The Productivity Slowdown:
Causes of the productivity slowdown:
- Environmental expenditures
- Oil shocks
- Excessively-young labor force
- Reagan deficits: did they play a role in the productivity slowdown?
- Most likely scenario: a bunch of things hitting at once...
The productivity slowdown gave us an 'age of diminished expectations':
- The "revolt of the haves"
- Government budgets in crisis--end of the "fiscal dividend"
- Grinchy politics?
- The blue-collar workers of Macomb County, Michigan
The Democratic political strategy:
- Hope among Democrats that fast productivity growth would produce a kinder, gentler, more social democratic politics
- Hope so far in vain...
The Democratic economic strategy:
- Eisenhower Republicans
- 2.5% x (0.05 + 0.05 + 0.05) = 0.375% per year
- Cumulates over eight years to 3%
- But by 2000 we have a 10% gap
- Now a 17% gap
- People don't feel it--perhaps because of rising inequality?
- But the productivity gap is there: where does it come from?
- 3% from deficit reduction
- 1% from capital inflow
- 2% from better unemployment rate performance--a dividend of faster productivity growth
- 4% from computers
The productivity speedup of the 1990s:
* Computers, computers, computers...
* The fastest-growing and most important leading sector ever seen...
* How big?: a 20% per year fall in the prices of things that make up 5% of the economy gives you 1% per year in direct productivity growth from computers alone
* Why did it take so long for the information technology revolution to get going?
* The Solow question
Why isn't Silicon Valley getting really rich anymore?
* Answer: because its customers are getting really good deals; the industry is now much more competitive now, which means that the surplus flows through to customers rather than sticking with entrepreneurs and capitalists...
What does the future hold?
* Likely answer: more of the same...
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