Are the best days for U.S. economic growth long gone? Or do they still lie ahead? That’s the long-running debate between two economists from Northwestern University — Robert J. Gordon and Joel Mokyr. Gordon believes the biggest advancements came in the last two centuries — for example, homes switched to electricity from candles — and any further gains were refinements of these massive leaps. Therefore, the economy will not revisit its robust growth of the past.

On the other hand, Mokyr thinks that the best days for growth are ahead. This is the age when science and technology are working closely together to create previously unimaginable innovations, such as gene editing tools that could eventually lead to the creation of new forms of living beings. He said these factors are not being measured adequately in the GDP, which largely is a metric of the past. Gordon and Mokyr squared off recently on the Behind the Markets show, which airs on SiriusXM channel 111. They were interviewed by Wharton finance professor Jeremy Siegel and the show’s host, Jeremy Schwartz from WisdomTree.

An edited transcript of the conversation follows.

Jeremy Schwartz: We’ve got two of the world’s leading economists here on the show to talk about the future of the U.S. economy and innovation. One contends progress will be slow and incremental, the other, that the future is bright. These two economists, Robert Gordon, Joel Mokyr, are both professors of economics at Northwestern University. But before we turn to them, [Wharton] professor Jeremy Siegel, I know you want to comment on the markets.

Jeremy Siegel: We have the Dow Jones at an all time high, the S&P at an all-time high and the NASDAQ just a little off [its high]. [Editor’s note: This interview took place on June 30.] … I do think the rally in stocks, and the sell off in bonds was a Trump phenomenon in November, December, January, and February. But as the Trump agenda has stalled, what kept the market up was very good earnings in the first quarter.

We had the best earnings in the first quarter than we had in three or four years, and actually the best [earnings] guidance for the year. And that is absolutely borne out by the data, because the estimates of the full year earnings are about the best that I have seen. It usually goes down over the year because the analysts are overly optimistic. This has been one of the lowest declines that I have seen.

That has taken [the market] up. Also, of course, lower interest rates. Who would expect the 10-year [Treasury yield] to be 2.31%? … The dollar has been soft, this is very good for the S&P — 40% of [its member companies’] profits are international and they gain by a declining dollar. Basically what we’ve had is certain things have taken over for the decline that we’ve seen in the promise of the Trump agenda. That is what kept markets up.

Schwartz: One of the books that Professor Siegel talks about a lot in his presentations that has influenced his thinking on the economy is Robert Gordon’s The Rise and Fall of American Growth: The U.S. Standard of Living Since the Civil War, which has won numerous awards as one of the best books last year. Joel Mokyr has written extensively about the economy as well. His latest book is A Culture of Growth, just published last year by Princeton University.

Siegel: Bob, give us a summary of what your main positions are.

Robert Gordon: We need to look back and get some perspective on U.S. economic growth. We keep hearing that according to the President we’re just about to break out of a period of seven years when we’ve been on a 2% growth path, and get up instantly and effortlessly to 3% or 4%. So let me give you some numbers in that context of 2% or 4%.

For a century, from 1870 to 1970, the U.S. economy grew at close to 4%. That was a period propelled by what I call the great inventions: electricity and the internal combustion engine. Electricity made possible electric light. Machines. Elevators. Subways. The whole urban density that created productivity as we moved off the farm. The internal combustion engine gave us motor transport and air transport. We had a revolution in speed, we had a revolution in temperature as central heating and air conditioning came in. A revolution in infant mortality and life expectancy. All of those things happened in a very compressed period.

“The primary effects of the great inventions had pretty much run their course.” –Robert J. Gordon

Primarily — not for the whole period of 1870 to 1970 — remarkable changes happened just between 1890 and 1930. After 1970 … growth slowed down from around 4% to close to 3%. And much of that was a decline in productivity growth. In my view, it was because the primary effects of the great inventions had pretty much run their course.

Growth didn’t fall off as much as productivity did because we had very rapid growth in the labor force in the 1970s, 1980s, and 1990s. Not only because of the Baby Boom teenagers who came into the labor force in the 1970s, but also because that period in the late 20th century was the main period of women entering the labor force.

We grew about 3% from 1970 to 2006, and in the decade since 2006 we have not grown at 2% — we’ve only grown at 1.3%. And you say, well how come? That’s because this 2% growth path we’ve been on is from the depths of the recession. It’s a period when we’ve been using up the labor supply made possible by unemployment falling from 10% to 4.5% as it is now. So our growth path over the last decade has only been 1.3%, well under half of what it was over the previous 35 years.

… Total real GDP grew only at 1.3% since 2006. If we look at why that big slowdown occurred, about half is [due to] hours of work. Part of that is Baby Boomers are retiring, and slowing down the growth in the labor force as they move out of the labor force. We’ve also had a substantial decline in the labor force participation of prime age men and women.

Comparing 20 of the developed countries, the United States ranks second from the bottom in male labor force participation of prime age people, and third from the bottom in female participation. We could talk later on why. But this decline in the growth of labor input is half of the story of slower GDP growth, and the rest of the story is slower productivity growth.

In my view, the big reason why productivity growth has slowed down so much in the last 10 to 15 years is because the computer revolution — as powerful as it was in moving business methods and procedures away from paper and calculating machines and typewriters to flat screens and the internet and software programs with spreadsheets and word processing — has seen its main impact on productivity … in the late 1990s and first part of the decade of the 2000s.

Ten years ago, the American office was pretty much set up the way it is now, with reliance on desktop and laptop computers. We can talk later about the smartphone and what difference it has made, but in my view in much of the economy — [in] education, health care, retail trade and office work — we are basically operating with the same methods that we did 10 years ago, and that’s the fundamental underpinning of why productivity growth has slowed down so much.

Siegel: Joel, why don’t you get your two cents in?

Joel Mokyr: I’ve been an economic historian all of my life, but I’m going to say something that cuts off the branch on which I’ve sitting: I think the past is not a terribly good guide to the future.

In my book Culture of Growth, which is about the period between 1500 to 1700, it doesn’t say anything about the future. And so I’m going to be very careful about drawing inferences from history, largely because I think what has happened in the 19th and 20th century is that economic growth has undergone some kind of phase transition in which it’s not just that it’s accelerating, but the entire set of parameters that determines its dynamic path of change [has shifted as well]. We’re in a different world, and we’re in a world in which technology is driven by very different factors.

Until about 1700, what basically we would call science — where you would investigate, in an informal way, the world around you — had very little impact on the way we make things. Technology and science were essentially disjointed. And then what you see happening very slowly at first, and then at an ever faster rate, is that science begins to inform technology. It’s unthinkable that somebody today would design, say, a nuclear reactor by accident, or serendipitously, the way things were being discovered before.

That of course raises the question as to what is driving science, and that is basically the main source of my optimism. Because the way I see the interaction between what I call propositional knowledge, which is knowledge about the world, and prescriptive knowledge, which is how we make things, is this is a two-way street. And it’s terribly important to understand not only that science drives technology but also that technology drives science.

This actually can be traced back to the 17th century when you look at the great scientific revolution and you realize that what was in large part driving that was new tools and instruments that became available to people investigating nature. We think about the microscope, we think about the telescope, we think about the barometer, vacuum pump, a whole bunch of things that were basically made by artisans who weren’t scientists themselves, but then were used by scientists.

And that feeds back into technology because you can’t imagine how, say, something like a steam engine would come about unless you understood that people came to grips with the fact that something like a vacuum was possible. That kind of stuff. Now if you think that that is a good model, and you transplant it to our own age, you start realizing that scientists today have at their disposal a set of tools that are so much more powerful than anything that we ever dreamed about in the past, that the entire system has changed dramatically.

… It’s not just that we have microscopes and telescopes that are vastly more powerful, that allow us to do nanoscopic research, but we also have tools that nobody even dreamed about in the past, including of course lasers and powerful computers that allow us to do things like computational physics. That part of what is driving technology is so much more powerful today than it was even 25 years ago that I can’t see how this is not going to result in a rapid acceleration of technological progress.

Siegel: Joel, do you think that that communication ability could be a powerful future stimulant to productivity and growth?

Mokyr: I not only think that but I have said so in the past repeatedly. And again, let me draw from an historical analogy. … The 18th century invented the search engine. Now their search engine wasn’t nearly as powerful as what we have now, but they invented the encyclopedia.

In fact, the Diderot and d’Alembert great encyclopedia is often thought of as the paradigmatic publication of the Enlightenment movement. It basically allowed you to access best practice knowledge by looking up things alphabetically. This is just one example; there are endless little technical books with good indexes. That actually drove, to a great extent, what came after. But that stuff, much like Galileo’s telescope, is very different from the Hubble.

“The past is not a terribly good guide to the future.” –Joel Mokyr

The encyclopedia compares to what we have today, which is the internet in which basically the entire set of knowledge of the human race is being made increasingly available to everybody. And we’re not just talking about Wikipedia; we are talking about access to the union of all of the scientific journals and magazines that exist in libraries. This is mind-boggling. But what it really tells you is that if innovation results to a great extent from recombining pieces of knowledge that hitherto were disjointed, then this is the key to further progress.

Siegel: Bob, how would you respond to that?

Gordon: Let me step back a minute and talk about the possibility that we’re not measuring things correctly. It has always been true that the economy generates enormous benefits and welfare in ways that are not included in GDP and the measure of our production. Think of the enormous benefit of the transition from the horse to the motorcar, the cleanliness of the streets that came with that. Think of the security a mother would have without worrying that there was a 25% chance that her newborn baby would die within the first year.

Think of the cures for infectious diseaseses that happened. All of those benefits to humankind that occurred back in the early part of the 20th century were not included in GDP either. So when we look at today’s inventions, in particular the smartphone, the tablet, and all of their offshoots and apps, we’re getting great benefits from them as well, but they’re not included in GDP. And much of the social networking and game playing that the smartphone makes possible is not making business firms capable of producing more or paying higher wages. It’s not in GDP for a good reason.

As for the potential of free and costless information, moving from heavy print encyclopedias to Wikipedia, I think that’s all part of the revolution that reached its peak in the late 1990s and early 2000s. Wikipedia was invented in 2001. So what I see is that the benefits of the internet have been around now for around 20 years. Windows 95 was of course introduced in 1995, and that’s 22 years ago.

So it’s not as if we suddenly have new tools today that are going to create light years of progress tomorrow. We’ve had great tools for 20 years, and many of the benefits of them have already flowed into the discovery of new inventions.

Siegel: But the penetration of the internet, especially internationally, with the opening up of China, India, we’re talking about population in the billions, when anyone there can say, gee I wonder if anyone has thought about this particular problem, just punch it on the internet, and you have brainpower working. Yes, that was invented 20 years ago, but I would say in the last five years we’ve really had the spread of this, particularly internationally. And where brainpower could be applied on an international basis to solve some of the toughest problems of the world.

Schwartz: One of the big questions and worries is with some of the latest technology: Is that going to replace the need for labor? As you think about the future, is that one of those productivity issues?

“It’s not as if we suddenly have new tools today that are going to create light years of progress tomorrow.” –Robert J. Gordon

Mokyr: There’s two kinds of techno-pessimists. There are ones like Bob and others who basically say, the best is behind us, and from now it’s going to be slow going. And then there’s the other techno-pessimists who say, this is going to accelerate and it’s going to destroy us. It’s going to destroy people, it’s going to destroy jobs, it’s going to make us all the slaves of these supercomputers. They can’t both be right. Maybe the truth is somewhere in the middle.

The problem you are underlining has been around for basically 200 years. In 1821, [economist David] Ricardo wrote a famous letter to [economist John Ramsay] McCulloch in which he basically said, the way labor-saving technology … has been going, very soon nobody will be working. Well, that was 200 years ago and people are still working. I think the nature of work will change, and machines will replace more arduous, routine, boring work. Now, we may reach a situation where the only people who will work are the people who want to work.

Siegel: Are you saying the participation rate will decline further? There used to be 60-hour workweeks. Most of it went … down to the 40-hour, or 35-hour workweek.

Mokyr: It might well decline, but I think what you will see if the participation rate declines is an increase in volunteer work, which is already a very large sector of the economy. People who do work because they feel good about it, and they want to do it, and it gives them a chance of participating in society, to meet people, and all the other benefits of work. That I think you will see. And then of course the big issue becomes how do we actually pay people some kind of citizen’s wage, and that’s an issue about distribution that everybody is sort of scratching their head over, and I don’t have an immediate answer to that.

Siegel: Bob, what is your view on that?

Gordon: I would like to start from a paper that was written in 2013 by two economists from Oxford, England who predicted that in the next 20 years, 47% of the jobs would be eliminated. And we’re now four or five years into their 20 years and nothing that they have predicted has happened yet. Let’s look at some of the job categories that they suggest will be greatly reduced.

They predicted that over the next 20 years, 55% of the jobs of airline pilots would be replaced. Well, we’ve seen no move whatsoever by the federal regulators to allow commercial airlines to be flown with one pilot instead of two. They suggested that 86% of real estate agent’s jobs would be eliminated, but we still see humans involved in virtually every real estate transaction. They said that 92% of the jobs of retail clerks would be eliminated. Yes, we are moving towards e-commerce, but so far, as of last year e-commerce only made up 8% of retail trade. So there is a long way to go before all of the jobs of those who work in the retail sector are eliminated.

As you mentioned, there are techno-optimists and techno-pessimists, I always like to reassure my audiences when I come up with the story of slow growth that I expect to continue in the future, that this is good news for jobs because what we’ve seen in the last eight years, the creation of 16 million new jobs, is not a fluke. We will continue to see jobs created rather than destroyed.

Siegel: I want to pick up, Bob, on what you said. You do have a somewhat pessimistic prediction for productivity in the future, and it is a source of standard of living. Just to give you a couple of summary statistics for our audience: non-farm productivity, which comes out every quarter after the GDP, has averaged a little bit above 2% per year in the post-World War II period. It basically has averaged just above zero or half a percent in this expansion.

Again, shocking in an expansion, and shocking in a period of declining energy prices that we’ve had over the last seven or eight years. … Bob, what is your long run prediction of the productivity growth and the standard of living of the average American or person in developed countries?

“It’s terribly important to understand not only that science drives technology, but also that technology drives science.” –Joel Mokyr

Gordon: Well I’m glad you made that distinction between productivity growth and the standard of living, because in contrast to the very slow rates that you just mentioned, productivity growth of only a half a percent a year over the last seven or eight years, I predict that over the next 25 years that will speed up to 1.2%, roughly twice as fast as it has been in the last seven or eight years.

But that does not mean that our standard of living is going to grow as rapidly as 1.2% a year for two main reasons. The first reason is that we have the decline in the labor force with the retirement of the Baby Boomers, and the declining participation of prime age men and women. And this cuts the 1.2% in the future down to 0.8%.

The next question is, will the median person have a standard of living that is growing as fast as that average of 0.8%? And there we get into the interesting question which we have not yet mentioned, which is of rising inequality, and the fact that the people with the good jobs at the top are getting much faster increases in income than the people down at the bottom. If inequality were to continue to concentrate income at the top at the same rate as the last 30 years, then the median person would see a growth in income, not of 0.8% a year in the future but only half that.

So a big question is whether income inequality will continue to get worse. If you just look at the census figures on median versus mean income, median is the person in the middle whereas the mean or average includes all of the income of the people at the top. That difference between median and mean income has continued to grow at about 0.4% a year even over the last decade.

So things don’t look good for the growth in the standard of living, and that doesn’t even mention the ominous future of the federal debt, Social Security running out of money, and how we’re going to pay for a future of an aging population.

… We already have a lot of evidence that today’s young people in many ways are not as well off as their parents. That is particularly true for those with a high school education or less — their wages haven’t gone up in real terms for 30 years. There are much fewer stable union jobs with defined benefit pensions. They have been replaced by unstable work, a lack of benefits, a lack of health care. So there is a substantial part of the population, particularly young people starting out who don’t have a college education, who are already not as well off as their parents.

Siegel: Joel, do you want to respond to Bob’s points here?

Mokyr: I just want to say that economic growth will be slowed down because of people dropping out of the labor force, people retiring, and so on. That takes advantage of the fact that we actually don’t count leisure as part of our national income accounts. And so if you’re not working because you don’t want to work — the national income goes down, that is bad.

But of course it isn’t bad because we all understand that leisure itself is a desirable thing. Now add to that the fact that today’s retired people, thanks to artificial hips and artificial knees and pacemakers and whatnot, are spending their time on the golf course or traveling through European museums, or having fun as opposed to people 40 or 50 years ago who spent this time in wheelchairs. None of that gets counted as part of the improvement in welfare.

Now the other thing of course is that it’s not so obvious that these people aren’t going to work. I refer both of you to a survey essay that was published last week in The Economist, in which they basically point out that we may be looking at a large proportion of the population, particularly people in the 65 to 74 age bracket, who are basically fit to work, want to work, and there is no reason why they shouldn’t work — but only if we can change the institutions of society that have been systematically discriminating against them.

You can’t have it both ways. If these people work, then growth will actually be faster than it used to be because they are joining the labor force. The Economist actually compared that to the huge boost in the national income that we received from women joining the labor force after World War II. If they are not working, then they are better off by choosing not to work, and they are enjoying their leisure. So living standards aren’t just what goes into GDP.

Even the younger people who, according to Bob, are so much worse off than their parents — it’s not obvious that if you measure this correctly, that that would be the case. Their parents did not have all of the information of the world in a little box that people buy at the Apple store. People actually are not buying cars not because they can’t afford them; they don’t want to have cars because they can use Uber. They don’t buy houses, they rent property.

Technology has changed every aspect of our lives, and to measure things as if we are still in the wheat and steel economy strikes me as essentially very misleading. Living standards have been improving, I think consistently. And just looking at real wages, it worries me a great deal, as Bob well knows, that the deflator is biased towards the kind of growth that we can measure and not the improvement in welfare that is actually taking place.

“We will continue to see jobs created rather than destroyed.” –Robert J. Gordon

Now he’s absolutely right, these things happened in the past as well, but I think it is much more noticeable today than it was ever before. It’s moving at a faster speed. If you just think about a few of the things that we are all getting that we take for granted that are now free, and don’t enter the national income accounts at all.

Think about GPS for instance. Anybody can use Google Maps and find their way. You don’t have to buy maps; you don’t have to ask people where you’re going. … It just happened the last five or 10 years. You look at music [and the ability to] access to any kind of music you can imagine on sites like Spotify and Pandora and who knows how many others. This stuff is either free or virtually free. All of those things enter into economic welfare, but because they are not being paid for directly by the consumer they don’t enter the national income account.

… But I do want to point out that technological progress now, and certainly in the next 10 or 15 years, actually weans itself from this digital economy fetishism. [Theoretical physicist and mathematician] Freeman Dyson wrote recently that if the 20th century was the age of physics, the 21st century will be the age of biology. What is now more or less with us is our ability to manipulate living beings, both plants and animals, to a degree [never before seen]. These new techniques of genetic editing will allow us to produce things that will essentially create an entirely new world. … We have now developed these CRISPR-Cas9 [targeted genome editing] techniques that allow us essentially in 10 or 15 years to design living beings according to our specification.

Schwartz: We’ve talked a lot about just the outlook for the economies. Professor Gordon, perhaps you could just start with any reactions and closing thoughts on the policy side?

Gordon: On the policy side, let’s think about the starting point, which is the overall rate of economic growth. We need to anticipate the burden of paying for the older generation. Despite Joel’s claims that the retired people are going to have all of this time and ability to enjoy their leisure, they’re not saving enough. They need money to enjoy all of that leisure time and they’re not saving up the money. So the future of people retiring at age 65 and living to age 90 or 95 is fraught with fiscal implications. We have to think about that.

The most direct solution for the burden of the aging population is more immigration. We currently admit into the United States legally about one third of 1% of our population each year. In Canada, they admit a full percent of their population, three times as much relatively. If we were to follow Canada with their point system, rewarding people for education, language ability, and job training, we would be able to bring in more capable people, job creators, people who would start new business firms. So I would put that at the top of my policy list, going in the total opposite direction of President Trump on immigration.

Another problem we have is that one reason that prime age male labor force participation is so low in the United States is that so many of our citizens are in prison. We have an incarceration rate seven times higher than most advanced Western European countries. There are many people languishing in prison who should be let out, who are there for petty drug crimes, non-violent crimes, or who are too old to be a threat to society. We have a massive vocabulary gap for five year olds coming into kindergarten between the poverty population and those in the middle and upper middle class.

We need to devote government resources to tutoring and education. It goes down to age of six months, not just three or four years. And focus on the poverty population, if we want to have a society in the future that has more equality and less inequality. So those are just some of the places I would start on a policy level.

Mokyr: So I agree with everything that Bob said. And I also agree with the fact that everything we currently are doing goes against the current administration. I would add two more points. The first is that in order to remain competitive, and in order to enjoy the fruits that science offers us, we have to be competitive with the rest of the world. We have to have an open economy. We should play the game of globalization because it’s the only game on this planet today. And all of this talk about America first strikes me as utterly counterproductive.

The other thing that I would point to — the administration is paying lip service to it but hasn’t done anything – is that our infrastructure is woefully inadequate. … We need to invest heavily not only in the existing infrastructure, but also to build a new one that is based on the de-carbonization of the American energy sector, which basically needs to wean itself off of fossil fuels in the next 15 or 20 years. It probably will, but a government policy that pretends that this isn’t necessary strikes me as utterly counterproductive.