Wednesday, December 21, 2016

Cleveland Fed: Hope for U.S. Productivity Growth

From Pethokoukis at AEIdeas:

Why anemic US productivity might be ready for a rebound. Might

First the Cleveland Fed outlines the various explantions for persistently weak US productivity growth:
Broadly speaking, economists tend to break into three camps regarding the interpretation of productivity growth’s recent weakness for long-run growth. The first camp considers the weakness to be emblematic of underlying forces that are likely to persist well into the future. One might call these the “secular stagnationists,” and their view is that we are entering a “new normal.” Expositors of this view, such as Robert Gordon, often point to such factors as an aging population, declining population growth, and the exhaustion of gains from the internet and technology booms.
The second camp argues that the productivity weakness is likely temporary and that such episodes have historically turned around unpredictably. This is the view maintained as part of the Federal Reserve Bank of St. Louis’s monetary framework.5
The third camp argues that there is no productivity weakness at all, but, rather, the weak growth rates in the data are an artifact of mismeasurement in the face of rapidly changing consumer goods and production processes, a view espoused by Hal Varian, chief economist at Google.6
Still other economists, such as Joel Mokyr, have views of the long run that incorporate elements of the second and third camps, but they also argue that the rate of technological innovation will accelerate in the future. They expect the rate of productivity growth to accelerate as well.
Then the bank offers reason for some cautious optimism:
The recent productivity data are unambiguously weak, but they are not greatly out of line with productivity variation over the historical record. Indeed, we find two reasons for optimism in the historical productivity data. First, when labor productivity has been weak in the past, it did not persist at those levels....MORE