links for 2007-10-21
The Real America!

The End of the Clinton-Era Productivity Growth Boom?


Source: Congressional Budget Office

John Schmitt and Dean Baker fear that the Clinton-era productivity growth boom is at an end. I think it is possible, but unlikely, and way too early to start panicking. Note the word "arguably" in their first sentence and the phrase "is sustained" in their second:

Comment is free: The real economic crisis: [A]rguably an even more fundamental problem facing the US economy: the sharp deceleration in productivity growth since the middle of 2004.... [I]f sustained... the deceleration in US productivity growth since the second half of 2004 is striking by historical standards. Between 1947 and 1973, the golden age of postwar capitalism, productivity growth averaged about 2.8% per year in the United States. At that pace, the output of the average worker was set to double about every 25 years, allowing roughly comparable increases in national living standards. From 1973 through 1995, however, productivity growth took a nosedive, with the average rate dropping to just 1.4%. At this lower rate, average worker output would take about 50 years to double, implying far slower progress in living standards.

From the mid-1990s on, however, official productivity growth again accelerated rapidly, returning to a 2.9% rate reminiscent of the golden age. Quite suddenly, though, in the second half of 2004, productivity growth dropped sharply. From the third quarter of 2004, productivity growth rate, at 1.3% per year, has not even managed to match the 1.4% growth rate of the productivity bust of 1973-1995.

Some productivity optimists argue that the downturn is a blip. But, this is a blip that just turned three years old - fully one-third the length of the nine-year 1996-2004 boom that the optimists champion. Other optimists dismiss recent performance as cyclical - related to the downturn in the US economy.... The productivity numbers are likely even worse than they look. The most important reason is that the official productivity figures don't handle the rapid depreciation of new technology very well...

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