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That's how we traveled in the year 1900.

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That's an open buggy. It doesn't have heating.

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It doesn't have air conditioning.

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That horse is pulling it along

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at one percent of the speed of sound,

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and the rutted dirt road

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turns into a quagmire of mud anytime it rains.

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That's a Boeing 707.

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Only 60 years later, it travels

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at 80 percent of the speed of sound,

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and we don't travel any faster today

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because commercial supersonic air travel

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turned out to be a bust.

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So I started wondering and pondering,

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could it be that the best years of American economic growth

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are behind us?

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And that leads to the suggestion, maybe economic growth

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is almost over.

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Some of the reasons for this are not really very controversial.

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There are four headwinds that are just hitting

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the American economy in the face.

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They're demographics, education, debt and inequality.

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They're powerful enough to cut growth in half.

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So we need a lot of innovation to offset this decline.

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And here's my theme: Because of the headwinds,

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if innovation continues to be as powerful as it has been

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in the last 150 years, growth is cut in half.

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If innovation is less powerful,

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invents less great, wonderful things,

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then growth is going to be even lower than half of history.

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Now here's eight centuries of economic growth.

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The vertical axis is just percent per year of growth,

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zero percent a year, one percent a year, two percent a year.

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The white line is for the U.K., and then the U.S.

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takes over as the leading nation in the year 1900,

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when the line switches to red.

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You'll notice that, for the first four centuries,

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there's hardly any growth at all, just 0.2 percent.

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Then growth gets better and better.

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It maxes out in the 1930s, '40s and '50s,

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and then it starts slowing down, and here's a cautionary note.

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That last downward notch in the red line

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is not actual data.

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That is a forecast that I made six years ago

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that growth would slow down to 1.3 percent.

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But you know what the actual facts are?

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You know what the growth in per-person income has been

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in the United States in the last six years?

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Negative.

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This led to a fantasy.

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What if I try to fit a curved line to this historical record?

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I can make the curved line end anywhere I wanted,

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but I decided I would end it at 0.2,

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just like the U.K. growth for the first four centuries.

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Now the history that we've achieved is that we've grown

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at 2.0 percent per year over the whole period,

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1891 to 2007,

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and remember it's been a little bit negative since 2007.

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But if growth slows down,

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instead of doubling our standard of living every generation,

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Americans in the future can't expect to be twice as well off as their parents,

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or even a quarter [more well off than] their parents.

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Now we're going to change and look at the level of per capita income.

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The vertical axis now is thousands of dollars in today's prices.

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You'll notice that in 1891, over on the left,

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we were at about 5,000 dollars.

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Today we're at about 44,000 dollars of total output

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per member of the population.

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Now what if we could achieve that historic

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two-percent growth for the next 70 years?

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Well, it's a matter of arithmetic.

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Two-percent growth quadruples your standard of living in 70 years.

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That means we'd go from 44,000 to 180,000.

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Well, we're not going to do that,

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and the reason is the headwinds.

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The first headwind is demographics.

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It's a truism that your standard of living

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rises faster than productivity, rises faster than output per hour,

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if hours per person increased.

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And we got that gift back in the '70s and '80s

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when women entered the labor force.

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But now it's turned around.

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Now hours per person are shrinking,

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first because of the retirement of the baby boomers,

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and second because there's been a very significant

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dropping out of the labor force of prime age adult males

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who are in the bottom half of the educational distribution.

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The next headwind is education.

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We've got problems all over our educational system

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despite Race to the Top.

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In college, we've got cost inflation in higher education

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that dwarfs cost inflation in medical care.

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We have in higher education a trillion dollars of student debt,

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and our college completion rate

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is 15 points, 15 percentage points below Canada.

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We have a lot of debt.

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Our economy grew from 2000 to 2007

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on the back of consumers massively overborrowing.

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Consumers paying off that debt is one of the main reasons

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why our economic recovery is so sluggish today.

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And everybody of course knows

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that the federal government debt is growing

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as a share of GDP at a very rapid rate,

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and the only way that's going to stop is some combination

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of faster growth in taxes or slower growth in entitlements,

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also called transfer payments.

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And that gets us down from the 1.5,

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where we've reached for education, down to 1.3.

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And then we have inequality.

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Over the 15 years before the financial crisis,

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the growth rate of the bottom 99 percent

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of the income distribution was half a point slower

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than the averages we've been talking about before.

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All the rest went to the top one percent.

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So that brings us down to 0.8.

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And that 0.8 is the big challenge.

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Are we going to grow at 0.8?

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If so, that's going to require that our inventions

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are as important as the ones that happened

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over the last 150 years.

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So let's see what some of those inventions were.

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If you wanted to read in 1875 at night,

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you needed to have an oil or a gas lamp.

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They created pollution, they created odors,

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they were hard to control, the light was dim,

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and they were a fire hazard.

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By 1929, electric light was everywhere.

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We had the vertical city, the invention of the elevator.

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Central Manhattan became possible.

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And then, in addition to that, at the same time,

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hand tools were replaced by massive electric tools

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and hand-powered electric tools,

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all achieved by electricity.

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Electricity was also very helpful in liberating women.

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Women, back in the late 19th century,

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spent two days a week doing the laundry.

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They did it on a scrub board.

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Then they had to hang the clothes out to dry.

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Then they had to bring them in.

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The whole thing took two days out of the seven-day week.

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And then we had the electric washing machine.

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And by 1950, they were everywhere.

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But the women still had to shop every day,

144
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but no they didn't, because electricity

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brought us the electric refrigerator.

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Back in the late 19th century, the only source of heat in most homes

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was a big fireplace in the kitchen that was used for cooking and heating.

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The bedrooms were cold. They were unheated.

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But by 1929, certainly by 1950,

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we had central heating everywhere.

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What about the internal combustion engine,

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which was invented in 1879?

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In America, before the motor vehicle,

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transportation depended entirely on the urban horse,

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which dropped, without restraint,

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25 to 50 pounds of manure on the streets every day

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together with a gallon of urine.

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That comes out at five to 10 tons daily

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per square mile in cities.

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Those horses also ate up fully one quarter of American agricultural land.

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That's the percentage of American agricultural land

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it took to feed the horses.

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Of course, when the motor vehicle was invented,

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and it became almost ubiquitous by 1929,

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that agricultural land could be used for human consumption

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or for export.

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And here's an interesting ratio: Starting from zero in 1900,

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only 30 years later, the ratio of motor vehicles to the number of households

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in the United States reached 90 percent in just 30 years.

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Back before the turn of the century,

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women had another problem.

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All the water for cooking, cleaning and bathing

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had to be carried in buckets and pails in from the outside.

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It's a historical fact that in 1885,

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the average North Carolina housewife

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walked 148 miles a year carrying 35 tons of water.

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But by 1929, cities around the country

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had put in underground water pipes.

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They had put in underground sewer pipes,

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00:09:04,941 --> 00:09:10,123
and as a result, one of the great scourges of the late 19th century,

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waterborne diseases like cholera, began to disappear.

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And an amazing fact for techno-optimists

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00:09:17,971 --> 00:09:20,543
is that in the first half of the 20th century,

184
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the rate of improvement of life expectancy

185
00:09:23,255 --> 00:09:26,056
was three times faster than it was

186
00:09:26,056 --> 00:09:28,927
in the second half of the 19th century.

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So it's a truism that things can't be more than 100 percent of themselves.

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And I'll just give you a few examples.

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We went from one percent to 90 percent of the speed of sound.

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Electrification, central heat, ownership of motor cars,

191
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they all went from zero to 100 percent.

192
00:09:45,434 --> 00:09:49,084
Urban environments make people more productive than on the farm.

193
00:09:49,084 --> 00:09:51,926
We went from 25 percent urban to 75 percent

194
00:09:51,926 --> 00:09:56,054
by the early postwar years.

195
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What about the electronic revolution?

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Here's an early computer.

197
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It's amazing. The mainframe computer was invented in 1942.

198
00:10:03,728 --> 00:10:08,281
By 1960 we had telephone bills, bank statements

199
00:10:08,281 --> 00:10:10,052
were being produced by computers.

200
00:10:10,052 --> 00:10:12,916
The earliest cell phones, the earliest personal computers

201
00:10:12,916 --> 00:10:15,831
were invented in the 1970s.

202
00:10:15,831 --> 00:10:19,086
The 1980s brought us Bill Gates, DOS,

203
00:10:19,086 --> 00:10:21,871
ATM machines to replace bank tellers,

204
00:10:21,871 --> 00:10:25,764
bar code scanning to cut down on labor in the retail sector.

205
00:10:25,764 --> 00:10:27,631
Fast forward through the '90s,

206
00:10:27,631 --> 00:10:29,199
we had the dotcom revolution

207
00:10:29,199 --> 00:10:32,323
and a temporary rise in productivity growth.

208
00:10:32,323 --> 00:10:34,775
But I'm now going to give you an experiment.

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00:10:34,775 --> 00:10:37,863
You have to choose either option A or option B.

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00:10:37,863 --> 00:10:40,378
(Laughter)

211
00:10:40,378 --> 00:10:43,719
Option A is you get to keep everything invented up till 10 years ago.

212
00:10:43,719 --> 00:10:46,629
So you get Google, you get Amazon,

213
00:10:46,629 --> 00:10:49,716
you get Wikipedia, and you get running water and indoor toilets.

214
00:10:49,716 --> 00:10:51,545
Or you get everything invented to yesterday,

215
00:10:51,545 --> 00:10:53,621
including Facebook and your iPhone,

216
00:10:53,621 --> 00:10:55,980
but you have to give up, go out to the outhouse,

217
00:10:55,980 --> 00:10:58,844
and carry in the water.

218
00:10:58,844 --> 00:11:02,294
Hurricane Sandy caused a lot of people to lose the 20th century,

219
00:11:02,294 --> 00:11:03,817
maybe for a couple of days,

220
00:11:03,817 --> 00:11:05,943
in some cases for more than a week,

221
00:11:05,943 --> 00:11:09,483
electricity, running water, heating, gasoline for their cars,

222
00:11:09,483 --> 00:11:12,399
and a charge for their iPhones.

223
00:11:12,399 --> 00:11:15,910
The problem we face is that all these great inventions,

224
00:11:15,910 --> 00:11:18,914
we have to match them in the future,

225
00:11:18,914 --> 00:11:21,502
and my prediction that we're not going to match them

226
00:11:21,502 --> 00:11:24,697
brings us down from the original two-percent growth

227
00:11:24,697 --> 00:11:29,767
down to 0.2, the fanciful curve that I drew you at the beginning.

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So here we are back to the horse and buggy.

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I'd like to award an Oscar

230
00:11:35,095 --> 00:11:38,748
to the inventors of the 20th century,

231
00:11:38,748 --> 00:11:41,489
the people from Alexander Graham Bell

232
00:11:41,489 --> 00:11:43,192
to Thomas Edison to the Wright Brothers,

233
00:11:43,192 --> 00:11:44,915
I'd like to call them all up here,

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00:11:44,915 --> 00:11:46,785
and they're going to call back to you.

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Your challenge is, can you match what we achieved?

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Thank you.

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(Applause)