The sharp drop in US productivity growth constitutes a serious threat to US living standards - and should serve as a warning for Europe.
All the bad news about the bursting of the US housing bubble and the related meltdown in US share markets has deflected the world's attention from what is arguably an even more fundamental problem facing the US economy: the sharp deceleration in productivity growth since the middle of 2004.
For Americans, the long-run implications of this little-discussed slowdown, if sustained, are actually more important to future living standards than any of the other events currently worrying world markets. For Europeans, long-encouraged to see the United States as the flexible economic ideal, the productivity slowdown sounds another note of caution about the US model. Europeans already know that the US economy generates substantial inequality. The last three years of slow productivity growth now suggest that all that inequality apparently doesn't even guarantee faster growth....MORE
HT: Economists View