As our feeble recovery shambles on, the question arises as to whether the United States economy is being dragged down by forces, some decades in the making, beyond the power of central banks and policymakers to reverse. Workers, for instance, have found their bargaining power eroded by the twin threats of offshoring and automation with the result that real median household income is lower than it was in 1989, and the median American worker earns no more in 2013 than he or she did in 1979. Most Americans simply do not have the spending power to drive a robust recovery. An even longer-term, and more provocative, perspective comes from Northwestern University economist Robert Gordon. He argues that it is not so much that the recovery is weak, but that prior growth was an anomaly, a one-time hundred-year surge fueled by the Industrial Revolution, and which began to fade in the 1960s and will not be repeated.
Even if Gordon is right, there is still hope. There may yet be more tricks left in the Industrial Revolution. Take energy for instance. In the early 20th century, fossil fuels came to so utterly dominate the energy mix that innovation in alternative forms of energy, flourishing in the early years of the last century, went into a coma for 80 years from which it only began to emerge in recent decades. Energy innovation has the heft and breadth (the United States spends about $1.2 trillion on energy each year, 82% of which goes to fossil fuels) to power a whole new phase of economic growth. To see this opportunity, however, requires a shift in focus from the perspective Gordon offers.
Gordon presented his argument in an influential 2012 paper he wrote for the National Bureau of Economic Research (the institution that has the last word on when recessions start and end) titled, “Is US Economic Growth Over?” The paper produced a storm of comment, much critical, among economists in the blogosphere. It’s easy to see why. Gordon notes that for most of the Christian Era there was little or no growth in the West. Then, from about 1870 to about 1970 came transformative innovations—running water, sanitation, the internal combustion engine—which drastically reduced infant mortality and the burden of disease, and accelerated transportation and communications by orders of magnitude. By the time the third phase of the Industrial Revolution, the Digital Age began around 1960, notes Gordon, the era had exhausted its capacity for transformative innovations.
Keeping in mind that there is no more precise definition of innovation than there is of other cherished human attributes such as intelligence or language, Gordon makes a spirited case. To illustrate his point, he offers a simple thought experiment. Ask anyone which they would give up if they had to choose: running water and toilets or their laptops and mobile phones? Standard of living increases from these later innovations are incremental, argues Gordon, not the doublings of the earlier breakthroughs. Indeed economic growth and productivity have slowed in the United States since the 1960s.
So let’s go back to get a better fix on a more positive future. Instead of thinking of the technologies of industrialization, consider the dominant energy source that drove them: fossil fuels. As much as anything, commercialization of fossil fuels provided the great engine of growth in the early 20th century, so much so that it’s easy to imagine that in the future we might be referring to the Fossil Fuels Era as distinct from the Industrial Revolution.
The distinction is important because until fossil fuels came to dominate in the early and middle decades of 20th century, scientists and engineers were exploring an enormous variety of sources of energy, some of which are still considered cutting edge today. Thomas Edison first proposed harnessing the Gulf Stream to run impellers and produce electricity in 1901. Today, up and running wave, tidal and river currant projects produce electricity from the North Sea to the Pacific. In Jay Leno’s car collection is an electric car built in 1907. The Stirling Engine, a simple heat pump invented in the 19th century provides the basic design for utility-scale electrical generating projects in the Southwest. But for the discovery of cheap fossil fuels, we might be vastly further along in the development of these alternatives.
Oil no longer cheap or easy to extract, and with the realization that fossil fuels carry heavy environmental costs, these alternatives have re-emerged from their 80-year hibernation. There is nothing more central to civilization than the energy that powers it. The migration to alternatives will ultimately mobilize trillions of dollars in capital spending as the move to alternative energy gathers momentum.
This transition will not be smooth. Wind, solar, and geothermal power have been on a roller coaster of boom, bust, boom since the late 1970s, but they are getting close to a tipping point. Once these non-nuclear and non-hydro alternatives reach somewhere around 5% of global energy production the pace of adoption should take off, providing the economy, and America’s beleaguered workers, with one more, long-delayed, shot of Vitamin C. Apart from anything else, the spread of these technologies would prove decisively that the great surge in standards of living in the West was truly based on innovation, and not merely the lucky discovery of cheap fossil fuels.