Comment of the Day: Charles Steindel: Monday Smackdown: Republican Economists Burn Yet More of Their Reputations Department...: "John F. Cogan, Glenn Hubbard, John B. Taylor, and Kevin Warsh... a very odd comment in their report... http://www.bradford-delong.com/2017/07/monday-smackdown-republican-economists-burn-yet-more-of-their-reputations-department.html?cid=6a00e551f08003883401b8d299a01b970c#comment-6a00e551f08003883401b8d299a01b970c
...Data from the Bureau of Labor Statistics (BLS) show that a lack of investment in new capital equipment and software lies at the heart of the recent productivity slowdown. Remarkably, capital per hour of work— a measure of the equipment and tools that workers use in production—was basically flat during this period [2012-2016], contributing virtually nothing to growth. In contrast, during the period from 1996 to 2005, productivity grew 3.0 percent per year, with the growth rate of capital per hour of work contributing 1.2 percent per year...
Anybody see the problems?... The first glitch is the comparison of the recent raw growth rate of the capital labor ratio to the past growth of the capital contribution to productivity. A response may be that "well, zero is zero." But about that zero: yes, it's not terribly surprising that in a five year period in which, well, employment grew pretty sharply, the capital-labor ratio was flat. However, this period followed one (2007-2012) in which, one may recall, labor plunged a lot faster than capital: there was quite a lot of capital deepening. In looking at the whole 2007-2016 period BLS estimates that capital deepening contributed an average of .5 percentage point a year to labor productivity growth... slower than in the prior decade.... But it's only part of the story: BLS clearly shows that a slowdown in TFP growth (technology? knowledge) is the bigger player; furthermore, if one plays the neoclassical growth game, capital deepening only results in a "temporary" boost to productivity growth (that is, of course, essentially the economist's sense of "temporary" which I admit may allow for oceans to open and close).
Yes, there can be all sorts of arguments relating investment to productivity in a more enduring way, or with spillovers to TFP, but you don't use the numbers from the neoclassical accounts in their defense.