The Rise and Fall of American Growth by Robert J. Gordon

The book does a good job of collecting data. But the explanation, following the standard economic theory, is torturously long and convoluted.

The pattern of data is very clear. From 1930 to 1950, US productivity increased tremendously. From 1950 to 1972, US productivity increased decently. Before and after the period of 1930 to 1972, productivity gain is minimal.

The explanation can be very simple. Oil. Around 1930, many giant oilfields were discovered due to the improvement of exploration techniques. This started the age of cheap oil. After 1973, oil prices become high.

The following are some quotes from the book and my comments.

Growth theory features an economy operating in a “steady state” in which a continuing inflow of new ideas and technologies cre[1]ates opportunities for investment. But articles on growth theory rarely mention that the model does not apply to most of human existence. (p. 2)

Comment: Figure 1.2. in page 16 show that total factor productivity (or Solow residual) increase was the highest during 1920 to 1970. TFP is quite mysterious. But if one think it as the increase of input of oil, it becomes very simple. US oil production increases rapidly during 1920 to 1970.

David’s analogy turned out to be prophetic, for only a few years after his 1990 article, the growth rate of aggregate U.S. productivity soared in 1996–2004 to roughly double its rate in 1972–96. However, the analogy broke down after 2004, when growth in labor productivity returned, after its eight-year surge, to the slow rates of 1972–96, despite the proliferation of flat[1]screen desktop computers, laptops, and smartphones in the decade after 2004. (p. 17)

Comment: 1996 to 2004, oil  price is low. This is a much simpler, and more parsimonious explanation.

Table 16–1 shows the percent log ratios to the 1870–1928 trend for the three series for selected years. These are the base year of 1928, 1941 (the last year before World War II), 1944 (the peak year of war production), 1950, 1957, and finally the pivotal year 1972, when the ratio of labor productivity to trend reached its postwar peak. (p 540)

Comment: 1972 is the last year before sharp rise of oil price.
 

Because the rise in educational attainment proceeded at a steady pace before and after 1928, it does not contribute anything to the explanation of the main puzzle explored in this chapter: Why did labor productivity grow so much more quickly between 1928 and 1972 than it had before 1928? (p 544)

Comment: The answer is very simple: oil.

Put simply, the nation’s output grew much more quickly than its capital input between 1928 and 1972 and then much more slowly from 1972 to 2013. The annualized growth rate of the output-capital ratio between 1928 and 1972 was 0.9 percent per year and then fell at –0.8 percent per year from 1972 to 2013. This history raises deep questions that we will ponder for the rest of this chapter. (p 546)

Comment: The answer is very simple: oil.