missed, and the models that we think are good first-order approximations to reality are not, in fact, so.

I still favor a mixture of (2) and (1), with (2) still having the heavier weight in it. Larry Summers is, I think, all the way at (1) now…

But Paul Krugman goes full (1) as well:

Paul Krugman: Living with Monetary Impotence: “Check our low, low rates…

… Fiscal policy has been effective but procyclical…. Monetary policy has been countercyclical but ineffective…. Lender of last resort matters…. Otherwise, not so much…. Open market vs. open mouth operations…. String theory is hard to explain…. Surprise implication: stagnation is contagious.

Must-read: Paul Krugman: “Bonds on the Run”

Posted on by Brad DeLong

Must-Read: Paul Krugman: Bonds on the Run: “Something scary is going on in financial markets…

…Bond prices in particular are indicating near-panic…. Bond markets are a bit less flighty than stocks, and also more closely tied to the economic outlook. (A weak economy has mixed effects on stocks–low profits but also low interest rates–while it has an unambiguous effect on bonds.)… Plunging rates tell us is that markets are expecting very weak economies and possibly deflation for years to come, if not full-blown crisis…. A very bad place into which to elect a member of a party that has spent the past 7 years inveighing against both fiscal and monetary stimulus, and has learned nothing from the utter failure of its predictions to come true.

Email chatter:

JGB ten years at 0. Wow. Just wow. What a widowmaker…. Excepting buying assets at the dawn of QE, every EXPLICIT trade that hinged on relying on industrial core Central Bank inflation credibility has been a widowmaker…

It is starting to look, I must say, that [the U.S. Fed’s] triggering the taper tantrum and then doubling down on the proposition that triggering the taper tantrum was not an error is going to be judged very harshly when people look back at this decade or so from now…

I’m adding [U.S.] Q4 at a bit over 1%…. Q1 gets to 2%, but some of that is the mild winter. I do have growth staying in the 2 to 2 1/2% range after that, but I have to admit that assumes that exports crawl back to some growth, the consumer stays steadfast, there’s some inventory rebuilding, and S&L spending holds up–much of that is a wing and a prayer…

I have been much more wrong about, and much more worried by, their failure to deliver in the last 12-18 months when their intent was to raise inflation. Nowhere so more than Japan, where they did everything largely as prescribed…

it is over-ambitious to assume that projections about exchange rate expectations dominate over other factors. There is long demonstrated home bias, reinforced by Reinhart-esque longstanding structures and practices of financial repression. In the data, it is bizarre but evident over decades that Japanese private capital flows are opposite of most places: when the economy slows (speeds up), net capital flows are in (out), so the exchange rate moves the ‘wrong’ way…

Richard Koo has been saying that stout talk from the Fed about boosting rates (Jim Bullard is one thing, but say it ain’t so, Stan) is helping to spook the market. I’m getting inclined to agree…

“Whatever it takes” worked for Draghi as a signal of long-term commitment and a regime shift from Trichet. From Kuroda, my take is it was viewed as an act of desperation. Accordingly, Japanese investors took more about this as bad news on the Japanese economy and about BOJ capabilities than they did as evidence of stimulus…

The tendency of my dear friends to never admit error or wish to retrace steps bug[s] me…. Independence is to be used, and stop being so frigging afraid of Paul Ryan! QE4, anybody?…

The broader and more significant issue of why what the BOJ has done has not been enough to sustainably raise inflation, and it hasn’t worked in EU and US either…

Must-read: Paul Krugman sending us to Gavyn Davies, Lael Briainard from last October, and himself from a year ago

Posted on by Brad DeLong

Must-Read: James Fallows will be upset as I buy into the myth of the boiling frog. The Federal Reserve’s decision to raise interest rates last December was, it thought, a marginal move that was running a small risk. But as evidence has piled in suggesting that the risks on the downside are larger and larger, the Federal Reserve has done… nothing…

Paul Krugman orders and inspects the arguments:

Paul Krugman sends us to Gavyn Davies, Lael Briainard from last October, and himself from a year ago:

  • Gavyn Davies today: The Fed and the Dollar Shock: “The dismal performance of asset prices continued…. The weakening US economy. This weakness seems to be in direct conflict with the continued determination of the Federal Reserve to tighten monetary policy. Janet Yellen’s… attitude was deemed by investors to be complacent about US growth. (See Tim Duy’s excellent analysis of her remarks here.) Why is the Federal Reserve apparently reluctant to respond to the mounting recessionary and deflationary risks faced by the US? It is human nature that they are reluctant to admit that their decision to raise rates in December was a mistake. Furthermore, they believe that markets are often volatile, and the squall could yet blow over. But I suspect that something deeper is going on. The FOMC may be underestimating the need to offset the major dollar shock that is currently hitting the economy…”

  • Lael Brainard: Economic Outlook and Monetary Policy–October 12, 2015: “The risks to the near-term outlook for inflation appear to be tilted to the downside…. Over the past year, a feedback loop has transmitted market expectations of policy divergence between the United States and our major trade partners into financial tightening in the U.S. through exchange rate and financial market channels…. The downside risks make a strong case for continuing to carefully nurture the U.S. recovery–and argue against prematurely taking away the support that has been so critical to its vitality…. These risks matter more than usual because the ability to provide additional accommodation if downside risks materialize is, in practice, more constrained than the ability to remove accommodation more rapidly if upside risks materialize…”

  • Paul Krugman: The Dollar and the Recovery: “Consider two pure cases of rising US demand…. #1, everyone sees the relative strength of US spending as temporary…. In that case the dollar doesn’t move, and the bulk of the demand surge stays in the US…. #2, everyone sees the strength of US spending relative to the rest of the world as more or less permanent. In that case the dollar rises sharply, effectively sharing the rise in US demand more or less evenly around the world. It’s important to note, by the way, that this is not just ordinary leakage via the import content of spending; it works via financial markets and the dollar, and happens even if the direct leakage through imports is fairly small. So, what’s actually happening? The dollar is rising a lot, which suggests that markets regard the relative rise in US demand as a fairly long-term phenomenon…. The strong dollar probably is going to be a major drag on recovery.”

Must-read: Paul Krugman: “Review of ‘The Rise and Fall of American Growth’ by Robert J. Gordon”

Posted on by Brad DeLong

Must-Read: I need to read and then come up with my own informed view of the book that ruled the American Economic Association meeting earlier this month: Robert Gordon’s Rise and Fall of American Growth. But until I do, I am going to steal Larry Summers’s and Paul Krugman’s reviews. Here’s Paul’s:

Paul Krugman: Review of ‘The Rise and Fall of American Growth’ by Robert J. Gordon: “Herman Kahn and Anthony J. Wiener’s ‘The Year 2000’ (1967)… offered…

…a systematic list of technological innovations Kahn and Wiener considered ‘very likely in the last third of the 20th century.’ Unfortunately, the two authors were mostly wrong. They didn’t miss much, foreseeing developments that recognizably correspond to all the main elements of the information technology revolution…. But a majority of their predicted innovations (‘individual flying platforms’) hadn’t arrived by 2000 — and still haven’t arrived, a decade and a half later.

The truth is that if you step back from the headlines about the latest gadget, it becomes obvious that we’ve made much less progress since 1970 — and experienced much less alteration in the fundamentals of life — than almost anyone expected. Why? Robert J. Gordon… has been arguing for a long time against the techno-optimism that saturates our culture… has argued that the I.T. revolution is less important than any one of the five Great Inventions that powered economic growth from 1870 to 1970: electricity, urban sanitation, chemicals and pharmaceuticals, the internal combustion engine and modern communication. In ‘The Rise and Fall of American Growth,’ Gordon doubles down on that theme…. Is he right? My answer is a definite maybe. But whether or not you end up agreeing with Gordon’s thesis, this is a book well worth reading….

Techno-optimists… [say] official measures of economic growth understate the real extent of progress, because they don’t fully account for the benefits of truly new goods. Gordon concedes this point, but notes that it was always thus — and that the understatement of progress was probably bigger during the great prewar transformation than it is today…. Gordon suggests that the future is all too likely to be marked by stagnant living standards for most Americans, because the effects of slowing technological progress will be reinforced by a set of ‘headwinds’…. It’s a shocking prediction for a society whose self-image, arguably its very identity, is bound up with the expectation of constant progress. And you have to wonder about the social and political consequences…