New models trying to sort through economic reality
The models are broken.
The reality is that economists, and their theories have been wrong. Most prognosticators simply double-down on the theories that got them a seat in the ivory tower, but increasingly, there are some who are challenging the orthodoxy.
Tomas Pikkety is the poster-child but there are others and, today, Greg Ip looks at Robert Gordon and his book "The Rise and Fall of American Growth."
"Economic growth is not a steady process that creates economic advance at a regular pace, century after century," Mr. Gordon notes. Annual per-capita growth from AD 1 to 1820, he notes, was close to zero.
Economists are thus wrong to assume productivity growth will eventually revert to the more rapid mean of the special century, even if smartphones, artificial intelligence and robotics deliver everything their advocates promise. Mr. Gordon predicts productivity will grow a little over 1% per year through 2040, better than the past five years but less than half the rate from 1948 to 1970. If inequality continues to rise, that implies almost no growth in the typical family's income.
It's not a heartening message, but at least it's being heard."
The winds of change are swirling in economics and politics. The winners in markets will be the ones who can figure out which direction they will eventually blow.
