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A public policy blog from AEI
In recent days, a bunch of smart people — including at AEI — have addressed the apparent productivity paradox that makes our economy so hard to gauge right now. Silicon Valley is booming, and yet productivity growth is tepid. But if productivity growth is so awful, then how can super-high-skill workers and robots also be eating so many jobs?
…if technical change is a major source of dis-employment, it is hard to see how it could be a major source of dis-employment without also being a major source of productivity improvement. In part, if the technology is replacing people that means that productivity should be expected to go up at least if you measure simple labor productivity. And if more of that is happening than used to be happening, then you would expect productivity to be rising more rapidly than it used to be rising.
There is the further wonkier, but not that wonky observation that if the lower tail of the workforce is increasingly not working, than if you remove the least productive people, the average productivity of those who remain should be increasing. So, I think, the largest thing that I do not understand in this area, is how to square the “new economy is producing substantial dis-employment” view, with the “productivity growth is slowing” view.
I think it is at least possible that there are substantial mismeasurement aspects and that there is a reasonable prospect at accelerating mismeasurement as an explanation for some part of this puzzle. I do not base this judgment on calculations about the consumer surplus from Google or Facebook; I think those are important conceptual issues for measuring the welfare of the average citizen. I am not sure that they are important conceptual issues when quantified for measuring market GDP, as economists traditionally understand market GDP.
Rather, I am struck that there is likely what may well be an increase in unmeasured quality improvement.
But if productivity is actually higher than we think, then inflation is actually lower than we think, and real interest rates are not as low as we think. Thus, Summers admitted, he is now questioning his own idea of demand-side secular stagnation.
Several days before Summers’ comments, AEI’s own Jim Pethokoukis and Steve Oliner hosted a related discussion of innovation, productivity, jobs, and wages, asking if we are in a great stagnation — or perhaps just the opposite, an acceleration.
Moore’s Law at 50 also addresses the future. Some have argued that the information revolution was not nearly as powerful as the Industrial Revolution and that the information age is in fact winding down. Innovation is thus likely to limp for decades to come. I argue just the opposite — that information technologies are poised to deliver some of their most potent economic benefits, specifically in the perennial productivity laggards we call health care and education.
As Peter Huber argues, “The vital core of medicine is now on the same plummeting-cost trajectory as chips and software.” If so, we could turn one-sixth of the economy from a burden into an economic blessing.
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