Is the Industrial Revolution a good precedent for explosive economic growth today? | mattsclancy

One line of evidence that AI might lead to explosive economic growth is the precedent set by the Industrial Revolution. For hundreds of years — 1252 to 1652, to be precise — the compound annual growth rate of per capita real GDP in the UK was around 0.07%. It then began to accelerate, settling into a new compound rate of around 1.02% per year by 1850, which it held until 1913. In other words, growth accelerated by roughly 15 times before; the argument goes that this should make us humble about predicting it can’t happen again, and perhaps we should be open to accelerations of 10 times or more today.

I think this argument is overstated and the analogy between a 10× acceleration today and the acceleration that occurred during the Industrial Revolution is misleading. The goal of the first part of this post is to provide evidence for two claims:

At the outset of the Industrial Revolution, annual growth that was 10× the long-run average was relatively common.

In the contemporary world, annual growth that is 10× the long-run average for the world is much more rare.

The second part of this post characterizes the acceleration that occurred during the Industrial Revolution in terms of the standard deviation of year-to-year variation in growth rates. Applying the same approach to contemporary growth suggests that an IR-style acceleration would take growth in frontier economies to around 2.8% per year — meaningfully faster than today, but well below the 10× claim that is often advanced.

Why go through this exercise? A common reaction to claims that AI will lead to annual growth rates in excess of 20% per year is skepticism and incredulity — it would be so far outside historical experience. A common retort is that the same incredulity would have been wrong in the 1700s: had someone been told that future growth would be 10× the average and dismissed it, they would have made an error.

The goal here is to rescue that initial reaction. A 10x acceleration today is not the same thing as a 10x acceleration in 1700. A person living in the 1700s would have been asked to envision good years becoming much more common — a rate they had already experienced many times. A person today is being asked to envision a qualitatively different kind of economic dynamics, one that falls several standard deviations outside norm for the world today.

All estimates use the Maddison Project Database 2023, which reports GDP per capita in 2011 USD and population in thousands. The final section considers some objections to the relevancy of this analysis.

How common was 10× faster growth in the pre-IR UK?

We will start by establishing that it was quite common for growth to exceed 10× the long-run average in the UK prior to the Industrial Revolution. Over 1252–1652, the long-run average was 0.30% per year. The compound growth rate over this period — the rate at which wealth actually accumulated across generations — was around 0.07% per year. Roughly 10× this compound rate — around 0.66% per year — was exceeded in about 46% of years. (This figure is not sensitive to the exact window chosen: the compound growth rate ranges from 0.07% to 0.18% across plausible alternative start and end years, and the share of years exceeding 10× that rate ranges from about 40% to 50%.)

Distribution of annual GDP per capita growth for the UK, 1252–1652. The dashed red line marks 10× the compound growth rate (0.66%/yr). About 46% of years exceeded this threshold.

Economic statistics from hundreds of years in the past, before we had statistical offices, are of course highly unreliable, and so the rest of this section will try to provide alternative evidence that 10× faster growth was probably reasonably common. First, to eliminate the importance of year-to-year fluctuations, we can focus on 20-year compound average growth rates. The mean compound rate across all 20-year windows is 0.06% per year, consistent with the full-period CAGR of 0.07%, so 10× that is a threshold of around 0.6%. About 17% of 20-year windows exceeded it. If this data is to be believed, it implies that generation-long runs of 10× faster growth were not unheard of prior to the Industrial Revolution.

Distribution of 20-year compound annual GDP per capita growth rates for the UK, 1272–1652. The dashed red line marks 10× the long-run average (0.60%/yr). About 17% of 20-year periods exceeded this threshold.

Our second robustness check is to look for similar patterns over 1960–2022 for countries with characteristics similar to the pre-IR UK. We are assuming that the growth dynamics of this set of contemporary countries is a reasonable analogue for the growth dynamics of the pre-IR UK — and hoping that the data for these modern countries is more reliable than reconstructions of pre-IR UK real GDP per capita.

We identify this set of countries based on GDP per capita, population, and long-run average...