☹ The pandemic-era productivity boom that wasn't

Also: A flashback conversation with economist Benjamin Jones on government R&D investment

In This Issue

The Essay: The pandemic productivity boom that wasn't

Faster, Please! Flashback: A conversation with economist Benjamin Jones on government R&D investment

Micro Reads: American opinion about space, entering the metaverse; inflation in the digital economy, and more

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Quote of the Issue

“[Faith] in the spontaneous forces of adjustment [is what] makes the liberal accept changes without apprehension, even though he does not know how the necessary adaptations will be brought about.” - Friedrich Hayek

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The Essay

☹ The pandemic productivity boom that wasn't

Here’s what the uber-optimist, techno-solutionist, Up Wing part of me would like to believe: Amid all the death and suffering of 2020, the faintest of silver linings appeared. National economic statistics seemed to provide intriguing evidence that the Great Stagnation — the long-term downshift in productivity growth and innovation, whether dated from 2005 or 1973 — was over. Which would be awesome, of course. The scientific and technological advances reflected in an economy’s long-term productive capacity are the engines of economic growth and rising living standards. When you think about prosperity, think about productivity.

Which is why these numbers are a major bummer: In the ten years from 2010 to 2019, business productivity was only 1.1 percent a year — the slowest productivity growth of any decade in U.S. history. More context: That performance is far below the postwar average of 2.5 percent from 1950 to 2009, even further below the Golden Age rate of 3.2 percent from 1950 to 1972, and the 3.3 percent rate during the IT revolution of 1996 through 2004.

A productivity boom, then bust

But, but, but … productivity accelerated from 2017 through 2019, to an average annual rate of 1.5 percent vs. 0.9 percent from 2010 through 2016. Then came 2020. Over the four quarters of that year, productivity growth surged to 4.1 percent. “This apparent productivity growth revival has been interpreted as caused by automation, artificial intelligence, and a massive investment by households in the equipment and software needed to conduct work from home,” observe economists Robert J. Gordon (Northwestern University) and Hassan Sayed (Princeton University) in their new NBER working paper, “A New Interpretation of Productivity Growth Dynamics in the Pre-Pandemic and Pandemic Era U.S. Economy, 1950-2022.” (All of the above numbers come for their paper.)