Have we lost our economic dynamism?

A more likely possibility is that, in many different ways, the U.S. economy is becoming less dynamic. The most significant evidence of this is “The Rise and Fall of American Growth,” by economist Robert J. Gordon of Northwestern University, an encyclopedic overview of technological change since the Civil War. Greatly simplified, Gordon’s thesis is that the innovations up to 1970 (cars, airplanes, telephones, indoor plumbing, television, air conditioning, modern pharmaceuticals and more) dwarf the internet as a source of rising living standards.

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Other indicators point in the same direction. The business startup rate has declined. Workers are moving less frequently to find new jobs. Productivity growth (aka, overall efficiency) has lagged. Large firms are returning sizable amounts of cash to their shareholders, arguably because they can’t find attractive investment opportunities or, possibly, because they have become more risk averse.

The relative stability of the occupational structure fits the pattern. What connects all these trends is an impulse to stay with what’s familiar. Although this is understandable for individuals, the consequences for society as a whole may be less benign. The capacity to raise incomes is essential for political legitimacy, because it increases private living standards and provides funds for government.

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