WEBVTT 00:00:00.713 --> 00:00:03.422 That's how we traveled in the year 1900. 00:00:03.422 --> 00:00:05.791 That's an open buggy. It doesn't have heating. 00:00:05.791 --> 00:00:07.420 It doesn't have air conditioning. 00:00:07.420 --> 00:00:09.477 That horse is pulling it along 00:00:09.477 --> 00:00:11.775 at one percent of the speed of sound, 00:00:11.775 --> 00:00:13.527 and the rutted dirt road 00:00:13.527 --> 00:00:17.909 turns into a quagmire of mud anytime it rains. 00:00:17.909 --> 00:00:20.654 That's a Boeing 707. 00:00:20.654 --> 00:00:22.955 Only 60 years later, it travels 00:00:22.955 --> 00:00:25.172 at 80 percent of the speed of sound, 00:00:25.172 --> 00:00:27.805 and we don't travel any faster today 00:00:27.805 --> 00:00:30.944 because commercial supersonic air travel 00:00:30.944 --> 00:00:32.913 turned out to be a bust. NOTE Paragraph 00:00:32.913 --> 00:00:35.465 So I started wondering and pondering, 00:00:35.465 --> 00:00:38.487 could it be that the best years of American economic growth 00:00:38.487 --> 00:00:40.146 are behind us? 00:00:40.146 --> 00:00:44.625 And that leads to the suggestion, maybe economic growth 00:00:44.625 --> 00:00:46.852 is almost over. 00:00:46.852 --> 00:00:50.614 Some of the reasons for this are not really very controversial. 00:00:50.614 --> 00:00:52.988 There are four headwinds that are just hitting 00:00:52.988 --> 00:00:55.373 the American economy in the face. 00:00:55.373 --> 00:01:00.031 They're demographics, education, debt and inequality. 00:01:00.031 --> 00:01:03.664 They're powerful enough to cut growth in half. 00:01:03.664 --> 00:01:08.322 So we need a lot of innovation to offset this decline. 00:01:08.322 --> 00:01:11.090 And here's my theme: Because of the headwinds, 00:01:11.090 --> 00:01:13.771 if innovation continues to be as powerful as it has been 00:01:13.771 --> 00:01:17.638 in the last 150 years, growth is cut in half. 00:01:17.638 --> 00:01:20.349 If innovation is less powerful, 00:01:20.349 --> 00:01:22.803 invents less great, wonderful things, 00:01:22.803 --> 00:01:26.813 then growth is going to be even lower than half of history. NOTE Paragraph 00:01:26.813 --> 00:01:29.968 Now here's eight centuries of economic growth. 00:01:29.968 --> 00:01:33.632 The vertical axis is just percent per year of growth, 00:01:33.632 --> 00:01:36.755 zero percent a year, one percent a year, two percent a year. 00:01:36.755 --> 00:01:39.655 The white line is for the U.K., and then the U.S. 00:01:39.655 --> 00:01:42.186 takes over as the leading nation in the year 1900, 00:01:42.186 --> 00:01:43.677 when the line switches to red. 00:01:43.677 --> 00:01:45.663 You'll notice that, for the first four centuries, 00:01:45.663 --> 00:01:49.533 there's hardly any growth at all, just 0.2 percent. 00:01:49.533 --> 00:01:51.152 Then growth gets better and better. 00:01:51.152 --> 00:01:54.130 It maxes out in the 1930s, '40s and '50s, 00:01:54.130 --> 00:01:57.887 and then it starts slowing down, and here's a cautionary note. 00:01:57.887 --> 00:02:00.383 That last downward notch in the red line 00:02:00.383 --> 00:02:02.614 is not actual data. 00:02:02.614 --> 00:02:05.754 That is a forecast that I made six years ago 00:02:05.754 --> 00:02:08.383 that growth would slow down to 1.3 percent. 00:02:08.383 --> 00:02:10.393 But you know what the actual facts are? 00:02:10.393 --> 00:02:12.206 You know what the growth in per-person income has been 00:02:12.206 --> 00:02:15.098 in the United States in the last six years? 00:02:15.098 --> 00:02:17.438 Negative. NOTE Paragraph 00:02:17.438 --> 00:02:19.709 This led to a fantasy. 00:02:19.709 --> 00:02:24.955 What if I try to fit a curved line to this historical record? 00:02:24.955 --> 00:02:28.923 I can make the curved line end anywhere I wanted, 00:02:28.923 --> 00:02:31.717 but I decided I would end it at 0.2, 00:02:31.717 --> 00:02:36.542 just like the U.K. growth for the first four centuries. 00:02:36.542 --> 00:02:39.906 Now the history that we've achieved is that we've grown 00:02:39.906 --> 00:02:43.967 at 2.0 percent per year over the whole period, 00:02:43.967 --> 00:02:47.155 1891 to 2007, 00:02:47.155 --> 00:02:50.779 and remember it's been a little bit negative since 2007. 00:02:50.779 --> 00:02:53.084 But if growth slows down, 00:02:53.084 --> 00:02:57.067 instead of doubling our standard of living every generation, 00:02:57.067 --> 00:03:01.905 Americans in the future can't expect to be twice as well off as their parents, 00:03:01.905 --> 00:03:04.875 or even a quarter [more well off than] their parents. 00:03:04.875 --> 00:03:09.240 Now we're going to change and look at the level of per capita income. 00:03:09.240 --> 00:03:12.604 The vertical axis now is thousands of dollars in today's prices. 00:03:12.604 --> 00:03:15.180 You'll notice that in 1891, over on the left, 00:03:15.180 --> 00:03:16.910 we were at about 5,000 dollars. 00:03:16.910 --> 00:03:19.815 Today we're at about 44,000 dollars of total output 00:03:19.815 --> 00:03:22.482 per member of the population. 00:03:22.482 --> 00:03:24.900 Now what if we could achieve that historic 00:03:24.900 --> 00:03:27.883 two-percent growth for the next 70 years? 00:03:27.883 --> 00:03:29.215 Well, it's a matter of arithmetic. 00:03:29.215 --> 00:03:33.355 Two-percent growth quadruples your standard of living in 70 years. 00:03:33.355 --> 00:03:37.056 That means we'd go from 44,000 to 180,000. 00:03:37.056 --> 00:03:39.507 Well, we're not going to do that, 00:03:39.507 --> 00:03:41.333 and the reason is the headwinds. NOTE Paragraph 00:03:41.333 --> 00:03:42.974 The first headwind is demographics. 00:03:42.974 --> 00:03:45.312 It's a truism that your standard of living 00:03:45.312 --> 00:03:48.824 rises faster than productivity, rises faster than output per hour, 00:03:48.824 --> 00:03:51.434 if hours per person increased. 00:03:51.434 --> 00:03:53.936 And we got that gift back in the '70s and '80s 00:03:53.936 --> 00:03:56.454 when women entered the labor force. 00:03:56.454 --> 00:03:58.691 But now it's turned around. 00:03:58.691 --> 00:04:00.891 Now hours per person are shrinking, 00:04:00.891 --> 00:04:03.765 first because of the retirement of the baby boomers, 00:04:03.765 --> 00:04:07.919 and second because there's been a very significant 00:04:07.919 --> 00:04:11.916 dropping out of the labor force of prime age adult males 00:04:11.916 --> 00:04:15.854 who are in the bottom half of the educational distribution. NOTE Paragraph 00:04:15.854 --> 00:04:18.015 The next headwind is education. 00:04:18.015 --> 00:04:20.660 We've got problems all over our educational system 00:04:20.660 --> 00:04:22.181 despite Race to the Top. 00:04:22.181 --> 00:04:26.263 In college, we've got cost inflation in higher education 00:04:26.263 --> 00:04:29.175 that dwarfs cost inflation in medical care. 00:04:29.175 --> 00:04:33.431 We have in higher education a trillion dollars of student debt, 00:04:33.431 --> 00:04:36.418 and our college completion rate 00:04:36.418 --> 00:04:43.369 is 15 points, 15 percentage points below Canada. 00:04:43.369 --> 00:04:45.476 We have a lot of debt. 00:04:45.476 --> 00:04:50.458 Our economy grew from 2000 to 2007 00:04:50.458 --> 00:04:53.690 on the back of consumers massively overborrowing. 00:04:53.690 --> 00:04:56.626 Consumers paying off that debt is one of the main reasons 00:04:56.626 --> 00:04:59.362 why our economic recovery is so sluggish today. 00:04:59.362 --> 00:05:00.948 And everybody of course knows 00:05:00.948 --> 00:05:03.077 that the federal government debt is growing 00:05:03.077 --> 00:05:06.406 as a share of GDP at a very rapid rate, 00:05:06.406 --> 00:05:09.568 and the only way that's going to stop is some combination 00:05:09.568 --> 00:05:14.645 of faster growth in taxes or slower growth in entitlements, 00:05:14.645 --> 00:05:16.730 also called transfer payments. 00:05:16.730 --> 00:05:18.899 And that gets us down from the 1.5, 00:05:18.899 --> 00:05:22.300 where we've reached for education, down to 1.3. NOTE Paragraph 00:05:22.300 --> 00:05:24.718 And then we have inequality. 00:05:24.718 --> 00:05:27.471 Over the 15 years before the financial crisis, 00:05:27.471 --> 00:05:30.737 the growth rate of the bottom 99 percent 00:05:30.737 --> 00:05:33.860 of the income distribution was half a point slower 00:05:33.860 --> 00:05:36.636 than the averages we've been talking about before. 00:05:36.636 --> 00:05:38.922 All the rest went to the top one percent. 00:05:38.922 --> 00:05:41.274 So that brings us down to 0.8. 00:05:41.274 --> 00:05:44.649 And that 0.8 is the big challenge. 00:05:44.649 --> 00:05:46.863 Are we going to grow at 0.8? 00:05:46.863 --> 00:05:49.318 If so, that's going to require that our inventions 00:05:49.318 --> 00:05:51.665 are as important as the ones that happened 00:05:51.665 --> 00:05:54.583 over the last 150 years. 00:05:54.583 --> 00:05:58.622 So let's see what some of those inventions were. NOTE Paragraph 00:05:58.622 --> 00:06:02.124 If you wanted to read in 1875 at night, 00:06:02.124 --> 00:06:05.446 you needed to have an oil or a gas lamp. 00:06:05.446 --> 00:06:07.603 They created pollution, they created odors, 00:06:07.603 --> 00:06:10.008 they were hard to control, the light was dim, 00:06:10.008 --> 00:06:12.156 and they were a fire hazard. 00:06:12.156 --> 00:06:17.251 By 1929, electric light was everywhere. 00:06:17.251 --> 00:06:21.400 We had the vertical city, the invention of the elevator. 00:06:21.400 --> 00:06:24.385 Central Manhattan became possible. 00:06:24.385 --> 00:06:27.632 And then, in addition to that, at the same time, 00:06:27.632 --> 00:06:31.128 hand tools were replaced by massive electric tools 00:06:31.128 --> 00:06:33.836 and hand-powered electric tools, 00:06:33.836 --> 00:06:36.694 all achieved by electricity. NOTE Paragraph 00:06:36.694 --> 00:06:40.907 Electricity was also very helpful in liberating women. 00:06:40.907 --> 00:06:43.595 Women, back in the late 19th century, 00:06:43.595 --> 00:06:46.251 spent two days a week doing the laundry. 00:06:46.251 --> 00:06:47.966 They did it on a scrub board. 00:06:47.966 --> 00:06:50.034 Then they had to hang the clothes out to dry. 00:06:50.034 --> 00:06:51.566 Then they had to bring them in. 00:06:51.566 --> 00:06:54.519 The whole thing took two days out of the seven-day week. 00:06:54.519 --> 00:06:58.106 And then we had the electric washing machine. 00:06:58.106 --> 00:07:01.180 And by 1950, they were everywhere. 00:07:01.180 --> 00:07:04.208 But the women still had to shop every day, 00:07:04.208 --> 00:07:06.500 but no they didn't, because electricity 00:07:06.500 --> 00:07:09.401 brought us the electric refrigerator. NOTE Paragraph 00:07:09.401 --> 00:07:12.593 Back in the late 19th century, the only source of heat in most homes 00:07:12.593 --> 00:07:17.122 was a big fireplace in the kitchen that was used for cooking and heating. 00:07:17.122 --> 00:07:19.438 The bedrooms were cold. They were unheated. 00:07:19.438 --> 00:07:22.118 But by 1929, certainly by 1950, 00:07:22.118 --> 00:07:26.010 we had central heating everywhere. NOTE Paragraph 00:07:26.010 --> 00:07:28.602 What about the internal combustion engine, 00:07:28.602 --> 00:07:30.942 which was invented in 1879? 00:07:30.942 --> 00:07:34.760 In America, before the motor vehicle, 00:07:34.760 --> 00:07:38.732 transportation depended entirely on the urban horse, 00:07:38.732 --> 00:07:41.618 which dropped, without restraint, 00:07:41.618 --> 00:07:45.423 25 to 50 pounds of manure on the streets every day 00:07:45.423 --> 00:07:47.347 together with a gallon of urine. 00:07:47.347 --> 00:07:50.560 That comes out at five to 10 tons daily 00:07:50.560 --> 00:07:52.993 per square mile in cities. 00:07:52.993 --> 00:07:58.934 Those horses also ate up fully one quarter of American agricultural land. 00:07:58.934 --> 00:08:01.332 That's the percentage of American agricultural land 00:08:01.332 --> 00:08:03.525 it took to feed the horses. 00:08:03.525 --> 00:08:07.487 Of course, when the motor vehicle was invented, 00:08:07.487 --> 00:08:10.691 and it became almost ubiquitous by 1929, 00:08:10.691 --> 00:08:13.786 that agricultural land could be used for human consumption 00:08:13.786 --> 00:08:15.320 or for export. 00:08:15.320 --> 00:08:18.960 And here's an interesting ratio: Starting from zero in 1900, 00:08:18.960 --> 00:08:23.876 only 30 years later, the ratio of motor vehicles to the number of households 00:08:23.876 --> 00:08:30.460 in the United States reached 90 percent in just 30 years. NOTE Paragraph 00:08:30.460 --> 00:08:33.271 Back before the turn of the century, 00:08:33.271 --> 00:08:34.672 women had another problem. 00:08:34.672 --> 00:08:39.267 All the water for cooking, cleaning and bathing 00:08:39.267 --> 00:08:43.937 had to be carried in buckets and pails in from the outside. 00:08:43.937 --> 00:08:46.412 It's a historical fact that in 1885, 00:08:46.412 --> 00:08:48.726 the average North Carolina housewife 00:08:48.726 --> 00:08:54.096 walked 148 miles a year carrying 35 tons of water. 00:08:54.096 --> 00:08:58.500 But by 1929, cities around the country 00:08:58.500 --> 00:09:01.515 had put in underground water pipes. 00:09:01.515 --> 00:09:04.941 They had put in underground sewer pipes, 00:09:04.941 --> 00:09:10.123 and as a result, one of the great scourges of the late 19th century, 00:09:10.123 --> 00:09:14.369 waterborne diseases like cholera, began to disappear. 00:09:14.369 --> 00:09:17.971 And an amazing fact for techno-optimists 00:09:17.971 --> 00:09:20.543 is that in the first half of the 20th century, 00:09:20.543 --> 00:09:23.255 the rate of improvement of life expectancy 00:09:23.255 --> 00:09:26.056 was three times faster than it was 00:09:26.056 --> 00:09:28.927 in the second half of the 19th century. NOTE Paragraph 00:09:28.927 --> 00:09:34.013 So it's a truism that things can't be more than 100 percent of themselves. 00:09:34.013 --> 00:09:36.195 And I'll just give you a few examples. 00:09:36.195 --> 00:09:39.463 We went from one percent to 90 percent of the speed of sound. 00:09:39.463 --> 00:09:43.071 Electrification, central heat, ownership of motor cars, 00:09:43.071 --> 00:09:45.434 they all went from zero to 100 percent. 00:09:45.434 --> 00:09:49.084 Urban environments make people more productive than on the farm. 00:09:49.084 --> 00:09:51.926 We went from 25 percent urban to 75 percent 00:09:51.926 --> 00:09:56.054 by the early postwar years. NOTE Paragraph 00:09:56.054 --> 00:09:58.297 What about the electronic revolution? 00:09:58.297 --> 00:10:00.418 Here's an early computer. 00:10:00.418 --> 00:10:03.728 It's amazing. The mainframe computer was invented in 1942. 00:10:03.728 --> 00:10:08.281 By 1960 we had telephone bills, bank statements 00:10:08.281 --> 00:10:10.052 were being produced by computers. 00:10:10.052 --> 00:10:12.916 The earliest cell phones, the earliest personal computers 00:10:12.916 --> 00:10:15.831 were invented in the 1970s. 00:10:15.831 --> 00:10:19.086 The 1980s brought us Bill Gates, DOS, 00:10:19.086 --> 00:10:21.871 ATM machines to replace bank tellers, 00:10:21.871 --> 00:10:25.764 bar code scanning to cut down on labor in the retail sector. 00:10:25.764 --> 00:10:27.631 Fast forward through the '90s, 00:10:27.631 --> 00:10:29.199 we had the dotcom revolution 00:10:29.199 --> 00:10:32.323 and a temporary rise in productivity growth. NOTE Paragraph 00:10:32.323 --> 00:10:34.775 But I'm now going to give you an experiment. 00:10:34.775 --> 00:10:37.863 You have to choose either option A or option B. 00:10:37.863 --> 00:10:40.378 (Laughter) 00:10:40.378 --> 00:10:43.719 Option A is you get to keep everything invented up till 10 years ago. 00:10:43.719 --> 00:10:46.629 So you get Google, you get Amazon, 00:10:46.629 --> 00:10:49.716 you get Wikipedia, and you get running water and indoor toilets. 00:10:49.716 --> 00:10:51.545 Or you get everything invented to yesterday, 00:10:51.545 --> 00:10:53.621 including Facebook and your iPhone, 00:10:53.621 --> 00:10:55.980 but you have to give up, go out to the outhouse, 00:10:55.980 --> 00:10:58.844 and carry in the water. 00:10:58.844 --> 00:11:02.294 Hurricane Sandy caused a lot of people to lose the 20th century, 00:11:02.294 --> 00:11:03.817 maybe for a couple of days, 00:11:03.817 --> 00:11:05.943 in some cases for more than a week, 00:11:05.943 --> 00:11:09.483 electricity, running water, heating, gasoline for their cars, 00:11:09.483 --> 00:11:12.399 and a charge for their iPhones. NOTE Paragraph 00:11:12.399 --> 00:11:15.910 The problem we face is that all these great inventions, 00:11:15.910 --> 00:11:18.914 we have to match them in the future, 00:11:18.914 --> 00:11:21.502 and my prediction that we're not going to match them 00:11:21.502 --> 00:11:24.697 brings us down from the original two-percent growth 00:11:24.697 --> 00:11:29.767 down to 0.2, the fanciful curve that I drew you at the beginning. NOTE Paragraph 00:11:29.767 --> 00:11:32.774 So here we are back to the horse and buggy. 00:11:32.774 --> 00:11:35.095 I'd like to award an Oscar 00:11:35.095 --> 00:11:38.748 to the inventors of the 20th century, 00:11:38.748 --> 00:11:41.489 the people from Alexander Graham Bell 00:11:41.489 --> 00:11:43.192 to Thomas Edison to the Wright Brothers, 00:11:43.192 --> 00:11:44.915 I'd like to call them all up here, 00:11:44.915 --> 00:11:46.785 and they're going to call back to you. 00:11:46.785 --> 00:11:50.448 Your challenge is, can you match what we achieved? NOTE Paragraph 00:11:50.448 --> 00:11:51.982 Thank you. NOTE Paragraph 00:11:51.982 --> 00:11:57.013 (Applause)