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Quotation of the day on the fallacy of weak productivity….. – Publications – AEI

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AEI Quotation of the day on the fallacy of weak productivity….. …. is from today’s Monday Morning Outlook by the economic team at First Trust Advisors (Brian Wesbury, Robert Stein and Strider Elass): Why do so many people think productivity is weak? Yes, government data sources say it’s weak. But anyone who goes outside instead of living in the data knows nearly everything is getting better, faster, and cheaper. New technologies are boosting productivity everywhere. As recently as 2009 it took over a month to drill and complete a new oil well; now it takes around a week. Farmers have boosted the bushels of corn they get from every acre of farmland by 2.4% per year since the early 1990s – while new tech (drones, GPS, ground sensors) helps save on inputs of hours, water, fuel, and

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AEI
Quotation of the day on the fallacy of weak productivity…..

…. is from today’s Monday Morning Outlook by the economic team at First Trust Advisors (Brian Wesbury, Robert Stein and Strider Elass):

Why do so many people think productivity is weak? Yes, government data sources say it’s weak. But anyone who goes outside instead of living in the data knows nearly everything is getting better, faster, and cheaper.

New technologies are boosting productivity everywhere. As recently as 2009 it took over a month to drill and complete a new oil well; now it takes around a week. Farmers have boosted the bushels of corn they get from every acre of farmland by 2.4% per year since the early 1990s – while new tech (drones, GPS, ground sensors) helps save on inputs of hours, water, fuel, and fertilizer.

Smartphones, tablets, apps, the cloud, 3-D printing, drones, and many other new technologies are clearly boosting productivity. And not just in tech industries.

That suggests something is wrong with the government data. One problem is that things that are free – like maps, step counters, language translators, radios, or calculator apps on your smartphone – are hard for the government to count.

But there’s a bigger problem. The government is a negative productivity machine. For example, productivity in electric power generation and distribution fell 13% between 2006 and 2016. And commercial banking productivity has risen less than 0.1% per year in the past seven years. How could this be? Why are these industries stagnating despite constant improvements in technology?

The answer: Too much government. The government has subsidized wind and solar electricity power generation, which are far more labor intensive and less productive. And, excessive banking regulations shifted many jobs from profit generation to oversight and reporting in that industry. The tax code itself absorbs millions of hours in non-productive labor.

In other words, while productivity in private activity hums along, big government is throwing a wet blanket over entire industries, and dragging down total market productivity. It’s simply not true that potential growth is as weak as the model says. What is true is that shrinking government burdens will boost real (and reported) productivity, growth, wages, and living standards.

MP: It’s a good point and one that deserves more attention. The government’s national income accounting procedures for calculating Gross Domestic Product (which is one source for productivity figures) was developed almost 100 years ago back in the 1920s, when the US was primarily a manufacturing and agriculture based economy. Economic value was easily calculated back then through market transactions, and the availability of free or near-free goods and services was very limited. Today, there is a cornucopia of free or near-free goods and services including GPS, Craigslist, Wikipedia, cameras, music streaming services like Pandora and Spotify, etc. Huge amounts of economic value are created today that never get accurately or fully recorded in GDP statistics, and therefore GDP likely significantly understates the true amount of “economic value” created today. And the failure to capture all of the economic value created in today’s economy could be one reason the productivity growth seem so weak.

Q: Would you prefer living in today’s economy with 2% real GDP growth (although it’s growing faster in recent quarters) and today’s conveniences and technologies or living in the 1950s or 1960s or 1970s with 3% or 4% real GDP growth and the relatively primitive technologies of those decades? For me, I’d easily take living today over any past decade, regardless of official estimates of GDP and productivity growth.

Quotation of the day on the fallacy of weak productivity…..
Mark Perry

Mark Perry
Mark J. Perry is concurrently a scholar at AEI and a professor of economics and finance at the University of Michigan’s Flint campus. He is best known as the creator and editor of the popular economics blog Carpe Diem. At AEI, Perry writes about economic and financial issues for American.com and the AEIdeas blog.

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