Thursday, August 31, 2017

Productivity and Economic Growth

"Productivity growth averaged 0.53 percent per year in the 2011-2016 period, far below the earlier norm of 2 percent to 2.5 percent. Reasons for the slowdown are many, but some economists suggest that such growth is being significantly understated. Mobile phones and other high-tech gadgets probably enhance efficiency of doing business far beyond their cost. Consider the value of time saved by shopping online, which is not captured in the statistics. The costs of new wonder drugs, high as they are, probably do not measure their value in saving lives.

The output in service industries is hard to measure, especially since quality can vary widely. One lawyer may bill twice as much time for reviewing a contract as another but make twice as many mistakes. The problem of measuring output in services only grows as services become an ever-greater share of spending.

Another explanation for slow U.S. productivity growth is that American multinationals have moved intangible assets such as patents and other intellectual property overseas in order to avoid paying taxes. Such actions slowed reported U.S. productivity gains by an estimated 0.25 percentage point per year between 2004 and 2008.

Although new technologies that enhance productivity are mushrooming, they often take decades before becoming big enough to move the overall productivity needle. The Industrial Revolution began in England and New England in the late 1700's, but only after the Civil War had it expanded to the point of hyping nationwide productivity. Ditto for railroads. As a result, between 1869 and 1898, real GDP per capita leaped at a 2.11 percent annual rate. It’s now rising around 1 percent annually.

Other forces may well push productivity, such as significant tax reform, education reform, deregulation, unifying state licensing requirements that now often impede labor mobility and reforming entitlements to encourage people to work. Also, there’s nothing like a stronger economy to create labor demand and the resulting high employment and wages."