Idea:Robert Gordon: The Rise and Fall of Technological Impact

Type: person/economist | Created: 2025-08-12T13:57:00Z | ID: 20250812-1357-gordon-great-inventions-stagnation {{#if:|Confidence: {{{confidence}}}%|}}

Robert Gordon: The Rise and Fall of Technological Impact

Core Perspective

Robert Gordon argues that the era of transformative technological change that drove massive improvements in living standards (1870-1970) was a unique, unrepeatable "special century." Modern innovations, while impressive, have less impact on productivity and create less deflationary pressure than the great inventions of the past.

The Great Inventions Thesis

Revolutionary Period (1870-1970)

• Electricity: Transformed production and daily life
• Internal combustion: Revolutionized transport and cities
• Running water/sanitation: Eliminated disease, saved time
• Communications: Telegraph, telephone, radio, TV
• Chemicals/pharmaceuticals: Extended life, improved materials

Digital Era (1970-present)

• Limited scope: Mainly entertainment and communication
• Smaller impact: Less effect on total productivity
• Diminishing returns: Each innovation less transformative
• Narrow benefits: Concentrated in specific sectors

Impact on Value and Deflation

The Deflation That Was

Gordon documents how great inventions created massive deflation:

• 1900-1970: Real prices of basic goods plummeted
• Quality explosion: Products became incomparably better
• Time savings: Household production time freed up
• Health improvements: Life expectancy doubled

The Deflation That Isn't

Modern technology creates less deflationary pressure:

• Narrow impact: Only affects information goods
• Service resistance: Most economy remains labor-intensive
• Regulatory capture: Many sectors resist disruption
• Network effects: Create monopolies, not competition

Stakeholder Impacts

GDP and Productivity

• Measurement problems: GDP missed past improvements too
• Genuine slowdown: Not just measurement error
• One-time gains: Many improvements can't repeat
• Headwinds: Demographics, education, inequality, debt

Business Valuations

• Winner-take-all: Few companies capture most value
• Intangibles dominate: Physical capital less important
• Speculation increases: Fewer real opportunities
• Zombie firms: Low rates keep inefficient firms alive

Consumer Benefit

• Entertainment abundance: Massive content availability
• Communication ease: Global instant connection
• But basics stagnant: Housing, healthcare, education unchanged
• Time poverty: Despite labor-saving devices

Government Policy

• Fiscal pressure: Slower growth, rising costs
• Monetary confusion: Low inflation despite easy money
• Innovation policy: Desperate attempts to recreate past
• Inequality concerns: Benefits concentrated at top

The Productivity Paradox Explained

Gordon's framework explains why we see less deflation:

1. Low-hanging fruit picked: Easy innovations done
2. Regulatory moats: Incumbents protect positions
3. Service economy: Less amenable to automation
4. Complexity costs: Coordination overwhelms efficiency

Modern Technology Assessment

Where Tech Succeeds

• Information processing and transmission
• Entertainment and media
• Narrow AI applications
• Financial services

Where Tech Fails

• Physical world transformation
• Healthcare cost reduction
• Education productivity
• Housing affordability

Critical Quote

"The economic revolution of 1870 to 1970 was unique in human history, unrepeatable because so many of its achievements could happen only once."

Implications for Deflation Dynamics

Why Less Deflation Now

Gordon identifies structural reasons:

• Scope limitations: Digital affects small part of life
• Regulatory capture: Protected sectors resist change
• Human needs: Many services require human touch
• Physical constraints: Atoms harder than bits

Future Prospects

Gordon is pessimistic about future deflation:

• AI overrated: Limited to narrow domains
• Biotech expensive: Extends life but at high cost
• Climate costs: Environmental constraints raise prices
• Infrastructure decay: Deferred maintenance creates inflation

Policy Implications

For Innovation Policy

• Don't expect miracles from R&D spending
• Focus on removing regulatory barriers
• Accept slower growth as new normal
• Invest in human capital

For Monetary Policy

• Low inflation not sign of success
• Asset bubbles replace goods inflation
• Productivity stagnation is real
• New frameworks needed

Connection to Other Perspectives

Gordon's pessimism contrasts with:

• Schumpeter: Less creative destruction happening
• Baumol: Cost disease dominates progress
• Techno-optimists: Overestimate digital impact