The stock market's gyrations during the last two weeks and the doubts they've raised about the strength of the U.S. economy have revived an old question about innovation and its influence on productivity: If we're really in the midst of a technology boom, how come we're not all doing better?
Certainly technology stocks have been enjoying a heady surge: The tech-heavy Nasdaq composite index this spring finally breached the record set some 15 years ago, during the dot-com boom. (It's come down about 7.5% since its recent peak.)
But many economists looking at economic growth and worker productivity have concluded that new technologies haven't translated into real-world gains. The last vaunted technological revolution, which brought about the personal computer and the Internet starting in the mid-1970s, hasn't yielded sustained, statistical economic improvement.
Some are even questioning whether any innovations in the foreseeable future can possibly have the revolutionary impact of such paradigm-shifting developments of the past. "In the half-century from the 1920s to the 1970s there was a whole host of transformative technologies like the electrification of machines and homes, the internal combustion engine, commercial aviation, radio and television," says John Fernald, a senior research advisor at the Federal Reserve Bank of San Francisco.
"Today you can make phone calls around the world without thinking about it," he said last week via cellphone from Switzerland, "but that's not as transformative as laying the transatlantic cable and reducing the time to send a message from a week to a few seconds."
"There's frenetic activity going on, but it doesn't necessarily have an impact on economic growth," says Robert Gordon, an expert on productivity at Northwestern University.
In a series of controversial papers, Gordon reckons that economic and productivity growth experienced their most sustained surge from 1891 to 1972, spurred by the epochal industrial innovations of the late 19th century and their permeation through the economy over the following 70 years. A second surge stemming from computer and Internet technology took place from 1996 to 2004, but since then productivity gains have settled at about 40% of the earlier rate.
The rate of growth may decline further, he says, because the drag created by several "head winds" — including the aging of the population, stagnation of educational attainment and income inequality — is too powerful to be fully counteracted by gains from innovation. The impact of more energy-efficient cars, machinery and household appliances, he argues, is meager compared with "the early 20th century innovations that replaced the icebox by the electric refrigerator or replaced the horse by the car."
Gordon is not alone in doubting the impact of today's technological marvels. High-tech entrepreneur Peter Thiel, whose fortune comes from co-founding PayPal, has argued that an alarming decline of ambition has swept the venture capital business.
"The shift away from backing transformational technologies and toward more cynical, incrementalist investments broke venture capital," states a "manifesto" on the website of his investment firm, Founders Fund. "The future that people in the 1960s hoped to see is still the future we're waiting for today.... Instead of Captain Kirk and the USS Enterprise, we got the Priceline Negotiator and a cheap flight to Cabo."
Yet these pessimists may be underestimating the potential of future technologies: new sources of energy that supplant fossil fuels; new methods of engineering plant and animal life to make them more productive as food; the spread of robots into commerce and industry creating demand for new human skills.
People are consistently bad at predicting the future. "Go back 100 years and ask what did people think would happen compared to what did happen," says Joel Mokyr, an economic historian at Northwestern, who often debates Gordon over the future of technological change. "Think about the absolute instant access you have to information today from a little machine you have in your pocket — who would have dreamed that in 1965?" He paraphrases a line often attributed to computer pioneer Alan Kay: "The best way to predict the future is to invent it."
Mokyr argues that the economic and productivity statistics often cited by technology skeptics may simply be unsuited for the improvements in our quality of life brought by today's new technologies. "It's not clear how you'd measure the impact of a new product like a smartphone," he says. "We're living in an age when new technologies are doing so many things for us we couldn't do before. People in their mid-70s who years ago would be in wheelchairs are now on the golf course — tell me how that shows up in productivity statistics."
We may be underestimating the potential gains because they're only beginning to materialize, says Roger McNamee, a veteran technology analyst and investor at Elevation Partners in Menlo Park, Calif.
"The smartphone really does change everything," he says. McNamee points to Uber, the ride-hailing service that has revolutionized the urban transportation sector by exploiting the ubiquity of smartphones. "Pre-Uber, to get a taxi at my office would take an hour — longer at busy times. Now it's between one and three minutes."
That produces a gain in productivity that's hard to measure with traditional statistics, he observes, and it's only a harbinger of what's to come. "Smartphones are a much bigger market than the personal computer ever was. What they do is wildly more productivity-enhancing, there are so many more of them, and they're much more deeply embedded in people's lives."
Techno-optimists argue that it's shortsighted to bet against innovations that haven't yet played out or that may lie somewhere beyond the visible horizon. "If I had to summarize the technological progress of the next couple of decades," Mokyr says, "it would be, 'You ain't seen nothing yet.'"