Bryan Caplan  

Computers, Growth, and Google

Hayek and Fusionism... Inflationary Disagreement...

Back in the early 90's, growth economists kept quoting Solow on the puzzling failure of the computer to boost productivity: "We see the computer age everwhere except in the productivity statistics." On my train ride home from NYC, I read a fascinating dissection of this claim in fellow Templeton Award winner Olaf Gersemann's Cowboy Capitalism:

It has since become the consensus among experts in the field that it is only natural that the development of revolutionary technologies and investments in them take decades to show up in the overall productivity of the economy.

That "diffusion lag" has been described by the economic historian Paul David, who used the electric dynamo as an example. Invented in 1866 by Werner von Siemens, the dynamo made possible the electrification of all kinds of production processes. Nevertheless, it showed up in American productivity statistics no earlier than the 1920's.

Gersemann continues:
[T]he ICT [information and communication technologies] revolution has, in some ways at least, surpassed earlier technological revolutions. The British economic historian Nicholas Crafts, for instance, has calculated that the contribution of ICT to economic growth in the United States over the last 25 years "has exceeded that of steam and at least matched that of electricity over comparable periods."

"The Solow productivity paradox stems largely from unrealistic expectations," Crafts concludes. "The true paradox is why more should have been expected from ICT."

It's worth adding that ICT's contribution to economic well-being is probably grossly understated in national income statistics, because so much of the benefit consists in unmeasured gains like quality improvements and greater product variety. Think about google. What was the closest substitute available in 1985? An encyclopedia? The library? Asking your ten best-read friends?

Comments and Sharing

COMMENTS (5 to date)
Nathan Smith writes:

Question: If the productivity acceleration is due to IT and computers, why has it shown up only in the United States? Japan and Europe are a lot more wired today, I'm sure, than the US was in 1996.

back40 writes:

"What was the closest substitute available in 1985?"

Man pages, online help etc. But these were specialized, available to few, and user hostile except to geeks and nerds.

Josh writes:

Nathan Smith,

For new technologies to increase productivity, the old technologies that they're there to replace need to be allowed to die. Does this sound more likely in the US or Europe and Japan?

In the US, what was once done by 2 people is now done by one and a computer. In many European countries, they simply gave the 2 people computers and called it a day. [Ok, that's an obvious exaggeration, but at the margins, couldn't this explain much of the difference?]

joe shropshire writes:

Nathan,Robert Solow has asked that same question himself, and has come up with a one-word answer: Wal-Mart.

Cyrus writes:

But if the US has Wal-Mart, Europe has Tesco and Carrefour. (And for whatever reasons, all three of these have failed to compete against Aldi in Germany. I guess some people like austerity.) The one time I bothered to try to look for the data, I didn't find any significant difference in the retail productivity numbers between the US, UK, and France.

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