(John Kemp is a Reuters market analyst. The views expressed are
By John Kemp
LONDON, June 30 "Equality of opportunity as we
have known it no longer exists," Franklin Delano Roosevelt
warned gloomily in September 1932. "Our industrial plant is
built; the problem just now is whether under existing conditions
it is not overbuilt."
In a campaign speech to the Commonwealth Club of San
Francisco, the Democratic Party's nominee for president of the
United States told his listeners that "opportunity in business
Roosevelt concluded: "Our task now is not discovery or
exploitation of natural resources, or necessarily producing more
goods. It is the soberer, less dramatic business of
administering resources and plants already in hand."
The pioneering era of opening up the western United States
was over. The advent of steam engines and electricity had
transformed American society, and now that transformation was
The 19th century had unleashed the industrial revolution and
created a new dream.
"The dream was the dream of an economic machine, able to
raise the standard of living for everyone; to bring luxury
within the reach of the humblest; to annihilate distance by
steam power and later by electricity, and to release everyone
from the drudgery of the heaviest manual toil," Roosevelt
Now that dream was realised and the rapid growth unleashed
by the industrial revolution would slow or cease altogether.
The idea of "secular stagnation" suffused much of the
economic and policy thinking behind the New Deal and was
popularised by Harvard economist Alvin Hansen in his 1938 book
"Full employment or stagnation?"
Eight decades later, we know that Roosevelt, Hansen and the
other stagnationists were wrong.
The world has been transformed beyond their wildest dreams
by motorised transport, civilian airliners, the green revolution
in agriculture, computers and the Internet, to name just a few
of the most important developments.
Yet fears about stagnation, like Malthusian worries about
natural resources running out, retain an enduring fascination,
even among eminent economists.
Robert Gordon of Northwestern University is probably the
most famous and distinguished exponent of the theory at present.
According to Gordon, there are simply no current innovations
comparable to the great breakthroughs of the past, which brought
clean running water, electric light and the internal combustion
engine to every home in the United States ("Is U.S. economic
growth over? Faltering innovation confronts the six headwinds"
"From 1870 to 1972, Gordon points out, American homes went
from lightless, isolated places of drudgery to buildings of
air-conditioned comfort, with a dishwasher in the kitchen and a
car in the garage," according to an excellent summary in the
Financial Times ("U.S. economy: the productivity puzzle" June
Current gimmicks like smart phones are simply not in the
same league of importance. And even the rate at which computing
power increases may be starting to slow. The revolutions started
by electrification, the internal combustion engine and the
computer are nearing completion.
But is Gordon any more likely to be correct than Roosevelt
and Hansen? Or are fears about secular stagnation really due to
a failure of imagination?
FAILURE OF IMAGINATION
Like most modern stagnationists, Gordon describes his theory
in terms of a slowdown in productivity or output per hour
Secular stagnation theories appear to be developed with
reference to North America, western Europe and Japan, where
average living standards are already high, and technology is
But elsewhere there are still enormous unmet needs. The idea
of secular stagnation ignores the fact more than 1 billion
people around the world still have no access to electricity, and
more than 2 billion prepare food with smoky biofuels like wood
and dung that are killing them prematurely.
Hundreds of millions of people in the emerging world are
still undernourished. Even in the advanced societies, poverty
remains widespread, at least in the relative sense. The idea
that somehow all needs have been more or less met is absurd.
Providing food and energy for all these people without
worsening climate change in the process will demand
breakthroughs every bit as impressive as the industrial
Many of those breakthroughs are improvements in processes
rather than entirely new products but the impact is no less
In Roosevelt's era, steam engines were slow and dreadfully
inefficient. Enormous amounts of coal and water had to be hauled
around the rail network and trains had to stop frequently for
Modern diesel and electric locomotives transport people and
goods faster and using far less energy. Civilian airliners have
replaced locomotives and ships altogether for many long distance
In agriculture, companies like Climate Corporation, now
owned by Monsanto, claim they can boost crop yields
substantially by combining of data on fertiliser use, soil type,
weather and other information in a single database, according to
the Financial Times.
In the energy field, too, there is the potential to
transform energy production and consumption through the
application of new techniques and making better use of data.
Production of oil and gas from shale, which most observers
have concluded is a genuine revolution, is the result of
applying old technologies (fracking dates back almost to
Roosevelt's era) in new ways to unlock previously unrecoverable
The shale revolution is still in its infancy and could be
developed for decades. Most developments still employ a crude
"brute force" approach, drilling thousands of wells and pressure
pumping them more or less indiscriminately to fracture the rock.
Oilfield services companies such as Schlumberger,
Baker Hughes and Halliburton are now promoting a
smarter approach which would use advanced seismic surveying and
data handling techniques to visualise and model the subsurface
and enable drilling and fracturing to be targeted at the most
promising parts of the rock formations.
Smart fracking holds out the promise of more oil and gas
production from fewer wells, using less water and frack sand,
and needing fewer drilling rigs.
Technology is improving in other energy areas too. Batteries
are getting better. Wind and solar energy are being successfully
integrated onto the grid. Scientists are investigating methane
from the seabed and Arctic permafrost.
Wal-Mart makes more deliveries to its stores while
driving fewer miles using better route-planning software.
Even coal-fired power plants are becoming far more efficient
with the development of supercritical and ultra-supercritical
boilers. In future, carbon capture systems must be perfected so
that coal and gas can continue to be burned without frying the
Inventors filed a record 12,000 patents related to oil and
gas in 2013, up a third from 2012 and three times as high as the
number of approvals sought 10 years ago, according to research
published by Thomson Reuters.
In 2013, more than 7,000 patents were filed in China and
2,000 in the United States as the shale revolution unleashes a
wave of secondary innovation ("Unconventional energy boom drives
oil and gas patents to record", June 30).
Many of these gains may not be as glamorous as the Internet
or smart phones, but they are nonetheless worth having and they
will drive a very real improvement in living standards. More
people will be able to have access to more services with a
smaller impact on the environment.
Stagnationists imply that most progress is the result of
just a handful of spectacular breakthroughs. In fact most
economic progress is incremental. Productivity gains are made
possible by tens of thousands of small improvements in
technology most people will never hear about.
The internal combustion engine, the telephone system and
mains electricity may all be over 100 years old, but modern
motor vehicles, communications systems and the grid have been
transformed utterly by thousands of small improvements and bear
only a superficial resemblance to their predecessors.
Modern cars go further, faster, with more comfort and are
accessible to far more people than Roosevelt could have dreamed.
The grid provides cheap, reliable electricity with fewer toxic
emissions than would have seemed possible in the 1930s and
Stagnationists ignore the importance of these gains, which
are still occurring.
If the economies of the United States, Europe and Japan grow
more slowly in the next few decades, which is by no means
certain, it will not be because all their wants and needs have
been satisfied or because the possibilities of technology have
been fully realised.
There is no more reason to predict an imminent slowdown in
productivity growth in the 2010s and 2020s than there was in the
(Editing by David Evans)