Why, oh why, is productivity growth so damn slow?!

July 28th, 2015 at 10:01 am

Over at PostEverything.

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5 comments in reply to "Why, oh why, is productivity growth so damn slow?!"

  1. Tammy says:

    I really like Bob Gordon’s work. It’s funny but I was thinking of his work yesterday and decided to watch a movie (we don’t have digital satellite service and that’s a democratic household decision). I watched “ex machina” and oddly thought of the panel experts hosted by the Hamilton Project… . Anyway, thanks for mentioning Bob Gordon as this is when I really became fascinated with economics and economists tossing ideas around on the blogosphere, which reminds me of the Noosphere.


  2. John Case says:

    Brother Bernstein:

    My wife, an economist formerly with the BEA, and now with the NSF, specializing in measuring R&D, had this comment on your post:
    “I think there are real measurement issues, so I agreed with the last point, but I think it is more complicated than he described. More and more of our output is in things that we don’t measure well, and so we measure outputs with inputs, which by definition has zero productivity growth. ”

    How much do measurement problems figure, in your estimate?



    • Jared Bernstein says:

      Agree–this is a known and real problem in productivity measurement, especially in services. My point is I haven’t seen a lot of evidence (I’ve seen some) that it’s getting larger over time, which is what you’d need to see to explain a decline growth rate.

  3. spencer says:

    I believe that the primary driver of productivity is the incorporation of new technology in the capital that each worker has to use — a back-hoe vs a shovel.

    But if you look at the the real net growth in the capital stock you will find that its growth has been slowing significantly.

    If you adjust that data by employment you find that the real net ( adjusted for depreciation) capital per worker has not grown in some 20 years. The depreciation adjustment is important because new IT equipment has a much shorter useful life than traditional capital goods.
    Consequently, more and more of gross investment is just going to replace obsolete equipment
    –we have to fun faster and faster just to stay even.

  4. Smith says:

    “Grade: this is clearly a factor, but it’s no less a head-scratcher. Now we have to explain why investment has trailed off. Weak demand is surely in the mix here, as above.”

    Why is this a head-scratcher?
    a) Weak demand is not just in the mix, it’s a major influence. Both the 2001 and 2007 financial bubble related recessions produced weak recoveries. Why invest to increase supply in the face of weak demand growth? Not only is recovery weak, demand growth is just the opposite of what recoveries usually bring, strong demand growth.
    b) Why invest in increasing productivity when it’s easier to cut costs by cutting labor costs due to changes in the labor law, regulations, immigration and globalization?
    c) Why invest in increasing productivity when it’s easier to meet increased demand with more labor, due to slack labor market, outsourcing, and multiple schemes to suppress labor costs even in normal or tightening markets?
    d) Why spend capital on investment when corporate governance rewards using the money for stock buy-backs?
    e) Why spend capital on investment in R & D when that is by definition a long term strategy, which is counter to modern executive compensation incentives.
    f) Why spend capital on R&D when the preferred strategy is to buy other companies (and their R&D) creating monopolistic pricing power? You never have to worry about competitors getting ahead when anti-trust laws are not enforced.
    g) Why spend capital on R&D when cost of entry prevents competition (how many new auto companies are created each year?)
    h) Why invest capital in R&D when you can just use the money to create a deregulated financial services business, as G.E. did and the auto companies did, and insurances and brokerage firms did, etc?
    i) Why invest capital in R&D when there is an asset bubble to invest in instead, (tech firms or real estate, and this is a separate but related issue to h) financialization of economy) ?
    j) Why invest in R&D when the Federal Government cuts it’s own R&D budget which is often the prerequisite source for applied science used by industry?
    k) Why invest in R&D when the government changes patent law, first by encouraging frivolous patents by making the agency self-funding, and then switching to first-to-file vs first-to-invent, which discourages true innovation.

    These are just off the top of my head, which I’ve barely scratched.