Brad DeLong has posted a lengthy paper on the optimistic outlook for productivity.
Continued declines in the prices of information technology capital mean that a constant nominal flow of savings channeled to such investments will bring more and more real investment. As long as information technology capital earns the same rate of return as other capital, then labor productivity growth should continue very high. The social return to information technology investment would have to suddenly and discontinuously drop to nearly zero, or the share of nominal investment spending devoted to information technology capital would have to collapse, or both, for labor productivity growth in the next decade to reverse itself and return to its late 1970s or 1980s levels.
Discussion Question. If this optimistic outlook is correct, what does it imply about our ability to deal with health care, the environment, social security, and other "crises"?
