Transcript Security Scenarios And The Global Economy

NS4301
Summer Term 2015
The Productivity Paradox
Productivity Paradox I
• The Productivity Paradox, Federal Reserve of Atlanta,
EconSouth, Third Quarter 2013
• U.S. economy has grown slowly since recovery in 2009
• Several opinions why –
• Depth of recession and asset destruction 2008-09
• Underlying dynamics of economy are impaired and our ability to
innovate new technologies is root cause of the stagnation – slow
growth the new normal.
• Contrasting view of technology
• Improving so rapidly that machine intelligence and automation
will replace much of human labor
• While overall growth will improve, technology bound to radically
reshape economy making it more unequal.
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Productivity Paradox II
Two time periods relevant for productivity analysis:
• Cyclical
• Business cycles, expansions and recessions, booms and busts
• Structural trends
• Underlying dynamics of the economy
• Changes in demographics
• Diffusion of new technologies
• Structural slowdown in economic growth does not mean
just a slowing of real GDP
• Means slowing of potential GDP
• The amount of real GDP that corresponds to a high rate of use of
labor and capital resources
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Productivity Paradox III
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Productivity Paradox IV
• CBO estimates that estimates that three factors largely
explain the slowing of potential GDP in recent years
• Potential employment
• Net new investment and
• Total factor productivity (TFP)
• Much of the slowdown in potential GDP due to
• Changing demographics – aging of the population and
retirements
• Sagging of net investment (investment minus depreciation) has
also lowered the economy’s growth ceiling
• Seems also to be a slowdown in productivity growth
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Productivity Paradox V
Productivity and technology
• Productivity growth in the long run largely drives
economic growth
• It can also increase potential employment and spur
greater investment
• Two widely cited measures of productivity
• (1) Labor productivity
• Straightforward – inflation adjusted output per hour worked
• (2) Total factor productivity
• Incorporates multiple factors including both labor and capital
• Calculated as a residual – productivity for the economy as a
whole
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Productivity Paradox VI
• TFP often called technology
• When examining structural trends in GDP, TFP is
preferred measure of productivity
• Looking at data on U.S. economy cause for worry
• The growth of both measures of productivity have been slowing
for several decades
• Decline in TFP is the major reason for fallng potential GDP
• For the U.S., separating durables and nondurables shows that
TFP for durables has increased rapidly past several decades
• Has stagnated for non-durables
• Some economies have used trends to suport theories of
“techno-pessimism.”
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Productivity Paradox VII
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Productivity Paradox VIII
• 1. Techno-Pessimism School
• Robert Gordon – economic growth may not be a
continuous long run process that lasts forever
• Gordon classifies U.S. economic history into three
industrial revolutions (IR)
• First IR, 1750-1830 powered by steam and railroads
• Second IR 1870-1900 electricity, internal combustion engine,
transportation, communications running water and many other
innovations
• Third IR 1960 to present – computer revolution, microprocessors, the Internet and mobile phones
• Gordon feels the third IR has been disappointing in terms
of productivity
• Except for brief period 1996-2004 computer revolution did
not materially boost productivity growth
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Productivity Paradox IX
• Gordon’s charts shows a sharp falling off in productivity
in the 2004-2012 period. Gordon outlines six headwinds
to today’s economic growth
• Unfavorable demographics
• A plateau in educational attainment
• Rising economic inequality
• Globalization-driven outsourcing to inexpensive foreign labor
• Energy price increases
• Environmental regulations and
• Large government and household debt levels
• Gordon foresees per capita growth for most Americans
falling from the norm of 2 percent to below 1 percent
• We won’t be getting any poorer but we will be growing a
lot more slowly because the best technological
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innovations have already been made
Productivity Paradox X
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Productivity Paradox XI
• However easy to point to the fact that
• Remarkable advances in technology have occurred in recent
years – smart phones, driverless cars and advances in machine
learning
• Our ability to innovate is not in a structural slowdown
• Contradiction between remarkable advances in
technology and declining productivity statistics has been
called the “productivity paradox.”
• 2. Techno-Optimism School
• MIT’s McAfee and Brynjolfsson argue that long lags may
occur between the time of new innovations and when
they actually start paying off in products that increase
productivity
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Productivity Paradox XII
• The MIT authors believe that the labor market recovery
has been weak
• not because innovation has slowed, but
• because it has been so fast it has displaced workers
• Other techno optimists argue that that propositional
knowledge (basic science) leads prescriptive knowledge
(scientific applications)
• More time is needed to let this feedback loop work itself
out for the computer age:
• Science progresses with better tools
• which are used to make even better tools
• Which then led to better science
• Optimism that the cycle will continue as computers and
the Internet have provided better access to information
than ever before
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Productivity Paradox XIII
• 3. Hybrid School
• Incorporates productivity and innovation ideas of both
techno-pessimists and techno-optimists
• Agree with Gordon’s claim that recent decades have seen
a scientific plateau
• But argues that future technological advances in
machine intelligence will bring about accelerated but
unequal growth
• Economist Tyler Cowen chief proponed of the Hybrid
school
• Argues that land, technology and education have already
been exploited for growth so later improvements on the
margin will have less of an impact
• Like Gordon feels most advances were in the 1880-1940
period – since 1973 these have run their course with
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median family income slowing significantly
Productivity Paradox XIV
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Productivity Paradox XV
• As for the future Cowen feels
• machine intelligence,
• advances in artificial intelligence,
• better industrial automation,
• Proliferation of smartphones
• Will create a class of very well off workers with skills
complementary to machines
• Cowen speculates a significant minority of the labor force
– 15% will have a standard of living equivalent to today’s
millionaires
• The rest will experience stagnant income growth and dire
job prospects given the rise of machine intelligence in
displacing workers with incompatible skills
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Productivity Paradox XVI
Labor Market Implications
• The rate of technological innovation obviously has major
labor market effects
• What is the relationship between new technological
advances and the current skill distribution of the labor
force?
• Skill-biased technological change – how advances in
technology
• Can increase worker productivity given compatible skills
• But how they also displace certain workers
• Automation improvement in U.S. manufacturing
• Total manufacturing production has never been higher
than now
• But the total number of persons employed in
manufacturing industries fell sharply
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Productivity Paradox XVII
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Productivity Paradox XVIII
• Cowen and others see skilled based technical change as
accelerating in the future
• See fruits of this third industrial revolution – information
technology just starting to disrupt labor markets
• Result may be a rise in demand for both high and low
skill occupations alongside a decline in demand for
middle skill workers
• Technological automation erodes middle skill
occupations.
• Manufacturing is one big area where these middle skill
jobs exist
• Low skill jobs – home health aids, janitors, fast food
workers are in the domestic non-traded sector – labor
can not be outsourced
• At other end the high skill jobs are increasingly defined
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by computer compatible skills
Productivity Paradox XIX
• A cyclical phenomenon
• Techno-pessimists and techno-optimists are
outnumbered by the mainstream view which holds:
• Current problems are largely cyclical
• Symptoms of an economy slowly recovering from greatest
recession and financial crisis since the 1930s.
• In this view:
• Technological innovation has not plateaued or become
permanently depressed
• Nor are we on the precipice of massive labor displacing
technological revolution
• Economic growth in the long run will continue to be driven by
productivity increases and thus by technology
• Debate between schools of thought not going away
• The outcome could not be more relevant to our future
standard of living.
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