Former Fed Vice-Chairman Alan Blinder writes about the “Mystery of Declining Productivity Growth” at the Wall Street Journal. Growth of output per manhour is the worst since the Great Stagflation of the 1970s.
But why? Maybe it’s a statistical illusion, maybe it’s mean reversion from high productivitygrowth in the past, maybe it’s less rotation of workers through different jobs.
Of course, it could be the fact that capital investment is miserably low compared to past periods. Blinder allows:
A third hypothesis, weak investment, is more promising. The basic idea is straightforward: If the capital stock grows more slowly, as it has in recent years, workers will have less new capital to work with, and their productivity will therefore improve more slowly. But when it comes to making that intuitive idea numerical, the time period matters a lot. I’ll spare you the calculations, but the necessary data, which end in 2013, show that weak investment can account for about 70% of the sharp slowdown after 2010. But three years is too short a time period to draw any conclusions. If we date the productivity slowdown from 2005, weak investment accounts for only about 25% of the slowdown.
Here are two less conventional, even counterintuitive, hypotheses.
Wrong, wrong, wrong. It’s not just that overall CapEx is down, but that 40% of all CapEx in the S&P 500 has gone to energy, up from 28% in 2007. The U.S. invested disproportionate amounts of its dwindling pool of capital investment to replace imports of oil with domestic shale oil. That’s well and good, but it doesn’t have broader productivity effects like investment in computation and telecommunications.
Maybe, Blinder continues, technological progress “actually slowed in recent years, despite all the whiz-bang stories you read in the business press.” He explains:
Impossible? Well, keep in mind that to an economist “technological progress” means getting more output from the same inputs of capital and labor. Does Twitter do that? Or Snapchat? Some popular online services might even reduce productivity by turning formerly productive work hours into disguised leisure or wasted time.
In somewhat different ways, John Fernald of the Federal Reserve Bank of San Francisco and Robert Gordon of Northwestern University, two leading productivity experts, have argued that the greatest productivity gains from information technology came years ago, and that recent inventions look puny by comparison. Compare Facebook with the Internet, or the Apple Watch with the personal computer. Maybe inventiveness has not waned, but the productivity-enhancing impacts of inventions have.
Those are good points, but Asia Unhedged has a simpler view of the matter: America used to have tech companies that produced disruptive technologies. Now it has stable consumer franchises run by patent trolls from the legal department rather than engineers. Our logic is simple: If it walks like Proctor and Gamble, quacks like Proctor and Gamble, and flies like Proctor and Gamble, it’s Proctor and Gamble. The S&P Tech Sub-Sector (the contents of the XLK SPDR ETF) traded with twice the volatility of the S&P 500 index in the late 1990s and early 2000’s, and now it trades with the same volatility of the overall index. In other words, tech isn’t risky anymore. It’s not risky because the patent lawyers have ringfenced their little monopolies, kept new entrants at bay with patent lawsuits, and turned into cash cows.
Of course there’s no productivity growth! There’s less investment, and the companies that used to drive productivity growth now suppress it.
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