Thursday, May 19, 2011

McKinsey & Co.: "The Debate Zone: Has the U.S. passed peak productivity growth?"

I owe someone a tip d'chapeau on this and can't for the life of me recall who sent it.
I've dipped into Cowen's book, it's more pessimistic than I am. Additionally, a few of his arguments are suspect, lifespan being an easy one to counter argue.
From McKinsey & C0.:

Tyler Cowen

Here comes the Great Stagnation

The peak productivity period for the United States came during the period 1870–1950, when the essential elements of modern life were put into place. We went from a country where most people lived on farms to a world of electricity, flush toilets, radios, automobiles, airplanes, large-scale retail, consumer credit, and the other conveniences of modern life. We haven't seen comparable changes since then and we probably won't anytime soon. Alexander Field, an economic historian at Santa Clara University, has measured the 1930s as the time when the rate of technological change was highest in the American economy.

The statistics bear out the slowing down of progress. From 1973 to 2004, median household income in the United States rose only 22 percent, reflecting a paucity of broad-based productivity gains. In the last ten years, median income has not risen at all. In the last ten years, there has been no new net job creation in the United States economy. The statistic known as "multifactor productivity," which measures the contribution of new ideas to economic growth, has been low most years since the early 1970s. In the last few years, multifactor productivity has hovered in the range of less than half a percentage point, as compared to two to three percent earlier in the century....MORE 

Andrew McAfee and Erik Brynjolfsson

The digital revolution will transform the economy—again and again

We thank Tyler Cowen for bringing attention to the critical issue of productivity growth in his book The Great Stagnation. Over the long run, a society's living standards depend almost entirely on the productivity of its economy, so an extended period of stagnation like the one Cowen describes would be bad news indeed. As we look at many kinds of evidence, however, we see different patterns than he does. And we are optimistic that peak productivity growth lies ahead of—rather than behind—us.

Cowen's "great stagnation" is evident in the much slower productivity growth starting in the mid 1970s and continuing for a long time. According to the Bureau of Labor Statistics, labor productivity growth averaged 2.8 percent in the "big wave" of 1947–73. Unfortunately, it slowed to less than half that rate over the next 20 years. However, while Cowen brings new insights to the table, the slowdown that started in 1973 is old news. What has happened more recently? Starting in 1995, there was a notable increase in productivity growth, averaging to about 2.7 percent. In fact, in the past three years, productivity has averaged precisely 2.8 percent, just as in the golden era before 1973....MORE