Arnold Kling  

Productivity Trend

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James Hamilton writes,

Between 1995 and 2004, U.S. output per worker grew at a 2.9% annual rate, even faster than the impressive pre-1973 pace. It's hard to attribute this to a change in any of those factors thought to have contributed to the slowdown in the seventies. Instead, the good news seems to be the result of a new set of favorable developments, chief among which is the way that computers and information technology have changed so much about the American workplace.

Whatever the explanation for the productivity gains of the last decade, the above graph displays every indication that this welcome development is continuing. Most recently, the Bureau of Labor Statistics reported productivity gains at a 3.2% annual rate for the first quarter and 2.2% annual rate for the second quarter of 2005.

So why doesn't that get more attention in the press? I guess the headline, "decade of good news continues" just doesn't sell as many papers.

When I was at the Fed, the staff gave a weekly briefing on economic indicators. I always felt that this encouraged short-term thinking, and I thought it was a poor idea. I understand that the President also gets frequent regular briefings on economic data, and that is pointless.

High-frequency macroeconomic data is mostly noise, and even the signal is mostly irrelevant. If I were allocating briefing time to macroeconomic data by importance, then the productivity trend would get most of the weight. Long-term productivity trends are worth paying attention to, but they tend to change slowly. You could have a once-a-year briefing on productivity and be quite well-informed about how the economy is doing.

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CATEGORIES: Growth: Consequences

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The author at Heritage Tidbits in a related article titled The Most Important Economic Statistic: Productivity writes:
    Economist Arnold Kling, formerly a staff economist for the Fed’s Board of Governors, says productivity statistics should get the most weighting in the President’s economic briefings. Another well-spoken economist, James Hamilton, explains in his bl... [Tracked on August 14, 2005 11:08 PM]
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Craig writes:

The productivity figures do get some mention in the press, but I suspect that the immediate "downside," i.e., slower job growth in the short-term, is a much more salient story to many.

Austin writes:

Hi Arnold,

I agree that a one year productivity increase means very little. Try taking a 5 year moving average. This will show a 'V' over the last 40 years. The bottom is in 1983. The peaks of the 'V' are at 1964 and 2004.


David Thomson writes:

"I guess the headline, "decade of good news continues" just doesn't sell as many papers."

That's only half of it. Of far greater importance is the liberal bias of the MSM. They follow the tacit rule: thou shalt not report any news which makes a Republican administration look good.

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