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A thought experiment helps to illustrate the fundamental importance of the inventions of IR2 compared to the subset of IR3 inventions that have occurred since 2002. You are required to make a choice between option A and option B. With option A you are allowed to keep 2002 electronic technology, including your Windows 98 laptop accessing Amazon, and you can keep running water and indoor toilets; but you can’t use anything invented since 2002.
Option B is that you get everything invented in the past decade right up to Facebook, Twitter, and the iPad, but you have to give up running water and indoor toilets. You have to haul the water into your dwelling and carry out the waste. Even at 3am on a rainy night, your only toilet option is a wet and perhaps muddy walk to the outhouse. Which option do you choose?
I have posed this imaginary choice to several audiences in speeches, and the usual reaction is a guffaw, a chuckle, because the preference for option A is so obvious. The audience realises that it has been trapped into recognition that just one of the many late 19th century inventions is more important than the portable electronic devices of the past decadeon which they have become so dependent.
We began with the tantalising (and frightening) suggestion in the green line of Figure 2 that per capita real GDP growth could slow down to a rate of a mere 0.2% by 2100. How large might be the numerical effect of the six headwinds? A plausible set of numbers can be constructed to reduce the growth rate of real per-capita consumption of the bottom 99% of the income distribution down to 0.2% per year, but this “exercise in subtraction” needs to be qualified carefully (the qualifications come at the end).
Globalisation does not reduce the growth of all American wages; it hits the middle hardest. Top executives of multinational industrial and financial firms can enjoy rising incomes based on their firms’ reach across the world. The CEOs of Coca-Cola and Boeing enjoy a worldwide market, and the rise of the emerging markets is an opportunity rather than a threat to them and adds to their bonuses and value of their stock options.