What Could Trigger a 4th Industrial Revolution?

There’s been a lot of chatter in recent years about the “new normal” and the “end of growth” where the world just enters this stage of permanent stagnancy.  It all sounds plausible and has become increasingly popular as the temporary balance sheet recession creates the impression that today’s environment is going to last forever.  I don’t believe that’s true.  And while I like to focus on downside risks, I think it’s also prudent to consider the upside risks.

Anyhow, in a recent piece, Dr. Krugman links to a paper by Robert Gordon that discusses the future of US growth and the potential for this permanent stagnancy.  In it he discusses the stages of growth in the USA:

“The analysis in my paper links periods of slow and rapid growth to the timing of the three industrial revolutions:

IR #1 (steam, railroads) from 1750 to 1830;
IR #2 (electricity, internal combustion engine, running water, indoor toilets, communications, entertainment, chemicals, petroleum) from 1870 to 1900; and
IR #3 (computers, the web, mobile phones) from 1960 to present.”

Now, it’s important to keep things in perspective.  The USA has experienced unprecedented growth in its short history.  This nation went from not existing to being the world’s super power in just 150 years.  That’s not amazing.  It’s almost unbelievable.  And the unfortunate thing about being #1 is that there’s only one direction to go.  So it’s not surprising that this mature economy is slowing to some degree.  Competitiveness and the maturation process make this inevitable.

And as the US economy has matured it’s also changed in big ways.  It’s moved towards more of a services and consumption based economy.  Again, that’s not surprising.  But does this mean the economy is stuck in a phase of permanent stagnancy like an old value stock that can’t produce like it used to?  I don’t necessarily think so.  I am not sure what could spark a 4th industrial revolution, but I presume it will likely involve the continuing evolution away from IR #2.  For instance, imagine an economy that is unleashed from the chains of crude oil dependence.  I don’t know the technology that will achieve that (or if it’s even plausible), but I think that’s the most obvious upside risk here.  We’re talking about input costs and consumer burdens that would be passed onto everything else in the economy.

Paul Krugman and many others think we’re moving towards some sort of robot run world where we don’t do anything and GDP is generated by machines.  I don’t think so.  I think the more likely scenario is that we’re headed towards a world where machines make us increasingly efficient (just as the phone replaced the messenger, the washing machine replaced the laundromats, etc) and we obtain more time to consume more future goods and services.  It’s not the end of the economy.  It’s a changing economy.  And as always, technology and progress will set us free.  Not hold us back….

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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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