The Internet of things will save the US from the great stagnation

Innovation guru Michael Mandel estimates that the “internet of things”—the increasing number of machines equipped with internet-connected sensors—will expand the US economy by $600 billion and $1.4 trillion in 2025, roughly the equivalent of boosting GDP by 2% to 5% over the intervening time period.

That could be the difference between so-so growth to the kind of stable growth that drives down debt and unemployment. More broadly, the argument he’s making is a reply to economists like Robert Gordon and Tyler Cowen who fear that the big gains in productivity that supported an expanding middle class and the modern welfare state won’t be replicated anytime soon. This has major social repercussions—namely a scenario known as the great stagnation. The internet, for all the ways its changed our lives, has offered its gains largely in the form of consumer surplus—free stuff on the internet you used to pay for, in short—that is great and important but not necessarily money in your pocket. Today’s internet of things is limited to consumer surplus. But the future internet of things will be a different beast, because by definition it takes the internet out of the world of abstraction and into industries—manufacturing, energy, transportation—where productivity gains would have a more tangible impact.