Comments on Science and Social Security

Arnold,

Thanks for the link. You're right early on an exponential process could be mistaken as a linear one as a linear approximation early would yeild a very good fit to the data. I've updated my post, including a spiffy graph showing the potential pitfall.

Anyhow, I was wondering where do you get the data on this? BLS?

Arnold,

If high productivity growth is as significant as many claim, we should be able to discern its historical effects.

I don't have any idea of the actual numbers, but assume that real agricultural productivity has improved at an annual rate of 3% over the last 50 years. If we were to look at the percentage of after tax income spent on food for a U.S. family of four with a median income level, how would it have changed over the last 50 years?

Regards, Don

Don,
I don't have the figures handy to answer your question exactly. But late last year Virginia Postrel noted that she had just bought a 5-pound bag of flour for 69 cents, and Brad DeLong responded by saying that 500 years ago it would have taken three or four days of labor to produce the calories in that bag of flour. If you take what an average worker earns in three or four days today and divide it by 69 cents, you get a feel for the long-term productivity change. Most of that change took place in the past 100 years.

See http://www.wired.com/wired/archive/11.03/view.html?pg=5

Haven't I read somewhere that the rate of inflation, based on food (I think) over the past 1000 years or so has been around 1.5-2% but that this has been offset by the rate of increase in knowledge (productivity)? Thus, when I disagreed with my Politics and the Economic Order professor back in the '60's I had something? (He stated that the Price Support for crops [corn, wheat] was good for farmers. I pointed out that my grandfather in 1914-15 [years on which the support prices were based] got $3/bu for wheat and $1/bu for corn. The support prices were basically the same, but he was producing 4 times as much [1964-65]on the same land. Thus, a professor making the same salary per course as in 1914-15 but teaching 4 times as many courses in 1964-65 should be as happy as farmers. I got a D.) ;->=

"The problem is that until recently, the technological component of the capital stock was small." This seems to me to be kind of a narrow view of "technology." Sailing ships, telegraph lines, steam engines, electric motors, jet aircraft are all "technology." It sounds like you are defining technology specifically in terms of computer technology...is this right? If so, what would be the advantage of this focus, from an analytical viewpoint?

>>"This is reminiscent of Robert Solow's famous comment that "We see computers everywhere but in the productivity statistics." That was in 1987. Now, we are starting to see them in the productivity statistics. The problem is that until recently, the technological component of the capital stock was small. Thus, even large increases in quality meant very little to the economy as a whole in 1987. They mean more now."

"Returning to the comments on my post, several people mentioned the law of diminishing returns. Technology optimists reject that law. They argue the opposite--that innovation is a positive feedback process. Ray Kurzweil uses the expression "law of accelerating returns." Better computers enable us to design better computers. Powerful computers enable us to carry out nanotech and biotech research. Nanotech and biotech will have positive feedback on one another, etc."

I have little doubt that computing power will continue to grow at a rate much, much, much faster than 3% per year (or whatever our current productivity growth rate is at the moment). The question is how much will additional computing power add to our overall productivity. Computerized white colar jobs like mine utilize MS-Office, Outlook & for me a specialized database system. The shift from Windows 3.x to 98 and then NT represented a dramatic improvement in our ability to get stuff done. However, I can tell you from working with Windows XP & Office 2000 at home switching to that will have only a marginal improvement on my productivity here...even though that may be accompanied by a doubling of 'computing power'.

Computers may open up a new round of innovation in nanotech, that isn't a defeat of the law of diminishing returns. Railroads first added greatly to national productivity and then their contribution leveled off as investment generated negative returns in the various bubbles that hit the market. They did, though, open create the first system of corporate management with an organizational chart and responsibility divided up among various departments etc. This opened up another round of innovations as corporations became larger...but even then the returns from large organizations eventulally diminished as well.

History tells Us new technology creates new industries, but once those industries are capitalized; they present only a standard component to Productivity, though their position in the Economy as a Sector may increase. Railroads were basically designed in the 1840s, capitalized through the 1860s-1880s, then technologically improved through the 1940s. Sector importance to the Economy did not materially increase from the 1880s, with the end of major capitalizations.

The Car industry was designed in pre-1920s, capitalized pre-1940, and reached it's Sector productivity by 1960. It did spur continual Reconstruction of the American road system; but it's total impact on Economic productivity to the total Economy was reacued by the mid-1960s, a decisive point of real capitalization of the entire industry.

Computer technology achieved it's fundamental technological format with the development of Windows, though this format is being continually improved. The introduction of technology capitalization came with CAD and computer-directed production, in the process of reaching full capitalization. Computers will continue to invade other sectors of the Economy, bringing Productivity gains for decades yet; but the great windfalls of Productivity gained by Computer technology have already been attained in the industries most benefited by such technology. The Economy must look elsewhere to find the Productivity gains necessary to maintain Our rate of Productivity increase. lgl

I think McWop has it dead right. Arnold, can you defend the use of productivity numbers for anything? Every time I see some research using productivity I can't help but think that they are trying to do economics without prices. Seriously. Productivity is basically "pyisical" output measured without prices (or with old prices) divided by some measure of physical input. Stupid concept, so ignore the number.